BS teaser rates: More typical bank behavior

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I have become increasingly turned off by big banks (I use Wells Fargo). Maybe it’s the 80% of my friends who hate dealing with their banks. Or the nickel-and-dime fees that produce $50 billion in fees per year for banks (“more than twice the total of a decade ago”) (link via Consumerist).

That’s why online banks like ING (which I also use), Emigrant Direct, and HSBC Direct are eating the Big Banks’ lunch: They’re simple, easy, and they don’t try to trick us. I’m a big fan of these accounts.

So when I got an email from a bank’s PR firm yesterday, I was not surprised to see more of the same — only this time using a new online bank.

I liked your recent blog posting and was interested in the commonwealth club. As I was reading some of the comments, I thought you might enjoy sharing this new 6.00% APY [] from [BANK NAME] with your readers. (See details in release pasted below.)

NEW INTERNET BANK WITH 6.00% APY ONLINE SAVINGS ACCOUNT (XXX) LAUNCHED BY [BANK NAME]

SOMEPLACE, SOMEWHERE — MAY 21, 2007 — [BANK NAME], member FDIC, a subsidiary of [BIG BANK NAME], the largest private banking company in the United States, today launched its new Internet bank – [BANK NAME] – to establish a national presence in the $120 billion Online Savings Account market (1). [BANK NAME] is entering the market with a 6.00% APY (2) Online Savings Account (XXX), an industry high, with no fees or minimum balances required. Any and all account holders will receive the rate of 6.00% APY, today through September 28, 2007.

I was happy that the bank is reaching out to bloggers, but unfortunately I’m not interested in teaser rates, which are just more typical bank behavior. I told the bank this and asked them to write back when they had new products that would benefit my readers.

Guys, these teaser rates are BS. I’ve seen them from huge banks and now I’ve seen them from small banks. Think long-term: Do you really want to go with a bank that’s just giving you a teaser rate, only to reduce your interest rate later? Can you imagine spending 5, 10, or 20 years with that kind of bank?

Also, do you really want to spend the time figuring out which bank is offering the best deals this month? That’s a colossal waste of time for most of us, since 1% more here or there equals a few dollars/month more in interest.

I always say that managing money is not that hard. But part of that is choosing financial accounts that are built for the long-term, even (especially?) if they don’t have shiny teaser rates.

Note: A few months ago, I spoke at the National Association of Credit Unions, where I advised them to create products (like savings accounts) that really resonate with what young people want today. If you’re interested, I’ll post more about what I said. (Invite me to speak for your organization, company, or school.)

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  1. First, thanks for writing a first rate finance blog for younger adults. I’ve been lurking for well over a year and have enjoyed it immensely.

    I’d like to add that among your list of better online banks is one that is engaging in TBB (typical bank behavior): HSBC. I recently transferred money out of my account into another bank to cover an expense. I was charged $3. I couldn’t believe it! I had to pay them to get my money. I’ve decided to close the account because I refuse to pay such fees in the future.

    I also have a Citibank account and I am happy to report that this bank does not charge to tranfer money out of the account.

    Best to you,
    Nancy C.
    LaTejanaFria

  2. Hahha I got that same email the other day but I never wrote about that big bank for this very reason, teaser rates are a joke. I’m not sending all my personal data over to them for a piddy teaser rate that will last only a couple months. Sure I like getting the best rate but half a percent for a handful of months isn’t going to convince me to move my banking.

  3. Ramit,
    What I have learned from working in the financial industry is that if you can’t beat ‘em…join ‘em!
    The comment you made about the fees is the exact reason why I’ll buy bank stocks all day long for my retirement portfolio!

  4. You can’t argue that those teaser rates are good for certain people though. Say a couple who has $100k saved up for a down payment for a house wants to get the most interest out of a liquid account in case they find their perfect house (that’s me). I’ve been getting 6% out of these teaser rates for the past year, which equals an additional $1000 over a stable 5% interest-earning savings account elsewhere. I’d say that was well worth the nuisance of applying for a new bank account every 4 months.

