Rate Chasing with High Yield Savings Accounts

Posted by Madison on November 13, 2008

Just as you secure your money in a savings account at a bank with the highest interest rate, another bank offers a higher interest rate. With a quarter million dollars in the bank from credit card arbitrage, I’m always on the look out for the best rate.

What is Rate Chasing?

Rate chasers move their money to the savings account that offers the best interest rate. They only keep it there until a better rate is offered elsewhere, therefore always “chasing” the best rate.

For example, I opened an account with FNBO Direct awhile ago when they offered 6%, beating everyone. At the time I hadn’t even heard of them, but it turned out to be a great account, one that I still use today.

Volume Matters

Chasing a rate when you have $500 in the bank doesn’t make much difference. However, if you have $50,000 in the bank, a few basis points can make a big difference.

However, the nice thing is, when you have a bunch of accounts that are already open, and you link them together, you can easily move money around when the rates change.

Current Online Savings Account Rates

Here are some of the online savings accounts that I currently have and how they stack up:

 
Bank APY (as of 1/27/09)
Etrade 3.01% APY
WTDirect 2.81% APY
FNBO Direct 2.80% APY
HSBC Direct 2.45% APY
ING Direct 2.40% APY
Virtual Bank 1.01% APY

If a bank offers different rates for different tiers, I displayed the lowest rate in the table.

My Story

It’s no wonder I have so many accounts. The aftermath of rate-chasing, is a bunch of savings accounts left behind, each one with no more than a few dollars in it.

I considered closing some of them, but then they started offering some free money signups for you. So now I keep them open, in hopes that they’ll offer a sign up bonus to share. Or who knows, maybe they’ll have an irresistible interest rate that I’ll need to jump on.

More on Rate Chasing





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Comments to Rate Chasing with High Yield Savings Accounts

  1. You should look into GMAC Bank. 3.75% currently.

    Andrew

  2. I always wonder how each bank’s interest is calculated. It’s not easy to find out how from their websites. Some seem to require the money to be in for an entire interest period (e.g., month) to get paid, others use an average daily balance method, etc. Rate chasing for a quarter point wouldn’t seem to be profitable even with large sums if the interest calculation method screws you over.

    Jon

  3. @ Andrew: Thanks for the tip… off to check them out!

    @ Jon: Very good point. It’s hard to compare the promotional rates that the banks use. I think that if you use APY they should all be on a level playing field (if there are any bank experts out there, let us know for sure!).

    Madison

  4. have you looked at dollarsavingsdirect.com?

    unimax

  5. I think if possible it would be good to look at the historic rates as well. If I’m in ING and jump to FNBO for half a point, but 2 months later ING surpases FNBO, maybe it wasn’t worth the hassle. I think it would be worth looking into if FNBO is consistently ahead of ING.

    Another thing to consider when rate chasing is the layover period your money is earning zero interest while transferring funds. On 100K, which would be a signficant amount for most people, if there was a week (I’m not sure the exact # of days) where your money wouldn’t be earning anything due to an HSBC transfer, you’d be giving up almost $53 off the bat to chase a .25% increase that would yield you about an extra $250 over 12 months (assuming HSBC consistently stays 1/4 point ahead of ING). HSBC would need to stay at least 1/4 point ahead of ING for about 77 days to break even on the transfer.

    I guess if you have the time and patience it’s worth the chase. But I’d think you’d need significant $s to move around and probably would want at least a half-point gain.

    Howard

  6. @ unimax: I haven’t, but I’ll put it on my list. Do you have an account there?

    @ Howard: Now you got me thinking! I wonder if we could pinpoint the bank that always has the highest rate on average? It would probably take a lot of data points, and some research to locate all the rates, but it would be very valuable information to know.

    Great point on the layover period. Some of the banks are horrible and take forever.

    Madison

  7. All questions of whether a move is worth it can be answered by googling “ultimate rate chaser calculator” and popping in the numbers.
    Most HYS calc interest by Avg daily balance and credit it at the end of the month, if you close your account you forfeit that month’s interest.
    I’ve gone from ING, to Emigrant, to Countrywide, and as of today to DollarSavingsDirect. CW is down to 2.9% and with BOA as the owner I doubt will ever be competitive again. DSD is 4% currently and if it holds I’ll make up the difference in under two weeks (40-50k in funds).

    Dave C

  8. Venture Bank Direct is another one to consider adding to your list. They are currently at 3.80%.

    http://www.venturebankdirect.com

    Bruce

  9. Thanks for the tip on Venture Bank Direct Bruce. No minimum balance is required.

    Chris

  10. @ Dave C: Great find on the calculator. Here’s a link for anyone who wants to check it out: The Ultimate Interest Rate Chaser Calculator

    @ Bruce: Off to check out Venture Bank… thanks for the tip!

    Madison

  11. I put my emergeny fund with a high-yield checking account with a small local bank. I’m now getting 5%. Unlike a savings account, I must make 10 debit card transactions per month and 1 direct deposit. I can make 5% on up to $25,000 (I don’t have that much to my name right now).

    I would caution the holder of the savings account. FDIC is nice insurance, but their a slight hickup when they take over a bank, and who wants the government access into their accounts.

    Ken

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