Ask the Expert: Is It Worth the Time to Switch Savings Accounts?
June 10, 2010
Q: Is it worth it to switch savings accounts to a higher-yield account? My current bank's rates are much lower than the competition's, but it is such a time suck to switch accounts.
A: To be sure, nobody likes the paperwork involved in switching banks, but you have to think about this in rational economic terms -- how much is it worth to switch, and is that amount of money worth your time?
To quantify how much it might be worth to switch, start with bank rates. With the average savings account rate down around 0.20%, it might be easy to dismiss bank rates as too low to justify switching. However, if you shop around on MoneyRates.com, you could find high interest savings accounts with rates up around 2%. If your current bank is down around the national average of 0.20%, high interest savings accounts could be significantly better.
While you are shopping for bank rates, don't neglect to look at money market accounts, since money market rates on average tend to be higher than savings account rates.
This brings us to perhaps the most important variable -- how much money you have on deposit. The more money you have, the more it can be worth your while to switch.
For example, let's say you only have $100 in your savings account. If you were able to gain an extra 1% by shopping for a higher bank rate, that would earn you a dollar a year more in interest. Chances are, you won't find that worth the time it takes to make a switch.
On the other hand, suppose you have $100,000 in your savings account. Now, an extra 1% would be worth $1,000 per year. Most people would find that well worth the time.
Got a financial question about saving, investing, or banking? MoneyRates.com invites you to submit your questions to our "Ask the Expert" feature. Just go to our home page and look for the "Ask the Expert" box on the lower left.