Recently a tip was submitted by Gerd Schenkel, the General Manager of UBank, a direct bank in Australia that is backed by NAB.
He shared with us a very insightful tip worth considering when setting up a term deposit or high interest bank account.
He stated that when considering a new account (savings account, term deposit or other investment), it is important to consider how many days it will take to set up the account and to transfer your money. If your money has to site in a non interest bearing transaction account for, say 5 days to wait for paperwork to clear, then this can have a dramatic effect on the effective interest rate you are getting.
What does this mean for your cash?
For a 90 day term deposit at 4% p.a. interest, a 5 day delay reduces the effective interest rate to 3.78%.
As you can see, you may find a high interest rate for your money, but unless you have the cash in that account for EVERY day of the term deposit from day one, you will be getting a lesser return than originally thought.
This loss on transfer may change your selection of accont, ie you may prefer an account with a slightly lower nominal interest rate, but with a faster set up process.