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Thursday, January 19, 2006

Thinking about saving money at ING direct?

Well good news, ING direct just announced their Winter Save Up Sale, an oddly named program that will give you 4.75% APY on any NEW funds you deposit. Only new money from outside sources qualify for this higher interest rate, and here is how they will keep track of that:
To determine what portion of your Orange Savings Account balance will earn the 4.75% APY, during the Sale Period we add up all of your new deposits from an external source and then subtract all withdrawals from the account (whether internal or external) from that total. If that amount is greater than zero, it is eligible for the 4.75% APY.
However, before you move all your money over to ING to capture this 3 month period of higher interest rates, take a moment to calculate just exactly how much more you will be earning by moving your money. It may surprise you that keeping your money in your current account may actually earn you more!

To consider your net gain, you would need to subtract any lost interest (the time it takes you to transfer your money does not earn interest) from any extra interest gained. Let's do an example:
Your original rate is 4.25%, the new rate is 4.75%, the promotional period for the higher rate is 83 days (1/20 til 4/15, minus 3 days for transfer), days of lost interest is 6 days (3 days each way), the amount is $10,000.

Net gain = amount * (extra interest earned - interest lost in transfer)

Net gain = amount * ((Int. rate gain * (# of promotional days / 365 days in year)) - (original Int. rate * (# days lost / 365 days in year)))

Net gain = $10000 * (((4.75% - 4.25%) * 83/365) - (4.25% * 6/365))

Net gain = $10000 * (0.001136986 - 0.00069863) = $4.38356

So for our example, we would earn an extra $4.38 from moving our imaginary $10,000 to ING and then moving it out again afterwards. I wish I knew how to make an online calculator where you can plug in your own numbers, but I don't have the technical skills. Feel free to plug in your own numbers to see if the net gain is worth your time to move your money over!

One more thing, consider the possibility that HSBC, or whichever bank you use, may raise rates soon to match this ING promotion. There is also a fed meeting coming up, and the market expects another 25 basis points increase.

As always, leave a comment if you notice any errors or have any questions.


Blogger Caitlin said...

...and then there is taxes ;) most likely 25% off the net gain

12:51 PM  
Anonymous Jonathan said...

Good post, I agree it can be tricky. The number of days that you lose interest makes a big difference in the calcs, so be sure to get that number as accurate as you can.

4:39 PM  
Anonymous Anonymous said...

Net gain = amount gained - amount lost

Net gain = extra earned interest - interest lost in transfer

NOT amount * (extra earned interest - interest lost in transfer)

The "amount *" doesn't belong in that step of the equation. You're trying to mix two steps together.

6:39 PM  

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