The following is a guest post by Ken Tumin, founder and editor of DepositAccounts.com. In part two of this series, Tumin continues to share some of the biggest banking mistakes you should avoid as interest rates increase.
Not considering internet-only banks
If you’re not using an Internet-only bank for your money, you are without a doubt missing out on higher rates. That is especially the case with savings accounts. Studies have shown internet-only banks offer average savings account rates that are almost six times the average at brick-and-mortar banks and credit unions. Not only are rates much higher, the savings accounts at Internet-only banks often have no minimum balance requirements or monthly maintenance fees. If you do find a comparable rate at a local bank, there will probably be high minimums and monthly fees.
Not paying attention to the details of the specials
You can sometimes find good deals at local banks and credit unions. The good deals are typically CD or money market specials, and their rates can match or exceed the best rates at Internet-only banks. However, if you’re not careful, these can be bad deals that can cost you in the long run.
The first important thing to remember is that the special is temporary. The special money market rate will eventually fall, and you’ll be left earning the standard, ongoing rate. That ongoing rate is likely to be low. The bank hopes you just won’t have the time to move your money once the rate drops.
That same issue also applies to CD specials. When a CD special matures, it commonly renews into a standard CD with a much lower rate. The bank will ordinarily give the customer a grace period when the CD matures to withdraw the money without a penalty. That grace period usually ranges from five to 15 days. If the customer hasn’t moved their money once the grace period ends, the customer is locked into the new CD. When a CD special renews into a standard CD, the new rate will almost certainly be lower. Thus, it’s important to note the maturity date and the grace period length when the CD special is opened.
Earn more by avoiding banking mistakes
Unfortunately, many people won’t be earning any additional interest in this rising interest rate environment. They will be helping the banks improve their profits as the banks increase their loan rates. Those who take the time to shop around for higher deposit rates and to review the details of the banks’ offers will make sure the banks aren’t the only ones benefiting from higher rates.
Read part one here.
Ken Tumin is founder and editor of DepositAccounts.com, which has been tracking and rating the savings, CD and checking account offerings of banks and credit unions for more than a decade.
Read more: Bank Fees: Here’s How to Avoid Them
Check out The Cheat Sheet on Facebook!