Examining a Product’s Rate History – Why You Need to Look Back Before You Look Forward
The most consistent and pressing concern in the minds of savers in regards to deposit products likely pertains to rates. Depositors are looking for the highest rates available for obvious reasons. Depending on the product chosen, a number of factors may affect the viability of that product to actually produce the returns the depositor is looking for over time; but, one of the most important factors–and one that may be easily overlooked–is the historical track record of consistency of its rates.
When it comes to liquid accounts, rates can change at any time according to the whims of the financial institutions offering those products, so simply pinpointing the highest rate at a given time may not be enough. The highest rate at one point may very quickly fall without warning and lose its luster in comparison to others. And a consumer who experiences a rate drop in a deposit product only has a couple of options–either wait out the low rate (and hope it doesn’t drop further) or move their money to another institution (and hope its rate doesn’t drop).
Troublesome to Change
For a number of reasons, changing institutions is often simply not worth the trouble. With rates as low as they are, the difference between a rate leader and one that is not can remain relatively small, so changing may not provide enough of a gain to make it worthwhile, as the move to another institution with better rates can be a hassle. On a practical note, the list of hassles that can accompany changing accounts and institutions is long. One such hassle is redirecting any direct deposits or recurring payments that may be connected to an account. Those sorts of changes can take weeks to complete, causing delays in your move or problems with payments. Another issue to consider is the cost of transferring remaining funds in an existing account over to another institution. Such transfers are sometimes made through either certified checks, which may range from $7-10, or wire transfers, which may cost from $10-40 dollars.
Other potential hassles might include such things as:
- New account paper work
- Additional tax forms in the mix
- Lost interest while waiting for money to post in the new account
- Learning the in-and-outs of a new institution, including new website/app
- Establishing and remembering new login and account information
- Worrying about closing down the old account properly
More than just a hassle-producing problem, though, many banks now also run ChexSystems inquiries with each new account opened and will reject depositors with too many inquiries. That is more than just a hassle because too many inquiries may leave a consumer with far fewer options for his money going forward. A similar but even more concerning trend is that many institutions also run hard credit pulls with new accounts, particularly those with overdraft credit lines attached. Soft credit inquiries, such as those used for employee background checks, yield no effect on your credit score. Hard inquiries, such as those used for loan or credit card applications, can cause temporary damage to your credit. We’ve addressed this issue previously here, and it certainly warrants a mention here in this context because of the damage it can cause. A few hard credit pulls could have a cumulative negative effect if accounts are moved around too often.
Because of those hassles, we recommend carrying with you more of a longer-term mindset when finding the institution and product that works best for you when researching liquid account options. For consumers searching out an institution for long-term service, one of the best metrics to research is the consistency of their rates. We have a couple of options here on the Deposit Accounts site that enable users to research historical rate activity on deposit products from individual institutions.
The first option is through searching the rates of an individual institution. Using the “Search” tool at the top of any page, enter the name of the institution whose rates you would like to research. Scroll down on the individual institution page to the “Rates” section. Locate the product in which you are interested and click on the “View Details” arrow to the right of it. An image containing the rate history will appear as a part of the details. Hovering over the image in the details will reveal specific dates on the rate history time line. The following is an example of the details provided for a savings account from Synchrony Bank:
Another method for finding rate history is through utilizing our product rate comparison tools. Using the navigation bar along the top of any page, click on the type of product in which you are interested. Choose the appropriate region for your search, and you will be given a list of results in descending order according to rate. A “Details” button will be located on the right side of each result. Click the button and you will be given more information about both the institution and the product, including a rate history. Here is a view of the same product from Synchrony Bank using the rate comparison tool:
Using the tools available on our site, we pinpointed the institutions that offer some of the highest and most consistent rates available on savings accounts. In particular, we utilized the savings account rate comparison tool to find rate leaders and compared the rate histories within the details. We searched for savings accounts that are available nationwide. Within the resulting rate leaders, several were from newer institutions or newer products, so the rate histories were not very long. Therefore, we excluded those with less than three years of rate history from our comparisons. (For example, Incredible Bank's savings account was at the top of the resulting list, and a quick glance at the rate history makes it seem consistent over time. Its history, however, was only about a year and a half long, so it was excluded from comparison.)
All products that have histories of this length showed some change, so consistency in rates was qualified in terms of how they moved. We looked for gradual changes within rate histories as opposed to sharp rate spikes or drops that would reflect the whim of a bank instead of the natural movement of rates over time.
