Beware of Rewards Checking Accounts Teaser Rates

by Kevin on April 8, 2010

You may have noticed I’ve written about rewards checking accounts a lot lately. I’m a big, big fan. I understand as a reader you like to see me mix things up. So this is the last rewards checking account post for a while.

That having been said I couldn’t sit here and continue to recommend these types of accounts without one last warning.

Rewards Checking Account Teaser Interest Rates

I told you that a hurting bank may use a rewards checking program to attract new deposits and customers.

Another trick banks use is a teaser interest rate. These teaser rates could be tied to a rewards checking account or just a regular savings account or certificate of deposit.

What is a Teaser Interest Rate?

A teaser interest rate is where a bank offers you a high introductory rate to entice you to open an account.

So the savings account might pay 1% normally, but to get you to open the account they will give you 2.5% for the first 90 days.

The bank is happy to eat that extra interest cost just to get you as a new customer.

Ignore Teaser Rates

You should disregard all of those short-term interest rate teasers. The period of time is usually so short — 3 or 6 months — that you’d have to have an enormous pile of cash to generate any significant extra return over the normal interest rate.

The bank is literally teasing you. It’s like your six all over again and you’re not allowed into the cool kids’ club.

They’re teasing you with an offer of some short term interest to get your long term business.

It’s genius.

You see, the bank wants your business. For the long term. They want that checking account, that savings account, that certificate of deposit, whatever, for a long time. They want your cheap deposits so they can lend it out.

So these short term offers are designed to get your attention. Because once they have you, you are extremely unlikely to move accounts.

Remember how annoying it was to switch to their bank in the first place? Order new checks, move the money over, get direct deposit, etc. It takes some time and mental energy to switch.

So they tease you to switch, but you don’t really end up ahead.

Don’t be fooled. Look for high quality banks with great rates all the time, not some of the time.

{ 2 trackbacks }

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{ 1 comment }

Debt Cancellation April 20, 2010 at 7:19 pm

Teaser rates will get you every time. The banks use them to get you in the door and then they slap you with the overall “effective” rate. Beware!

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