Thursday, September 25, 2014

Rate Chasing

I mentioned in a recent post that I was doing a little bit of rate chasing with our savings account, where we keep our emergency fund and short and medium term savings. Here's a rundown on why I did that and how it went.

Years ago, Peanut and I got a joint savings account at Capital One (where we also had a checking account and credit card). They offered 1% interest with a quarterly .1% bonus, and it was a pretty good rate for the time. A few months ago, when I was putting the interest earned into our spreadsheet, I noticed that it seemed lower than it should be. I checked, and sure enough the interest rate had dropped to .5%. We had either never received notice that this was going to happen, or it was buried in paperwork/email such that we didn't realize it, and it annoyed me. It's entirely possible that they weren't required to give us notice, I guess. Anyway, I couldn't figure out how long it had been like that, and it made me irritated enough that I decided to go looking for a better option.

I poked around The Simple Dollar and Get Rich Slowly, both of which frequently do savings account round-ups, and found a number of options at marginally better rates - up to .90% with a huge balance (something like $50,000). I was looking mainly for a no-fee, easy access account with either no minimum balance or one that we wouldn't trip if we had to use our emergency fund for something big. I first checked with Wells Fargo, where we have our checking account, but they didn't have a competitive option. The online-only banks with the best rates didn't meet my requirements for no-fee or minimum balance, but Capital One 360 had an option with .75% that did. And that should be easy, right? Capital One/Capital One 360, what could be the difference?

Turns out, there's a lot of difference. Like, they are basically different institutions. Capital One 360 used to be ING Direct, which wound up being okay because I was an ING customer once upon a time, and they were able to simply get my old account up and running. Linking the accounts and verifying the tiny deposits took some time, and then I had to figure out how to get the money from one account to the other.

It's frustrating but there are federal laws that govern savings accounts, including how many withdrawals you can make during a month and other things. At any rate, for some reason we couldn't just transfer money between the accounts like I could if one of them had been a checking account, but a few phone calls and I was able to find someone who handled it as a wire transfer with no fee. Perfect!

Two days later, the money was in the new account, earning .25% more interest, and the old account appears to be closed (I will be keeping an eye on that - it was no fee, no minimum balance, but I don't like leaving open accounts hanging around). It was painless, if not exactly hassle free, and I'm glad to know that our money is doing a little more work for us.

This is not something I recommend doing on a regular basis. It's not worth the time you'll spend to do it even once a year - I think we will earn about $20 more this year than we would have if I'd left it alone. But every five years or so, or when things substantially change with the economy or the terms of your account, it's worth taking a look at. Hopefully we will continue to grow our emergency fund, so over time this work will be more valuable.

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