Tag: Interest Rates

News

5 Things You Should Know About Interest Rates, According to a Former Banker

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Know About Interest Rates

Interest rates.

Whether you’re buying a big-ticket item on credit, taking out a loan or applying for a credit card, one little question can strike fear into the heart of even the most savvy of spenders: What will my interest rate be?

Whether you’ve got great credit and qualify for some of the best offers out there or your score could stand a little CPR and you can’t even think about how much you pay in interest on debts each month, there are probably at least a few facts about interest rates — and your interest rates, in particular — that you didn’t know.

Below are some of the biggest ones to be aware of, courtesy of MagnifyMoney co-founder and former banker, Nick Clements.

1. You have more than one credit card interest rate

In actuality, just one credit hard may hold multiple different rates for different things. For example, you’ll likely have different interest rates for purchases, cash advances and balance transfers, to start. “In addition, if you open a new credit card, you will likely have introductory purchase and introductory balance transfer interest rates,” says Clements. “Don’t assume that there is just one interest rate.”

You should do a little comparison-shopping to find the right interest rate for your needs, too. Check out this piece for seven low interest rate credit card options, and this one for the nine best 0% APR credit card offers.

2. Most interest rates are variable

Which the exception of introductory rates — which are usually (but not always) 0% — interest rates tend to be variable. This means that the rate is tied to the prime rate, so if the prime rate goes up, so will your interest rate.

3. Your purchase APR is usually based on your credit score

Yet another reason why your credit score is so valuable: The higher your credit score, the lower your risk to the credit card company, and the lower the interest rate you’ll pay. Your interest rate will be given to you when you open your account and will be based on your credit score at the time of your application, so it’s worth looking into your score before trying to open a card to get a feel for what you might be dealing with.

4. Your interest rate can go up for a myriad of reasons

An increase in the prime rate isn’t the only thing that will make your interest rate go up. “If you become 60 days or more delinquent, you can be charged a penalty interest rate,” says Clements. “That means your rate could become very high on your existing balances.” The bank can also arbitrarily decide to increase everyone’s interest rates. However, in this circumstance, if the bank wants to change the rate on your existing balance, you have the right to say no. “You would then close your card and just make payments on the existing balance until it’s paid in full,” explained Clements. “If you want to keep the credit line open, you would have to keep the higher rate.”

5. You can negotiate your interest rate

If you’re unhappy with how high your interest rate is, you can always call the bank and ask to get it reduced. (Here’s a script to help you negotiate credit card fees.) Believe it or not, they will often do it. That won’t be the best deal though.

“If you have credit card debt, a good credit score and are looking to pay it off quickly, there is no better deal than an introductory balance transfer offer,” says Clements. “You can get 0% for up to two years at some issuers.” Compare different balance transfer options here to find out if there’s one that will help you get out of debt.

Cheryl Lock
Cheryl Lock |

Cheryl Lock is a writer at MagnifyMoney. You can email Cheryl at cheryl@magnifymoney.com

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Consumer Watchdog

Consumer Watchdog: You Deserve More Than a 0.01% Interest Rate

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Save, save, save! The mantra is pounded into the minds of personal finance enthusiasts and even non-enthusiasts. You need six months worth of living expenses in an emergency fund. You need to save for retirement. You need to save up to go on vacations or buy a car or upgrade your wardrobe. The list goes on and on. Plenty of Americans heed this advice and dutiful set up a savings account with their banks. But if your bank only offers 0.01% interest rates on savings accounts – you’re doing it wrong!

Most big banks only offer loyal customers 0.01% interest rates on savings accounts. $10,000 saved at this rate will yield the high, high reward of $1. Each bank in turn will use the deposited money to loan it out to other customers at higher rates. Money in a savings account is essentially a loan to the bank and the bank likes to take advantage.

Let’s say your $10,000 at Bank of America is used to offer another customer a car loan at 3%. BofA will earn $300 in a year on the loan, but only pay you $1 for loaning the bank the money in the first place. You aren’t even getting a 1% cut of the interest the bank earns!

Fortunately, you have options.

Your money doesn’t have to be sitting at 0.01% interest rate. Internet-only banks are now offering far more competitive rates for your savings accounts.

