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The Problem With Chasing Banking Rates

December 26, 2011 13 Comments

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This is a guest post from Martin of Studenomics. Martin loves to write about financial issues on helping you find out what is a good credit score and more fun topics like deciding what to do after college.

For the longest time I was hesitant to join ING Direct. The interest rates were pretty decent a few years, but I simply felt a sense of loyalty towards my local bank that wouldn’t let me leave them. The employees at the local bank knew me on a first name basis. Some of the employees at the bank were even high school friends of mine. If any issues ever came up, I could walk over to the bank in 5 minutes and have everything resolved. Long story short, I’ve never been good at chasing the highest interest rates.

This is why I decided to keep my brick-and-mortar account even after I joined ING Direct.

Before you call me out on this, I wanted to share with you guys  the problems with chasing banking rates:

Most great rate offers are temporary.

The advanced investors reading this can tell us all about introductory rates and the classic bait-and switch. For the new investor, introductory rates are simply not worth switching banks for because you’ll only get that rate for a certain amount of time. Then it’s back to the original rate that you had at your previous bank.

There’s always going to be fluctuations in interest rates.

Most of us will learn this the hard way because it seems like the grass is always greener on the other side. Now every time I receive an email from ING Direct, I don’t feel like opening it. Why? Because it’s about reduced interest rates. When I first signed up, they were offering very competitive rates. To be brutally honest, when I tried to find the best online bank account I realized that it was really difficult to come to a conclusion. Interest rates are simply not impressive at the moment for those of us looking to keep our money in a savings account.

You have a trusted financial advisor.

Why leave a financial advisor that you trust? I’ve heard horror stories from some of my readers when it comes to finding a trustworthy financial planner. Then there are those that find a successful financial advisor and have nothing but rave reviews about their experiences. I wouldn’t recommend that you ditch a relationship you have built with your financial advisor at the local bank for a few extra bucks per month.

Don’t you have better things to do with your time?

As a young investor you’re going to be much better off doing something else with your time. You can buy an investment property or focus on investing your money into your own career. I’ve seen the greatest results come from buying a condo in my early-20s and spending my money on courses and activities that would improve my standing in my field. There’s very little to gain from chasing interest rates. When you invest in yourself you just can’t go wrong.

Those are my thoughts on chasing banking rates. There are bigger battles to fight in the financial world. Why waste your time on this?

SB’s Thoughts: I do agree that when you have this kind of deep relationship with a bank or a specific branch of it, it’s not wise to switch bank just to avoid a few fees here and there. Unfortunately, I don’t have the relationship of any kind with my banks. I bank at many of their branches and I do not turn to them for financial advice. In the past I switched my bank account, and, very recently I wrote a post on 9 steps to switch bank accounts, this article caught mainstream media attention and was also included by consumerist in their round up.

It should be very wise on your part if you try to switch banks to earn interest on your checking account, many banks, especially the local credit unions offer high interest rates. Over time, the interest accumulation shall exceed any of the above opportunity losses described by Martin.

As always, I’ll repeat that there is no hard and fast rule of finance beyond one simple rule that, your spending should be less than your income, and the difference should go in to savings. It is up to you to decide whether you need to change your bank or keep the old trusted one.

Many thanks for reading this post through. I will appreciate your feedback and opinion.

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Comments

  1. Moneycone says

    December 26, 2011 at 9:24 AM

    I agree with SB. It’s been more than 10 years since I stepped into a bank. I wonder how many banks will dedicate a financial advisor if you have say, $500 in your account?

    You are your best friend, not your advisor.

    Reply
    • SB says

      December 26, 2011 at 10:08 AM

      Very valid point MC. Once I had all my emergency cash in BofA account, in excess of $25k, still no one came forward and offered me a adviser.

      Reply
  2. Roshawn @ Watson Inc says

    December 26, 2011 at 10:22 AM

    I appreciate the convenience of being able to go to my brick-and-mortar bank but certainly don’t stick around out of loyalty. I don’t have that type of relationship with anyone at my local bank, regardless of how much I kept in there. On numerous occasions, they have offered to go over investment options with us. Anyway, while I don’t play the “chasing interest rates game,” I haven’t had any issues or wasted much time with my online accounts. They have served us well too.

    Reply
    • SB says

      December 26, 2011 at 3:05 PM

      I have two checking account. One to have teller access, with a branch near by. The other one is online only and interest bearing. I am also happy with my choice.

      Reply
  3. Robert @ The College Investor says

    December 26, 2011 at 10:25 PM

    I usually reassess my interest rates yearly. While I don’t always like to switch around, sometimes it is very worthwhile.

    Reply
    • SB says

      December 26, 2011 at 11:59 PM

      I just switched once. And looking forward to another round if things doens’t remain same.

      Reply
  4. Stock Income Method says

    December 27, 2011 at 3:43 AM

    I dont like saving account as my investment anyway because they offer low interest rate between .5-2 % but when the inflation rate is at 3.4% we are getting negative return. It is true that it is save to put money on CDs. Why we invest in financial products that produce negative returns?

    Reply
  5. Andy Hough says

    December 27, 2011 at 1:04 PM

    I have my money with local bank because they have high-yield rewards checking. Most of the rest of my money is in online accounts. I don’t chase yields but I have several accounts because I do chase bonuses.

    Reply
    • SB says

      December 27, 2011 at 9:51 PM

      Thats great Andy, and congrats to your new site.

      Reply
  6. LaTisha @YoungAdultFinances says

    December 27, 2011 at 3:22 PM

    It’s pretty tempting to chase rates but I would rather avoid the hassle. I’d rather pick up some stocks to increase my overall rate.

    Reply
    • SB says

      December 27, 2011 at 9:50 PM

      Did I get it?

      Reply
  7. Buck Inspire says

    December 31, 2011 at 1:19 PM

    Great post. I rarely go into my brick and mortar bank. I do have an ING account and savings rates were great years ago, but now they are only slightly better. I really like the lesson of not chasing rates. If you had a hoard of cash, perhaps 1% will matter, but your time and energy could be placed somewhere else for a higher return. Happy New Year!

    Reply
    • SB says

      December 31, 2011 at 7:51 PM

      Happy new year, thanks for your comment Buck!

      Reply

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