Rate Chasing 101: Do you have the personality for it?
Do you spend hours each week searching for the best interest rates around? Do you bounce from one bank to another, living on the thrill of that extra .01%? If so, you, my friend, are a rate chaser. And you also have a lot of time & patience ;)Many PF Bloggers consider this on a daily basis, but personally, I just can't do it. The thought of opening & closing handfuls of bank accounts alone is enough to make me nauseous. All that paperwork & time to get it up and running, only to xfer out the money when a better rate pops up? Nah, not for this homeboy.
That's not to say it isn't financially smart though. Mathematically, it might totally make sense! If you can grab a higher interest rate or pay a lower % on debt, then more power to you! I support that 100%, hands down - especially if you have out of whack rates to begin with. Having the best rates is totally commendable, but it's the frequency of switching accounts (sometimes every 3 months) and the research involved that separates the rate chasers from the average joe like myself.
Not only do they need the best of the best, but they need it now. After all, it's just a matter of time until it changes again! Gotta bring in that extra dough while it's hot off the press, right? They also don't care if their accounts are scattered around town. If you're chasing rates, you won't always find the best ones at your favorite bank all the time (even at ING or Emigrant Direct, two of the usual favorites). This alone knocks me out of the running - I need everything possible under one roof, my bff USAA ;)
Then there's the actual cash reserves that come into play. If you've got thousands of dollars saved up (or in credit card debt) where the slightest move in rates can be the difference of earning hundreds of dollars to THOUSANDS of dollars, then yeah by all means get on that $hit! I'd do the same thing. As it stands, however, most of my our money (still not used to being married) are invested in our 401ks and Roth IRAs, with the remainder in a decent money market account which we tap every month. Without a huge cash reserve, it makes no sense for us to bounce around and follow the place w/ the higher rates - and I'm guessing the same goes for most of you reading this as well.
As you can see, it certainly takes the right type of personality (and bankroll) to play with the rate chasers. Financially, it certainly has its perks. But the real question at stake is if chasing rates actually makes SENSE for you? If it does, great. If not, then do your best and watch from the sidelines ;) More often than not, it doesn't pay to play.
Labels: banking, credit cards, interest
posted by J. Money at
8:36 AM
13 Comments:
I think I'm too lazy to rate chase. It seems like so much work! I do like having an account separate from the regular accounts I check regularly, because it just magically grows. Sure, the ones I see on a regular basis grow as well, but it's the whole watched pot thing. If I'm staring at it, it doesn't feel like anything is happening, but if I ignore it for a while, wow! How exciting!
Thanks for the link!
J,
If You don't mind:
http://www.myjourneytomillions.com/articles/sometimes-saving-hurts-declining-interest-rates-shouldnt-lead-to-rate-chasing/
"ets say you have $20K ind the bank earning 1.5% your pre-tax interest earnings would be 300 for the year. Assuming we have a 20% tax rate we are looking at a total of $240for the year or about $20 bucks a month (ignoring compounding right now). Lets say you then start chasing and find that random bank account that is earning 3%. Your Pre-Tax interest earnings on the same $20,000 would be about $600. Post taxes (20%) we are looking at $480."
Double the money if you don't have any problems (1) How long will it take - use MyMoneyBlogs Calc? (2) what happens when that higher interest bank drops?
Believe it or not, my dad does this for CDs. Once the time period is up, he's looking for the next big rate! (Now you see where I get it from...) Personally, it's too much paperwork, but when I'm looking to open a new CD or investment, I will shop around for the best rate. But I will leave it with that bank even if the rates drop.
For the mortgage, hell yeah I chased rates! =)
I don't do this and thinks its a bad idea. Seems like a huge waste of time and energy and maybe fees to keep changing just because a rate went from 1.4% to 1.5%. You could better use that time to enjoy life, or make more money.
My bank is incredible and have a 4.00 percent apy on their checking accounts. Fixed.
They rule.
@RainyDaySaver - yes, without a doubt you HAVE TO watch for the best rates when picking up a mortgage for sure! rate chasing doesn't really come into play there unless you're refinancing that mortgage every few months which is a) crazy cuz it cost so much and b) crazy. It's certainly worth refinancing though every now and then if it makes sense (like every 4-5 years, esp if they're at TODAY's rates! man I'd love to get my hands on that ;) )
Oh, and I can also see it more w/ renewing CDs when the time is up...that makes more sense to me, although I still wouldn't do it if i had to leave my bank.
@Mr. Owl - what bank do you use?
They are a local 2-year old startup. For the sake of anonymity I am not going to say their name. I love my local banks, though.
I definitely don't have the personalty, patience or time for it. My SO likes to check periodically, but its definitely not daily.
I've tried to do this in the past but I'm not cut out for it right now. Once I have a bigger emergency fund, then I'll keep a small chunk at my bank and the rest at the best rate... :)
Too much work for me! I like to look around and know what's out there though. Once I actually have a decent chunk of change put away though I'd be more inclined to chase good rates, and really work those tiny percentage differences!
How much money and how much interest rate difference would make one chase rates. Is 100k in savings enough to do it? Is 1 percent difference enough to do it? It just depends. Right now though, it's not worth it because interest rates are all in the garbage because of our wonderful Fed with zero percent loans for banks but not for us LOL! I swear there is a conspiracy going on!
"how much money" is a good question for sure! I'm guessing $500k+? I'll tell you if I ever make it that far ;) as for your conspiracy, that may be, but luckily/stupidly i owe a huge chunk on my Heloc @ a variable rate. soooooo, the longer it's kept low, the more dollars I save on that guy! i don't mind it for purely selfish reasons right now.
Stacking Cash - Check out the math its easy (if we ignore monthly compounding)....
100K - 2% = $2,000 after 30% effective tax rate - $1,400
100K - 3% = $3,000 after 30% effective tax rate - $2,100
$700 difference for the year OR $58 a month.
This doesn't take into account the lowering of interest rates mid year or how long it takes for you to change month to month. If I had 100K in the bank I wouldn't be looking to earn an extra 58 bucks a month
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