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12 Oct 2021

What is a bank introductory rate?

By Damon Frith, wealth editor for Citi Opening a new bank account? Check and compare the benefits you will receive and how to make best use of any offers

At some point you have likely seen or received a 'honeymoon period' bank offer to open an account and receive a higher interest rate on your savings for a limited time, typically about four months. Why do banks do that?

The simple answer is they want to build deposits so they have more funds on hand to lend to people and businesses requiring loans. The 'honeymoon period' is the length of the introductory offer, it is an enticement to deposit your money with the bank.

However, the honeymoon period introductory rate, also sometimes referred to as a welcome or bonus offer, only lasts for a limited time, and the bank wants you to stay after the introductory rate runs out.

In effect it’s a ‘try before you buy’ strategy. The bank hopes you will learn the different services it has to offer and the ease with which you can do all your banking needs with it, and decide to become a long term customer.

What to do now

To make the most of the introductory offer there are a few things to do and look out for.

  • Ensure you put all the savings you can into the offer to maximise the amount of interest you earn.
  • Try not to touch your savings during the introductory period. If you withdraw funds it will affect the total benefit you receive.
  • Savings accounts typically have no fees, but be sure to check.
  • Check the standard variable rate of the institution you are depositing funds with. After the ‘honeymoon period’, the interest you receive on your balance will revert to that rate, so ensure it’s competitive.

Taking advantage of an introductory rate is a good time to learn how to manage your finances, while growing your savings.

If you manage not to touch your savings during the honeymoon period, congratulations. Not only have you received the maximum benefit from the introductory rate, you will also have a better understanding of your personal budget and how you can put away more as savings.

The discipline it encourages also gives you better insights about your real expenses and those of a more 'spur-of-the-moment' nature

What next?

At the end of the introductory period your interest will change to the institutions variable rate, and in the current low interest environment we are experiencing due to slow global economic growth and impacts from COVID, it will not be an exciting rate.

But it doesn’t mean your savings plan has to come grinding to a halt. You have a lot more options to continue to grow your wealth. Here’s some suggestions:

  • Stick to the budget you used during your introductory period and continue to add to your savings.
  • Consider other options to get a better rate on your money, like a term deposit.
  • Get to know the services your bank has to offer. It might offer other services you can take advantage of like foreign exchange or wealth management.
  • As your available funds grow make sure you continue to be aware of new investment opportunities that may open up to you, like corporate bonds, shares and property.

Good luck on your savings journey, and if you would like to see our introductory rate, it’s here. We’d love you to consider it an incentive to start your wealth journey with us.

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This document is distributed in Australia by Citigroup Pty Limited ABN 88 004 325 080, AFSL No. 238098, Australian credit licence 238098. Any advice is general advice only. It was prepared without taking into account your objectives, financial situation, or needs. Before acting on this advice you should consider if it's appropriate for your particular circumstances. You should also obtain and consider the relevant Product Disclosure Statement and terms and conditions before you make a decision about any financial product, and consider if it’s suitable for your objectives, financial situation, or needs. Investors are advised to obtain independent legal, financial, and taxation advice prior to investing. Past performance is not an indicator of future performance. Investment products are not available to US people and may not be available in all jurisdictions.

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