Saving in a low-yield world
Can chasing top savings rates hurt you?

Banks large and small are offering consumers a slew of seductive opportunities to boost returns on savings.

Some banks pitch especially high interest rates on checking and savings accounts. Others give cash bonuses or shopping gift cards to those who open new accounts.

While incentives mean temporary bonuses for new customers, opening accounts solely in search of the latest, greatest offer could cost you in the end.

In some cases, the account with a $100 starter bonus has costly hidden fees. Opening new accounts also may damage the credit scores of consumers who are not careful.

"There are no free rides," says Alan Lysaght, co-author of "The ABCs of Making Money."

Hidden cost of saving

Lysaght says lenders who offer bonuses and other goodies usually expect to earn the money back in some other way.

"If a bank gives out a free bonus for opening a new account, they're either going to make that money back by giving you next to zero interest, or you're going to pay high fees for every transaction that you make," he says. "And in a worst case, they're going to do both. You're going to pay for it somehow."

"If we find out that a consumer has been opening and closing a lot of accounts -- especially small, $200, $300 accounts -- that's immediately a red flag to us."

Before opening a new account, consumers should examine the account's fee structure, including monthly maintenance costs, debit or check transaction fees, activation fees for starting the account, costs associated with transferring funds into the new account from another institution and ATM fees, Lysaght says.

While banks frequently waive some of these fees on larger accounts, consumers who maintain smaller accounts could lose a significant portion of their savings to hidden charges.

"The No. 1 source of income for banks these days is fees, but a lot of times they'll put the fees in the fine print so nobody reads it," Lysaght says.

Once a customer knows how much the account costs, it's time to look at what they'll get out of it. While a gift card or starter funds are nice upfront bonuses, a sweet interest rate will be much more lucrative to the consumer in the long run.

"The best way to figure out if an account is good is to make a realistic assessment of how you pay for things -- whether you write a lot of checks, if you use your debit card a lot, if you're withdrawing money from ATMs -- then go to the bank and ask 'How much will you charge me for this and how much will I earn?'" Lysaght says.

Credit danger

Chasing yield also can create an even bigger danger -- potential damage to your credit score, says John Bonora, vice president and compliance officer for Fairfield County Bank in Ridgefield, Conn.

"If someone is opening a regular checking or savings account without any sort of credit tie like an overdraft protection, there's really no reason a bank would pull a credit report," he says. "If someone is opening a CD or an account with an overdraft feature, then more times than not, they're going to pull your credit report."

Bonora adds that there are two kinds of credit pulls. "Soft pulls" are designed to help banks prequalify customers for certain products. They are done without the consumer's knowledge and don't impact credit scores.


"Hard pulls" are used to verify identity and credit history when someone applies for loans, mortgages or accounts with overdraft protection that rely on credit as a backup. Hard pulls are marked as a credit inquiry and can lower the credit score by up to five points. Such inquiries take six months or more to get removed from a credit report.

That means a consumer who racks up five stellar introductory offers by opening multiple new accounts over a few weeks or months could lose up to 25 points on his or her credit score. Such a drop significantly damages the prospects for getting great interest rates on a loan or mortgage.

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