Rate Chasers – Should You Move Your Money?

With the proliferation of new high-yield savings accounts and them leapfrogging each other’s rates, we come to the all-important question – Should I move my money to the higher rate? Well, with the data from my transfer-time experiment, I can better gauge the answer.

First, let’s find the formula for figuring out how long you must keep the money at the new higher rate account to counteract any interest lost during the transfer. I’m not the inventor of this simple formula, I just derived it right now with good ole’ pencil and paper.

We start with:
Gained Interest = (New Rate x Days at New Rate) – (Old Rate x Days at New Rate)

Lost Interest = Old Rate x Days Lost in Transfer

Breakeven condition: Gained Interest From Higher Rate = Lost Interest During Transfer

Algebra: Old Rate x Days Lost = Days at New Rate x (New Rate-Old Rate)

Leaving us with:

Should I transfer my money?

Thoughts
Remember that technically for the rates we should be using APR and not APY, but for the purposes of this example I’ll use APY. Say you were lucky enough to have ING and Emigrant linked up before they took that option away. You are considering moving from 4.0% to 4.75%, and the days of interest lost if you don’t mess with weekends is 1 day. Using the formula, you would breakeven after 5.3 days. After that, you’re ahead on interest.

But, if you had to transfer via a third party and say, lost 6 days of interest on the way, you would have to keep it at ING for 32 days just to break even. That may change your decision. You could also tweak the formula to see how much money you would actually gain by doing the transfers.

Just Plug It In!
I made a easy-to-use interest rate-chasing calculator from this equation.

Comments

  1. Great post! To follow up and expand your post a little more, in my recent post I discuss how to calculate exactly how much net gain one would get.

  2. Thanks for posting that formula!

    So, if I understand correctly, in the context of the current ING Winter sale, if transfering from Emigrant Direct:

    * People who waited until Monday to transfer from ED to ING only need to wait 11 days for the transfer to be worthwhile (2-day wait per ING rules)

    * impatient folks (like me) who debited ED on Friday won’t pass the breakeven point for three weeks! (as above plus Sat & Sun) And who knows, ED may bump up their rate by that time…

  3. My bad, missed the second part where you used ED as an example already…

    If ING only delays one day after all, then it’s more like 2.5 weeks for those of us who took the weekend penalty 🙂

  4. Well, the 2-day rule at ING is a bit tricky. If you check out my previous post on the experiment results – ING says it starts paying interest 2 days after the deposit shows up, but that deposit actually shows up 1 day BEFORE the money is taken away from Emigrant. Thus, you really only lose 1 day of interest. This is my interpretation.

    Weekends I’m not sure of, it all depends on when the debits and credits post in your respective accounts…

  5. Very helpful post, thank you.

    We’ve been in a quandry of late on whether we should transfer our stash from ED to ING. After working the numbers we’re just too lazy to do the work for a few extra bucks.

  6. fyi
    Emigrant Direct just raised their rate to 4.25%

  7. Just curious – has anyone seen any small print indicating that ING treats deposits from linked accounts and deposits from external sources differently as far as when interest accrual starts?

    I ask this because deposits from linked accounts initially show up in orange with the notice below about a wait until it’s available for withdrawl, whereas external deposits (such as those initiated by ED or TD) show up immediately in black text with no mention of a wait. If there’s no wait for withdrawl, could there be no wait for interest as well? Or is that wishful thinking?

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