Are you currently looking into opening up a banking account for the first time or switching to a different financial institution? If so, then you’ve probably already heard about the teaser interest rates that some banks offer in order to entice new customers into opening accounts with them. Before you go throwing all of your money into a new savings account to take advantage of one of those teaser rates, there are some points that you’ll need to consider.
What is a teaser rate?
A teaser interest rate is basically an introductory interest rate that banks will often offer to customers who are interested in opening new accounts. The teaser rate will probably be quite a bit higher than the average bank interest rate. The teaser rate will typically only last for a limited amount of time.
During that time, your new account will earn the higher rate which does mean you’ll earn more. However, after the allotted time, the interest rate on the account will drop to a much lower rate and that is the rate that you will be stuck with from that time forward.
Why do banks use teaser rates?
Financial institutions use teaser rates for one reason and one reason only: to lure in new customers. Teaser rates are given to new customers in order to bring in new business and new money to the bank. And teaser rates are a cheap way for banks to buy new business. Usually introductory rates only last a few months. That’s not enough time for your money to accumulate significant interest, even with a higher rate. After the honeymoon is over, the bank drops the rate but most customers will stick around to avoid the hassle of finding a new bank.
Should you make a grab for a teaser interest rate?
Ever heard the saying “the grass is always greener”? This can apply to the desire to jump at bank teaser rates as well. If you already have a bank account at an institution that you are otherwise happy with and that earns a decent interest rate there’s no reason to switch. Sure, with the teaser interest rate will earn you more, but only for a short time. After that you’ll be in the same boat interest wise and you may not like the new bank better than your old one.
And the verdict is…
Avoid making the decision to bank with a specific financial institution based on the offer of teaser rates. Teaser rates are like carrots dangled in front of a donkey. They hint at the promise of earnings that they will never deliver. Instead of jumping for joy when a bank offers you teaser interest rates, you should be wondering why they need to offer those rates to get new business.
Some banks might try to use teaser rates to mask the fact that they don’t offer the same great services that a competing financial institution is offering. Don’t fall for it. When it comes to choosing a bank, your choice should be based on much more substantial things like the level of service offered and long-term interest yields.
Filed under: insurance advice |