UPDATE 10/5/2009: E*TRADE has dropped their interest rates to 0.50% APY.

E*TRADE is offering a 0.60% APY online savings account through its E*TRADE Bank division.

E*Trade’s online savings account requires a $1.00 minimum deposit to open an account. The account boasts no minimums or fees. Customers opening a new account will not get hit with a hard credit inquiry.

Customers of E*TRADE’s Complete Savings Account will be able to transfer funds to and from the account using its ACH transfer system. Some have reported that E*TRADE does an exceptionally good job with ensuring that transfers happen quickly to avoid the loss of interest. There’s a $100,000 limit in transfers per day going in and out of the account using ACH and there’s a limit of 6 withdrawals per month per federal law. There is a limit to the number of external accounts that customers can link to their E*TRADE savings account.

Deposits are held for nine days after the initial deposit, whether it’s via ACH or via check. There is no hold on wire transfers. After your account is established, funds are held for five days after deposit.

E*TRADE bank is also offering a 0.40% APY money market account and a 0.40% APY rewards checking account. The bank offers certificates of deposit of varying terms between 1 month and 5 years that offer rates between 0.10% APY and 1.40% APY respectively.

The interest rates that E*Trade is currently offering is less than competitive. When interest rates were floating around 5% for online savings account, E*Trade was competitive with its peers, but in the current environment of depressed interest rates, E*Trade has not been keeping up with the interest rates that its competitors, such as HSBC Direct, ING Direct and FNBO Direct have been offering, which are averaging between 1.30% and 1.50% APY.

E*TRADE Bank is the banking arm of E*Trade and is located in Arlington, VA. The bank has $45 billion in assets and $31 billion in deposits. E*Trade Bank currently receives a 2 star “below peer group” rating from BankRate.com.