Why Ramit Sethi Believes Chasing Bank Interest Rates Can Be ‘Pointless’

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If you can earn a slightly higher APY by switching banks, you should, right? Read on to learn why one financial expert says no. 

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If there’s one silver lining to this, shall we say, challenging economy we’ve all been living through lately, it’s the fact that some savings accounts are paying generous APYs on cash kept in them. And since it isn’t time-consuming to switch banks, you might consider moving your savings to a new account, especially if you’re currently keeping your money in an old-school savings account that doesn’t pay much interest.

But if you’re already the proud owner of an online-only savings account paying, say, 3.75% APY, should you rush to change bank accounts every time you hear about a hot new interest rate that’s slightly higher than what your current account pays?

Financial expert Ramit Sethi says no way. In fact, Sethi recently wrote on Twitter, “Getting an extra 0.5% is a pointless exercise in minutiae.” You might not expect Sethi to advise against chasing a higher APY as it becomes available, but he has a few good reasons to feel this way.

It’s more productive to worry about the big money questions

Unlike a lot of money gurus, Sethi doesn’t advise followers to give up store-bought coffee; he actually encourages people to intentionally spend money on the things that make them happy. He thinks people should stop worrying so much about $3 questions and instead focus on $30,000 questions. What does this mean?

If you’re struggling to keep up with your savings goals or even your daily bills, you might assume that the best move you could make is to cut out all your discretionary spending. No more fancy coffees for you, and don’t even think of keeping that $15 monthly streaming subscription. But cutting all the fun out of your life, especially when it amounts to so little in dollar figures, isn’t going to boost your savings by that much — plus, you’ll soon resent not being able to spend any money on things you enjoy.

A much better move, per Sethi, is to worry about the big stuff. Did you buy a giant house that is costing you so much money you can’t afford to save for retirement? Can you get a raise at work (or even change careers) to boost your income and savings? Does it make sense to buy a new car for $50,000 when a used one for $20,000 will suffice?

Answering these questions is far more productive than chasing a measly 0.5% boost on your savings account. After all, if you’ve got $10,000 in savings and are currently earning 3.75% APY on it, you’ll make $374.84 in a year (assuming you don’t add any money to the account). Moving it to an account that pays 4.25% is only going to net you an additional $49.91, for a grand total of $424.75. Worrying about earning less than $50 over a year definitely counts as a small money question.

Higher APYs aren’t forever

Sethi also pointed out in that recent tweet thread that banks offering high APYs on savings accounts is temporary. And this is true — APYs are variable, and fluctuate along with the Federal Reserve’s interest rate changes. So the sweet 4.25% you might be earning in that new account isn’t forever. If the economy starts to stumble and we see the Fed cut rates, your bank will do so as well. Thinking about your savings through this lens should raise the question: Does it make sense to chase higher interest rates if you’re not even guaranteed to get to keep them?

Find an account that pays a good APY and that you like overall

A much better move is to choose a bank based on factors besides just the offered APY. I have the bulk of my savings in an online-only bank. I opened the account about a year ago, and while the APY has gone up multiple times since then, it’s not earning the absolute peak APY available right now.

I’m actually just fine with that, because I like the bank’s mobile app, the way it lets me dedicate different parts of my savings to different goals, and how easy it is to reach a customer service representative at any time of day. Other factors might be more important to you, so be sure to focus on the whole picture when you choose a new bank account.

Yes, it can be worth it to switch savings accounts if your savings are earning, say, 0.39% APY (the current average for savings accounts, according to the FDIC). If you can multiply that by 10 and open an account paying 3.75%, go for it. Just understand that your new APY is temporary, and think twice about switching accounts every time you hear about an account paying just a smidge more.

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