Home Personal Finance What is Wrong With Chasing Bank Rates

What is Wrong With Chasing Bank Rates

by My Journey to Millions

It took me forever to join ING Direct. Sure the interest rates were great at the time (definitely not now) but I simply had a customer loyalty towards  my local bank. The employees knew me on a first name basis. Some of the employees even went to high school with me. If any issues ever came up, I could walk over to the bank in 5 minutes and have everything resolved.

This is why I decided to keep my brick-and-mortar account even after I joined ING Direct. Some will say that it’s crazy to keep a traditional bank account in 2010. I don’ totally agree with that. This is why I want to show you guys some of the reasons as to why it’s simply not always worth chasing bank rates:

Small Changes in Interest Rates Will Happen

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.

In fact, recently when I tried to find the best online bank account I realized that it was really difficult to come to a conclusion. Bank interest rates are simply not impressive at the moment.  Especially for those of us that enjoy our low-risk investments.

Many Interest Rates are Introductory

Yes, the classic bait and switch. I’m sure you guys don’t need the rookie investor telling you about this. The more advanced investors reading this can surely attest to the merits of zero percent balance transfers and chasing interest rates. For the new investor, introductory rates are simply not worth switching banks for.

You May Already Have a Trusted Bank Rep or Financial Advisor

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/local bank associate for 5+ years just for a few extra dollars a month.

Don’t you Have Better Things to do With Your Time Than Chase Interest Rates?

Evan recently wrote about his introduction to dividend investing. Adam Baker of Man vs Debt just released his new eBook: Unautomate Your Finances. Brian of My Next Buck started his new job this week. My question for you guys is this:

Is there anything else that you can do to increase your income, aside from chasing bank rates?

Do you guys have any positive stories to share about chasing bank rates?
Or perhaps you chased bank rates and had a negative experience? Please do share with us.

This is a guest post from MD of Studenomics

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Daniel 03/12/2010 - 9:23 am

It’s hard to know that you’re not getting the best rate because you know you COULD be doing better, even if it means giving up what you’re used and what makes you happy. Usually the differences are small and overall you’re going to be happier with whatever you’re comfortable with.

Of course, the end sums it up perfectly. If you save a few bucks, but there are a ton of better ways to make more money. Chasing bank rates isn’t even a good one.

Matt Jabs 03/12/2010 - 9:59 am

Until I have enough money in the bank to make a difference, I focus WAY less on rates than I do on bank services and lack of fees. Too many people focus too heavily on chasing rates when the earning potential difference is minuscule.

Good article, I’ve actually been wanting to write on this same thing.

Evan 03/12/2010 - 10:13 am

Great Post MD

I actually wrote about something similar a while ago, but used numbers to illustrate the exact same points:


MD 03/12/2010 - 11:07 am

Thanks for hosting my article, Evan. Rate chasing can work when you have lots of capital to invest. When you’re new to the investing/saving money world there’s no point to get all wrapped up in chasing interest rates.

Evan 03/12/2010 - 9:50 pm

See I don’t even think it is usually worth it even if you have a Ton of Cash. WHEN I have a 100K sitting in the bank will I care about moving all that cash, while considering all your points, for the extra 100 bucks a month?

FinEngr 03/12/2010 - 12:45 pm

@ MD. Congrats on the guest post and nice article. I agree with a lot of was said. I use my electronic accounts more as holding positions, but still make all of my transactions through my credit union.

Chasing rates is almost like the equivalent to a risk-adverse day trader. You spend a lot of time for little return, and you get caught with your pants down and miss that big opportunity.

If you’ve ever tried to run with your pants down…its hard.

Evan 03/12/2010 - 9:51 pm

“Chasing rates is almost like the equivalent to a risk-adverse day trader. You spend a lot of time for little return, and you get caught with your pants down and miss that big opportunity.”

That is a really really cool quote.

Investor Junkie 03/12/2010 - 1:45 pm

At the current rate of returns in banks and CDs I look at other assets. If this money is for long term investing (5 years plus) you are best to move it into something that returns more. Hence the purpose of this post I did:


Evan 03/12/2010 - 9:55 pm

Ginnie Mae Bonds huh? What do you think the risks on this now? Do you think we’ll have another double dip?

Investor Junkie 03/12/2010 - 10:48 pm

Ginnie Maes were not affected by the recession. Yeild was not affected. Yield is in the 4%+ range.

As far as a double dip recession I consider that a different question. Right now my opinion is this Next year we could see a tripple witching occur. Taxes, stimulus ending and fed policy I suspect will change. All not good for the stock market

Lakita 03/12/2010 - 2:56 pm

Here are some numbers
$1000 @ 0.5% APY is $1,005 ($5 gain)
$1000 @ 1.0% APY is $1,010 ($10 gain)

$10,000 @ 0.5% APY is ($50 gain)
$10,000 @ 1.0% APY is ($100 gain)

Of course the larger the principal, the larger the difference and chasing rates would make more sense. But the other side of that is, with larger principals chasing rates probably wont matter as much because other options become available.

Evan 03/12/2010 - 9:57 pm

Thanks for stopping by Lakita. I really have to disagree with you though.

That $100 gain is over the course of a YEAR! Or $10 a month lol

Add more! Do $100K. You think worrying about another extra $100/month really matters to someone with that much money in cash

Investor Junkie 03/13/2010 - 2:45 pm

guys if this is a taxable account it’s even less 🙁

Mike 03/12/2010 - 8:55 pm

Great post.

A few basis points are not worth the additional time it takes to manage and set up several accounts. Really.

Lakita 03/12/2010 - 11:57 pm

@Evan: Actually we are agreeing…maybe I didn’t say it properly. I was trying to imply that the amount gained is minimal compared to what is invested.

What I meant to say was, by the time you reach the point that chasing rates makes sense because you are gaining substantial increase….your principal is so high that you probably have better investment strategies than chasing bank rates.

I was trying to point out the paradox. Comment FAIL! haha!

Evan 03/13/2010 - 12:47 am

No Fail! My bad…

BibleDebt 03/13/2010 - 9:15 pm

Rather than chase interest rates, take some of the extra money and buy in bulk when things are on sale or you can get a deal with something you will buy.

I agree that rate chasing is not worth your time and usually involves hidden fees or introductory rates.

Craig Ford 03/14/2010 - 3:20 pm

I agree that for most folks the interest rate is not as important as they think. All the different fees will make a much bigger difference than interest.


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