  5. Also, I’d have to agree w/the 1st post. I don’t think HSBC is very good at all. Their ACH transfers are the worst and you sometimes lose interest for up to 4 days when making a simple bank to bank transfer. GMAC Bank (which is my main online bank) has had long term similar interest rates over the long term, plus they offer free check writing!

  6. I was at Bank of America last week getting my account shifted to my new state. The guy kept trying to get me to enroll in KeepTheChange and asked why I didn’t have a savings account with them.
    “Because I get 10x more interest elsewhere”
    “I agree, but nobody really uses their savings account to earn interest. It’s a place to accumulate your savings.”
    Thanks, but I’ll take 5% over 0.5% any day.

  7. When a supermarket puts out a coupon, do you become just as outraged?

    You also say you use HSBC Direct? They just had a promotion on a 6% apy for new money. This promotion (I know what bank you are talking about) is for all money. I’m assuming you’re not as upset about the HSBC promotion because a) You don’t have enough money to care; b) A 5.05% rate is good enough.

    This promotion is better than the HSBC promotion. For the effort of a few clicks today and then a few clicks on September 28th (even though the rate after September 28th will still be competitive), you’re going to make yourself a few bucks.

    Take a deal for what it is. You’re not being forced into it.

    BTW – I have an account with this “teaser rate” bank and I have had ZERO problems with it.

  8. I’ve been generally dissatisfied with the brick and mortar banks that I have been with the past few years. I already have an online savings account at HSBC, but I think it’s time to move my checking account to Everbank. They have an interest bearing checking account and they benefits and terms seem reasonable.

  9. Don’t forget AmtrustDirect.com So far I have had fast, easy transfers to and from my ING checking account. The account is only 6 months old but there 24/7 customer service is great.

  10. ATM fees in this country amount to extortion. If I use my Bank of America card at another bank’s ATM I will get charged twice; 1st by the host bank, then by BoA. They will even charge for a balance inquiry.
    That’s one reason I’m moving to another bank. One in a long list of things that piss me off about BoA. Even if they agreed to refund every charge, past and future, the damage is already done.

  11. Just out of curiousity, how many people are upset with their banks? Do you think this keeps some people underbanked or out of investment accounts because they generalize experiences from one money-related activity to a whole host of money-related activities?

  12. Ramit,

    I am very interested in what you said to the Credit Union’s Association. If there isn’t that much ground swell for a post just shoot me a short email.

  13. I’d like to hear more about your speech at the Nat’l Assn of Credit Unions, and the type of products you think would resonate most with young people.

  14. Ramit:

    I call people who run banks thughs with MBA’s. The ceo’s probably graduated from an Ivy League School.
    I am sick of the switch and bait, teaser rates and half-lies from the banks.
    I have my accounts with my a credit union and they have never have increased my interest on my credit card even though I have been late a couple of times.
    As for the post about coupons in a supermarket, If it is product i usually buy, i consider that free money.

  15. I have no problem with these teaser rates. I can get an account set up and funded in about 2 days.

    Bankdeals.blogspot.com keeps me up-to-date on all the best rates, so when one teaser rate ends, I move my money to the next one. I have a couple stand-bys for in between (WaMu at 5% and Presidential at 5.25%).

    There is no reason to complain about little gifts these banks give to us – at least if you care enough to really manage your money. It’s easy money, Ramit!

  16. Keith,

    There’s a big difference between a coupon from a grocery store and a teaser from a bank. When you use a coupon for a product, you don’t sign yourself into a contract with that grocery store.

    My feeling is Ramit doesn’t like banks pulling the old switcheroo (even though customers know it’s coming). However, Ramit, you contradict yourself. If finding the best interest rate isn’t that important, then why NOT take that teaser rate? Once you go to 5%, its still competitive.

