Is it worth it to rate chase?
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I recently decided to move my emergency funds from Emigrant Direct which paid 5.05% to FNBO Direct which pays 6% (guaranteed until September, but they had a competitive rate before the 6% increase). So the question is it worth it to rate chase?
Okay, let’s pretend you have $10,000 in an emergency fund. I actually recommend more as your emergency funds should cover at least 6 months of expenses.
The difference of 1% increase from 5.05% to 6% is only $95 for an account with $10,000 in it. However, that’s only if you held it in there a year. Hopefully you won’t be needing to use your emergency funds for quite some time.
$10,000 held in a savings account for 10 years at 5.05% will net you $16,366.60, or about a 63% return.
Increase the rate from 5.05% to 6% and you get $17,908.46 at the end of those 10 years which is about a 79% return.
16% higher return on a switching to 0.95% increase? Not bad. That’s the power of compounding interest at work.
This example just shows that it makes a lot of sense to rate chase, especially if the difference between the accounts is 0.95%. I probably won’t go through the hassle of rate chasing if the difference was 0.1% unless I had a large enough amount of money to justify it… and i don’t. 
2 Responses to “Is it worth it to rate chase?”
Hello. You would get the extra 1% only for about 3 months, about $25 on $10k. Your bonus after 10 years would be the competitive, non-teaser rate (5%?) on $25. Thank you.
By J at Home Finance Freedom on Jun 15, 2007
I’m still earning 1% more for 3 months than I would at a bank paying 5%. FNBO still had a competitive rate before this promo at 5.3% I believe. Even if the rate isn’t competitive after the teaser rate is over it isn’t hard to rate chase and move to another bank.
By hejustlaughs on Jun 20, 2007