Why Rate Chasing is Worth It
My friends have so far looked at me sideways when I have explained that I plan on moving my money around every year, chasing the very best savings rates. They consider doing so an extreme waste of time as “the banks only screw you over anyway” and that a few percentage points make zero difference.
A few percentage points make ALL the difference. For a little bit of effort (generally about 2 hours a year), you can earn hundreds or thousands of pounds worth of extra interest, than if you left your money in the same place on an institutions Standard Variable savings account.
Don’t believe me? Let me show you. For the sake of argument, let us say I have £10,000 to save, and I am looking to put it in an account somewhere and let it build over time.
My Barclays Tracker Saver account pays 0.10% interest on balances over £50. It calculates daily and compounds monthly. After 12 months in those conditions, my savings would have grown by just £10. The bank has paid me just £10 to lend them my £10,000 for the entire year.
Daylight robbery.
Let’s open a new account with ING Direct instead. At the time of writing, they are guaranteeing new customers 3.20% under similar conditions otherwise to barclays, i.e. compounding monthly. For my £10,000 they will pay me £324.74 in interest. That is much better. But now my introductory offer has expired, I’ve dropped onto their Standard Variable saving rate of 0.50%. If I don’t move my money, how will it fair next year?
If I am lazy (and the bank hopes so), next year they will pay me just £51.74 in interest.
More than 6 times less than they paid last year.
Instead, when my introductory offer ran out with ING I moved my money to another introductory offer paying (for the sake of argument) 4%. Remember I have £10,324.74 to move courtesy of the 3.2% interest from ING last year, so I move that sum to a new Halifax account.
12 months later I now have £10,745.39. And after another move the next year that paid 4.5%, I have £11,239.03!
In 3 years the amount of savings I had has grown by £1,239.03 because of 2 hours work opening a new account and closing an old one each year. By the time you’ve run out of places to consider opening an account as a new customer, ING Direct have forgotten about you and you qualify as a new customer again.
If I had not chased the good rates and left it languishing in my original Barclays account, I’d have earned a paltry £30.04 over those 3 years. If I had not moved it out of ING when the first introductory offer ended, I’d have earned £103.74 in total.
By chasing the higher rate and moving my money every year, I would end up with £1,239.03 in interest alone.
If you have more to save then your returns will be even better.
Banks are relying on you being complacent with your money in the longer term. You can beat them at their own game with just a few hours work each year. Is rate chasing worth the time and effort annually? In my opinion you’re mad not to. It’s free money for minimal work on your part.
Are you a chaser,or is it all just a waste of time in your view?
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Hi Lee,
Some interesting calculations – certainly does demonstrate the value in moving your money around, not being complacent or loyal to your bank!
I wonder whether your friends’ apathy stems from them not having as much money saved as the £10k example used – I’d have thought that most people in their 20s and 30s don’t have anywhere near that amount in savings, if any at all, so for them, moving their money around may only make a few quid difference – and they might be right about it not being worth it.
Give them £10k though and hopefully they would realise they need to give it a little thought to get more interest.
You bring a valid point, Rob. When you start off saving then rate chasing does seem somewhat pointless; you may only realise a few extra pounds for the effort. But as you build a more significant sum (as we’ve seen with ‘just’ £10k in my example) then the numbers really do start to make it worthwhile!