  17. I assume we are talking about FNBO Direct. Why all the secrecy?

  18. BTW: If we are talking about FNBO Direct, then after the teaser rate ends they will probably go back to 5.25%, still better than HSBC Direct. Maybe the difference only amounts to 30 bucks or whatever a year, but I’ll take it.

  19. @Jeremy White

    Since the reward is greater than a coupon, you’re going to have to expect more work to get a greater reward.

    Of the 3 banks Ramit listed that he’s a big fan of, 2 (ING and HSBC) have had promotions on NEW money when they first started out, shafting people who were already customers of that bank. FNBO isn’t allowed to have a promotion on ALL money? FNBO should be praised, not condemned.

    How else is a bank supposed to attract new business? There are 1 time bonuses (Citi has a ton of these right now in different amounts for the same product) or teaser interest rates. Why not give them a chance with $5? There’s no hard pull. And you can celebrate with an extra nickel of interest. :)

  20. I work for a Credit Union. I’d encourage people to look at a local CU to meet needs. While they may not always be able to compete with the some of the high rate online accounts (we’re trying), they may be close and offer the convenience of physical location when you may need it. (espec. if your deposit balance isn’t too high).

    Realistically, if you carry a high deposit balance that the interest is going to be significant, well then, interest rate is ‘king’. Some of these online providers do a decent job. Just do your homework and avoid ‘back-end’ fees.

  21. I don’t like bait and switch either, although I’m sure that if people took the time to read the small print in their contracts, they would be thoroughly informed about what they were getting into.
    I find it fascinating some people have the organizational skills and wherewithal to take advantage of these offers. 6% or 100K. Not a bad deal!
    They get the best out of one bank and move on to the next one. My hat is off to you!!!!

  22. My primary banking is BofA. The only reason I use them is for direct deposits and for their wonderful E-Bill services (everything is checkless).

    Like most of the bloggers, I try to keep only enough money in there to pay bills. I have been using :
    http://www.grandyielddirect.com (Apple Bank out of upstate NY) for about a year now. They are currently at 5.27%APY, which has gotten me 5.16% since I’ve been there.

    I noticed they just increased the account starting minimum to $2500, but it was nothing when I opened my account. No fees and no troubles sending money there. I send something there once a week and then from there, to my Fidelity account.

    I highly recommend checking it out if you are having issues with any other “teasers” or banks.

  23. I ve opened a savings account with HSBC during their “new money will give you 6%” offer. Now i see that some other bank offers me and since HSBC does not offer the best anymore….i am being tempted to switch to the rate king bank in the market.

    Should i switch or not?…..i feel that i will be wasting a lot of time in my life to come if i keep switching to the best at an instant of time….

    just 5% (or even 3.5% ) is enough for me for an entire life of savings ac count…

    By settling with one bank, i can move on from the ‘interest king search/hunt’ into other realms of financial planning.

    Constant switching of banks from one to another sounds like a waste of ‘search energy’. Instead ill let my accounts stand stable and so will never have to worry abt them and hence i can concentrate on other forms of growing money(investments. business etc)

  24. [...] was reading through my Google Reader this morning and came across Ramit’s post entitled BS teaser rates: More typical bank behavior.  I thought it was interesting he felt so strongly as to not include the name of the bank in the [...]

  25. Teaser rates aren’t evil if they give you enough of an incentive to convince you to open an account *today* instead of, um, when you get around to it….

    If you already have a high interest online savings account, then it isn’t really worth it to chase a teaser rate. If, however, you’re thinking about opening an account like this, there’s nothing wrong with taking advantage of a little promotion (as long as you read the fine print, take a look at a bank’s rate history and do some basic research to make sure they’re legit, fdic insured and all of that).

  26. I’ve used only credit unions and ING for over a decade now, and I am finally moving to a small town which has really limited banking options, so I had to break down and get an account with BofA. Sure enough, there were hidden fees (not very well hidden, either) everywhere, the guy selling me the account was shady, and they kept trying to sell me random products I had no use for.