One of the highest rates with a consistent history on the list belonged to a savings product from SFGI Direct:
Here again, 2010 through early 2012 showed a gradual decline, with the rate evening out around late 2011. From that time through current day, the APY of this product remained very close to 1%. Since November of that year, the savings account rate has fluctuated only about within .15% and has remained at its current high of 1.06% since April 2015.
Another of the highest savings account APYs with a favorable rate history was found at Synchrony Bank:
As you can see, Synchrony’s rate has remained at the current level of 1.05% for more than a year. Even more encouraging than the level rate is a more than three-year history of small, incremental increases with no decreases. That is a positive pattern that indicates a steady desire on the part of the bank to continue moving the rate up as market conditions allow.
Ally Bank also carries a healthy 1% APY on its savings account and a very solid rate history:
It showed the same gradual decline during 2010 and 2011 seen in the other banks with longer histories, followed by nearly five years of stability, with slow, incremental increases over the past three years.
Volatile Rate Histories
As a contrast to the rate histories above, the following product illustrates a less favorable rate history, comparatively. iGobanking’s savings account rate history has shown some sporadic, sharp movements over time. Furthermore, the product spent an extended period of time with a rather unattractive rate (0.25% APY):
Products with more volatile rate histories such as this one reveal a tendency toward sporadic movement. When combined with a prolonged period at a much lower rate than the current rate, we see a picture of the type of history that is less desirable for consumers that want to stick with a product and an institution long term and avoid the hassle of changing institutions because of volatile rates.
Another illustration of a non-favorable rate history can be seen in AloStar Bank of Commerce’s savings account, which currently offers a competitive 1.05% APY. AloStar’s rate is currently in the top 10 rate leaders for savings accounts, and a quick glance at its rate history reveals that volatility is not an issue:
As seen in the above rate history chart, while volatility is not an issue, the lack of longevity at its current APY level is. When an institution has a long history of offering much lower rates, followed by a single, large jump up to a top rate, the wise consumer will take note. While the rate being offered might endure (or even increase), the consumer has no data or history to indicate as much. Indeed, since such a rate increase is a new frontier for the bank itself, little can be known about how (and how long) it will play out. As such, the conservative depositor looking for more assured stability would be wise to find one with a lengthy history of offering such a high rate, as seen in the earlier examples.
A final rate history trend to watch out for might look something like this one from MySavingsDirect:
The large spike in June of 2015 raised the rate nearly a quarter of a percent and made it a national rate leader at the time. Unfortunately for those consumers who opened an account in response to that rate jump, the APY remained at that level for a mere three months, dropped back down near where it had previously been, and continued to fall even lower than the original rate in another three months' time. Banks may sometimes employ a tactic of this sort–a sharp rate increase that places their product among the rate leaders–to lure in new customers. Depositors who do not do their due diligence as it pertains to rate history and jump quickly on the higher rate may find themselves quite disappointed in a few short months' time when the rate just as suddenly bottoms out.
Rate Leaders and Common Traits
Having pinpointed some rate and consistency leaders among nationally available savings accounts, we also wanted to decipher any commonalities that may exist among those institutions with consistent histories. To do so, we looked at the top 25 rate leaders. Of those products,
- Seven had insufficient rate histories to be considered for consistency
- Fifteen products boasted fairly consistent rate histories
- Three products showed comparatively volatile rate histories
As mentioned previously, the highest rate option with a long enough consistent history was actually number three on the list of rate leaders, but it was only 7 basis points lower than the highest rate available nationwide. Even the lowest of our consistent rate leaders above (Ally Bank) was a mere 17 basis points off the highest rate mark.
Among the fifteen products with a consistent rate history,
- Thirteen came from internet banks
- One came from a credit union
- One came from a traditional B&M bank
- Four were from small institutions (<$1B in assets)
- Five were from medium-sized institutions ($1B-$25B in assets)
- Six were from large institutions (>$25B in assets)
Internet Banks are Consistency Kings
Obviously, a wide variety of rate histories can be seen across the rate leaders. And as many of our readers know all too well, it is not unusual to see an institution shoot up to the top of the rate table listings with a highly competitive rate only to fall back down within a matter of months (or even weeks or days, sometimes). That is why, especially in this low rate environment, it is so important when looking at liquid savings products to seek out the stability offered by those products with a long and steady rate history. If you don’t believe us, just ask any of our readers who have in the past been bitten by the ‘sudden rate drop’ syndrome.