With the proliferation of new high-yield savings accounts and them leapfrogging each other’s rates, we come to the all-important question – Should I move my money to the higher rate? Well, with the data from my transfer-time experiment, I can better gauge the answer.
First, let’s find the formula for figuring out how long you must keep the money at the new higher rate account to counteract any interest lost during the transfer. I’m not the inventor of this simple formula, I just derived it right now with good ole’ pencil and paper.
We start with:
Gained Interest = (New Rate x Days at New Rate) – (Old Rate x Days at New Rate)
Lost Interest = Old Rate x Days Lost in Transfer
Breakeven condition: Gained Interest From Higher Rate = Lost Interest During Transfer
Algebra: Old Rate x Days Lost = Days at New Rate x (New Rate-Old Rate)
Leaving us with:
Remember that technically for the rates we should be using APR and not APY, but for the purposes of this example I’ll use APY. Say you were lucky enough to have ING and Emigrant linked up before they took that option away. You are considering moving from 4.0% to 4.75%, and the days of interest lost if you don’t mess with weekends is 1 day. Using the formula, you would breakeven after 5.3 days. After that, you’re ahead on interest.
But, if you had to transfer via a third party and say, lost 6 days of interest on the way, you would have to keep it at ING for 32 days just to break even. That may change your decision. You could also tweak the formula to see how much money you would actually gain by doing the transfers.
Just Plug It In!
I made a easy-to-use interest rate-chasing calculator from this equation.