    I feel your rage.

  27. Recent grad, just took up a job at a credit union. Barely knew what one was before I got there. In a few short weeks I’ve learned to stick with CUs and some of the more transparent options discussed–would’ve definitely helped me out during school.

    Please post your tips for CUs.

  28. Most of these rates aren’t guarenteed anyways Ramit. I joined HSBC’s internet savings account over a year ago, and watched as they increased my savings interest rate along with the nation rates.

    When I joined they were offering 4.25% (one of the best offers, which is why I took it). They then proceeded to raise the rates every 3-4 months as the fed’s rates rose, so I now earn 5.05%.

    If the feds drop the rates again (as some economists predict), I expect that my savings account’s rate will drop as well.

    so the moral of the story is that none of these high rates are guarenteed for the long run, so 6% until fall may be a teaser, but it’s not a bad one. the real question is what rate they offered before the teaser kicked in, and how did it compare?

  29. [...] I’ve written about teaser bank rates before. To be really clear, LendingClub is not a bank and they don’t offer FDIC insurance. If you [...]

  30. I haven’t seen anyone mention Schwab Bank’s Investor Checking Account. Free checking, free debit card. It’s free if you have a Schwab One brokerage account with $2500 in it. Check to see if the balances can be combined to cover the minimum. Schwab Bank is FDIC Insured (although their brokerage isn’t, but it has some sort of insurance with limits way higher than FDIC’s $100,000).

    Interest rate is 4.25%, better than Everbank’s checking. I looked into this and Everbank was my number 2 choice. Schwab sees this as a huge growth area. All the checking accounts that are getting next to zero interest. And they always do things right. 24 hour customer service via phone is one big plus, unlike GMAC.

  31. [...] was reading through my Google Reader this morning and came across Ramit’s post entitled BS teaser rates: More typical bank behavior.  I thought it was interesting he felt so strongly as to not include the name of the bank in the [...]

  32. I had a 6% account with FNBO Direct and all was well until today- I had the account for over 3 months and suddenly I received an e-mail today saying my account was being frozen because they did not receive information about my employer when I signed up. I was livid as I gave them all the information they asked for, or I assume they never would have accepted my account. I thought maybe it was one of those fraud e-mails, but it sure looked legitimate, although the address was slightly different than what they claim are their legitimate ones. I tried phoning customer service I was so upset and after waiting one solid hour to get through, I was told that the e-mail was sent out in error to many customers by somewhere in the company and to ignore it. I told her that was a severe error for a bank to make- Let me tell you that I immediately transferred all of my money out of there. What other errors might they make????

  33. My Financial Planner has scammed me numerous times with teaser rate investments. I lock up my money for years for a decent rate of return then the M-F ers cut the rate of return and they say I am still locked in for the full time of the investment.
    If they cut the rates I should be able to take out my money and leave. They broke the contract so I should be able to get my money and go elsewhere

  34. I’m currently a member of a credit union in Seattle, WA area and joined because of it’s close proximity to my work. I have been a member for over 8 years and while their customer service is great when I go to the CU in person, I rarely need to go in and usually it’s to do things like (1) Change my ATM debit card PIN or (2) get a money order.

    My CU’s website is anemic at best — their UI is hard to navigate, bill pay system is a joke and ACH transfer system is slow and hard to use.

    I would love to move to a bank that has lower fees, excellent phone+email customer service, better UI + billpay system and has features that eliminate my need to talk to someone in person.

    A few friends have recommended to go with Fidelity checking since I alreayd have an investment account with them, but in my investigation of it, it’s definitely a second rate option.

    I considered going to HSBC due to their great policy of reimbursing all ATM fees, but with the other comments on this post, looks like HSBC is taking on $3 fees just to xfer money?!

  35. [...] offer high “teaser rates” that last a week or so. They then quickly lower the rate. See link [...]