Instead of 0.01% banks like GE Capital, Barclays and Ally all have savings accounts with1.00%+. Or to put it in more practical terms: on your $10,000 that means $100 worth of interest instead of $1.

These banks are able to offer higher interest rates because they don’t have branches to fund. The massive amount of money saved by eliminating bank branches can fund customer-friendly initiatives like ATM refunds, no overdraft fees and higher interest rates on savings accounts.

These banks are all FDIC insured up to $250,000 just like the big name banks you’re used to seeing on your street corner.

We’re big fans of the Internet-only bank and believe consumers should look to move their funds away from the traditional brick-and-mortar banks to protect themselves from fees and horrifically low interest rates. But if you don’t want to move all your money, at least consider moving your savings. You deserve more than 0.01%.

If you’re interested in learning more about the pricing war on savings accounts, co-founder, Nick Clements, wrote an op-ed for Forbes about how much you should be earning on your savings.

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Erin Lowry
Erin Lowry |

Erin Lowry is a writer at MagnifyMoney. You can email Erin at erin@magnifymoney.com

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Earning Interest

GE Capital Bank: Upping the Game on Savings Account Interest Rates with 1.05% Offer

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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You do not need to earn only 0.01% on your hard-earned savings. A price war is heating up with online savings accounts. The bricks-and-mortar banks are ignoring the price war, but that is just further reason for you to ditch traditional banks and let them know that they need to earn your business.

GE Capital Bank today launched a savings account that pays 1.05%, a leading rate. This savings account has:

  • No minimum deposit to open
  • No transaction fees
  • Interest that compounds daily
  • 6 withdrawals per statement cycle (that is a federal restriction, which impacts all savings accounts)
  • FDIC insurance up to $250,000
  • Maximum deposit amount of $1,000,000

They also have a great online user interface. Opening an account only takes a few minutes, and you can easily transfer money from your traditional bank to the online bank. The transfer is an ACH (automated clearinghouse – similar process to when you have a monthly bill payment automatically deducted from your bank account), so it doesn’t cost any money and only takes a few days for the funds to arrive.

Your savings account is the place to park your emergency fund, which is typically 3 to 9 months of living expenses. If you have $25,000 in your savings account, you would earn $262 of interest. If your money were sitting at a traditional bank paying 0.01%, you would only earn approximately $3.

To start earning 1.05% on your savings, with the ability to close the account at any time.

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You can compare GE Capital savings account rates to the rest of the market on our savings account page.

Why are savings account interest rates so low?

Market interest rates are low. The Federal Reserve helps to set interest rates, and they are keeping those rates at close to 0%. But that does not mean that consumers need to receive 0% on their savings.

Banks should compete for your deposits. When you make a deposit in a bank, you are providing them with money to lend to other people or companies. That is the purpose of a bank: to take excess fund from savers, and provide that money to borrowers in the form of a loan. Banks are still making good money in their lending business, and interest rates on credit cards are not exactly low. So, banks can compete for your business, if they have to.

Traditional banks, like Bank of America and Wells Fargo, have very large branch networks. They know that consumers are very “sticky.” Sticky means that customers stick with the bank, regardless of the price. If interest rates are lowered, customers don’t go anywhere. In fact, Well Fargo recently bragged that is has $1 trillion of deposits that only costs it 0.1%. So, they are able to use their branch network to borrow money from savers at a very low interest rate. They then use that money to loan to other people. The difference between the interest rate they pay (to savers) and the interest rate they charge (to borrowers) is their revenue.

Some businesses have decided to find a different way of raising deposits. Rather than building large branch distribution networks, which cost a lot of money, they are just taking that savings and putting it into higher interest rates for savers. GE Capital has a huge lending business. Although we may think of GE as a manufacturing business, they actually have a big financing business as well. In order to fund those loans, they need deposits. And their online savings bank is one place where GE raises deposits.

Other players active in this space include Barclays (they have a large credit card business that needs deposits), Ally (who has a large auto lending business) and Synchrony.

In each of these instances, savers have the chance to earn a lot more money by ditching the traditional banks.

The big banks are counting on your stickiness. Don’t make it easy for them to make too much money. Just like any other product, you should shop around for the best rate on your savings. And GE is heating up the price war with a great new offer.

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Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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