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I was looking to put some money in a simple savings or money market account. But I found a caveat in each bank’s small print that made me hesitate.

The bank’s marketing shows a high rate, say 1.5% to 1.75% APY (annual percentage yield) for a savings or money market account. But there’s always a disclaimer saying something like: “Annual Percentage Yield is accurate as of today’s date. Interest rates for the account are variable and may change at anytime without prior notice.”

My question is this.

How common is it for banks to lower the high-yield introductory rate they use to entice people? If it’s a common practice, then how long will the initial deposit typically accrue the high rate of interest before the bank lowers it?

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How common is it for banks to lower the high-yield introductory rate they use to entice people?

By definition the introductory rates will only be given for a specific period of time. They will tell you that rate only applies for x days, or the first year, or the first $y thousand dollars.

What you don't know is how long the offer will be good. If they meet their goals they could end the deal tomorrow for new deposits, or they could make other material changes.

If it’s a common practice, then how long will the initial deposit typically accrue the high rate of interest before the bank lowers it?

For non-introductory offers, the financial institution could make changes as often as they needed to. My credit union updates their deposit rate sheet every week. They don't always make changes, but they could. For current CDs nothing would change, but for new CDs or roll-over CDs the rate would change. For non-time deposits that new rate sheet could bring good news or bad news regarding rates.

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Savings interest rates go up and down all the time with the market. If you are getting an above average rate on your savings, do not expect it to stay there indefinitely.

There are a few things at play here. Interest rates have fallen over the last 10 years. If you had asked this question in 2010, everyone would have answered, “Yes, banks start you at a high savings rate and then they drop like a rock.” But it wasn’t necessarily a bait-and-switch tactic; it is simply what the market had done.

In the last couple of years, savings rates have started to creep up again. But we can’t predict what they will do in the future.

Banks do play some marketing tricks in order to lure customers their way. One is the bonus: “Deposit at least $X into a new account, and we will pay $Y after 60 days.” This will give you a nice yield on a portion of your money, and there is nothing wrong with taking advantage of it, but in general this is a one-time payment; don’t expect it to continue in the future.

Another common tactic is to give you an extra high rate if you meet certain conditions on your account. For example, you might get a high rate if you sign up for direct deposit and you have a certain number of debit card transactions. There is almost always a limit in the high rate (for example, 3% on only the first $10,000). In these cases, it is the merchant fees from the debit card transactions that is paying for the increased savings rate. Essentially, you are giving up the rewards that you might receive if you had used a credit card instead of a debit card. The limit on the high interest rate ensures that the bank doesn’t lose money on this. Again, there is nothing wrong with taking advantage of this as long as you are aware of the trade-offs.

  • Thanks Ben. These particular offers don't require a minimum opening balance, and they don't have fees or debit card requirements. I was wondering how long they're likely to maintain the 1.5% rate. The common answer seems to be "as long or short as they like." – Headblender May 8 '18 at 22:38
  • @Headblender Yes, that sounds like an accurate summary to me. :) – Ben Miller - Reinstate Monica May 8 '18 at 22:48
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All banks will adjust MM and CD rates down if interest rates are declining (Fed Funds and/or Treasuries). In the U.S., local banks are the ones that offer teaser rates that may be cut at any time or after an introductory period. I've dealt with large MM funds for decades and I have never had a problem with any of them. Some of them that come to mind that are in your 1.5% to 1.75% APY range now are:

  • CIT Bank
  • My Banking Direct
  • Synchrony Bank
  • Barclays
  • Capital One
  • Ally
  • UFB Direct
  • Discover

Occasionally, you can also find bonus deals. Last fall, JPM Chase offered $500 for a $15,000 deposit for 3 months and a direct deposit. That's 13.33% per year. Fifth Third Bank is currently offering $250 for a $500 deposit. HSBC has a bunch of offers that provide bonuses of up to $750. If interested, Google is your friend :->)

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Does the product you are using actually use the term "introductory rate"? The sentence you quoted does not imply an intro rate:

Annual Percentage Yield is accurate as of today’s date. Interest rates for the account are variable and may change at anytime without prior notice.

Worded that way, I interpret that to mean the bank is not going to change your rate, but they can change their rate for all customers that have that product. I think this should alleviate your worry that the bank could at any time significantly drop your rate, since in doing so they would be risking losing all of their customers in that product, as well as preventing the ability to get new customers into that product. The banks change their rates to reflect market conditions and competition, but in most cases it doesn't affect your specific account, unless they explicitly state that with terms such as "intro rate" or "deposit bonus". They still may have different rate tiers for different types of customers, but again, these tiers will apply to all customers equally.

  • They don't specifically use the term "introductory rate" but it's the rate you get when you open the account. Then, who knows what happens? Here's the exact text on one of the bank sites: "Keep in mind, this rate is variable and may change after the account is opened." I just can't imagine it changing upwards, only down. – Headblender May 8 '18 at 22:41
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    @Headblender - remember, that rate is the same for everyone. So if they drop the rate for you after you sign-up, then all new customers would have to join at that lower rate. The rate most definitely can go up, and likely will some of the time. – TTT May 9 '18 at 4:27
  • You're right. I checked another online savings account I had that started at 1.5% but dropped to 1% over the year. Acting as a new customer, I looked at the rate, and it is indeed 1% now for everyone. That was helpful - thanks. – Headblender May 10 '18 at 22:01

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