We have all seen financial institutions promote high short-term savings rates. The advertising has picked up as of late, because of recent rate cuts. Be careful, and do your research before jumping in. It is NOT as simple, or attractive as the catchy ad makes it seem.
Anytime you see an asterisk * or a number1 referencing a footnote, you should immediately think: “This is too good to be true!”.
Some financial institutions may advertise an annualized rate, while only offering it for a few months. They will also pile on certain conditions like, for example:
- You may have to open a new account
- You may be penalized if you withdraw even one penny too soon
- You may not be paid the rate if you do not meet certain obligations
Why are there conditions to these rates? Because the financial institution cannot afford to pay you that for the full year. Which is why the advertisement is too good to be true.
To illustrate my point, consider the following two statements. Which one of these gets your attention?
Advertisement #1: Earn 0.23% per month for 5 months?
or
Advertisement #2: Earn 2.80* interest for 5 months?
If it were not for the asterisk *, Advertisement # 2 would be an awesome choice. But that little * changes everything because of the conditions associated. In one case we found, the * referred to 1,515 words of conditions.
The truth is, both advertisements will earn you the same rate in the end.
Read the fine print and remember the Latin phrase “caveat emptor”:
“Let the buyer beware.”
Well, now you are.
Information in this article is from sources believed to be reliable, however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, Chris Gaudet and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member - Canadian Investor Protection Fund.
