With some of the recent rate hikes at internet banks like UFB Direct, SmartyPig, CIT Bank and EverBank, rate chasing is starting to look more attractive. Has the bump-up in rates caused you to open a new internet savings or money market account this year? Or have you decided that it still hasn't been worth it to open a new liquid account this year?
As interest rates fall, it can get harder to justify rate chasing. Internet banks may be advertising their savings accounts have 5x higher rates than the average brick-and-mortar bank account. However, if the average is only 0.15%, the 0.75% rate at the internet bank won't provide much in extra earnings. For example, if someone has a $10,000 balance, that extra interest rate would only result in an extra $60 for the year.
Another question is if the higher rates will last. As we have seen over the years, few banks and credit unions have remained a rate leader for two or more years. Some recent examples include Alliant Credit Union and Incredible Bank. If your bank remains a rate leader for a year or more, you should consider yourself lucky.
When I asked a similar question in 2010, readers said they were putting more emphasis on non-rate features like customer service and ACH transfer capability. As we have learned, strong ACH transfer features are not common even at new internet banks.
Even though it may be hard to justify opening a new savings account for higher interest rates, there are benefits that are harder to quantify. The more of us who move our money to the banks offering the best rates, the more pressure banks will feel to keep rates competitive. Perhaps that why we have seen rate hikes this year at several internet banks. If too many of us decide it's not worth moving our money, banks will have less incentive to increase rates or at least to avoid rate cuts.