How to spot teaser interest rates

Image and illustration by Bankrate

Deposit accounts like high-yield savings accounts or high-yield checking accounts can be powerful tools for growing your money — but the headline rate you see advertised isn’t always the rate you’ll actually earn.

Some of the highest rates on the market are what’s called “teaser” or “promotional” annual percentage yields (APYs) — short-term offers, rates tied to special conditions or yields that apply to only a small slice of your balance. Without reading the fine print, you could end up earning far less than you expected.

Here’s a guide to reading the fine print on your APY and how to spot promotional rates.

What is a teaser or promotional APY?

A teaser or promotional APY is an interest rate that comes with a catch: it’s temporary, conditional or limited. Common teaser structures include:

• Time-limited promotions: The high APY lasts for a few months, then drops to a much lower standard rate.
• Conditional rates: You must meet specific requirements to keep the rate, such as setting up direct deposit, maintaining a certain balance or making a required number of debit card transactions.
• Tiered APYs: The headline rate applies only to balances up to a certain amount, with the remainder earning far less. Though sometimes the opposite is true: lower balances earn far lower rates than higher thresholds. For example, at Varo Bank you can earn 5 percent APY on balances up to $5,000 (if you meet some other requirements) and you earn 2.50 percent on anything over that amount. Varo Bank’s high-yield savings account is an example of a high APY that only applies up to a certain balance (in this case, $5,000). You’ll earn a much lower rate for balances above that threshold.

Where to find the fine print

To know exactly what APY you’ll actually be getting, you’ll want to find the relevant terms and conditions disclosures, which you can usually find on the website for the deposit account you’re interested in. Here are some shortcuts to finding the relevant terms to determine whether the APY you see is the APY you’ll get. Look for:

• Superscript numbers or symbols: A tiny number or symbol next to the APY will often take you to a footnote at the bottom of the page revealing key details.
• Small-print disclosures: Scroll to the bottom of the bank’s website to find terms that show the balance tiers or read “introductory rate,” “applies to balances up to…” or “offer ends on…”
• Terms and conditions links: If you can’t find specific terms on the landing page of the account you’re interested in, it’s possible the full deposit agreement is tucked away in a separate PDF or FAQ section elsewhere on the bank’s website. Poke around to see what you can find. These might be labeled: deposit account agreement, deposit account disclosures, rate sheet or rate information.

Check the terms before you open an account

Once you find the fine print, you can determine whether the advertised APY fits your needs:

• Check the timeframe: Is the rate permanent or only for a few months? If it is a teaser rate for only a few months, such as 5 percent APY on your savings for three months, check to see if the standard rate you’ll be bumped down to after that time is up is still competitive.
• Look for balance limits: Does the high rate apply to your whole deposit or is it capped to a certain amount? Conversely, check to see if higher balances earn higher yields and if how much you’ll be depositing will get you the rate you want. Banks will break down the balances required to earn varying APYs.
• Understand activity requirements: Will you need to maintain direct deposit, make debit transactions or log in regularly to qualify? If so, be sure you’re comfortable consistently meeting these requirements to earn the top rate.

When sifting through offers, it’s often helpful to calculate how much you might earn from your balances, especially if you’re considering a rate that dips if you don’t meet certain requirements. Use Bankrate’s compound interest calculator to help you crunch the numbers and estimate how much you can earn with your balance.

Where to find the highest rates

While you should always read the fine print for any APY, there are plenty of banks that don’t require you to jump through hoops to earn a top rate. The best high-yield savings accounts will often be at one of the best online-only banks. Because they don’t maintain expensive branch networks, these institutions pass more of their earnings back to customers in the form of higher yields.

Keep in mind that savings accounts have variable APYs, so the advertised rate can change at any time. As such, it’s a good idea to check your yield every so often to ensure you’re still earning a competitive rate.

For high yields on checking accounts, you can look at credit unions, online banks and even some brick-and-mortar institutions. These accounts often have tricky requirements to meet to earn the advertised rate but you can still find some that pay excellent rates with no fine print, such as Tab Bank’s Spend account, which offers 3.50 percent APY on all balances.

Bottom line

A great savings or checking APY starts with knowing exactly how the APY works. By scanning for footnotes, reading the terms and calculating your potential earnings, you can separate eye-catching marketing from a truly rewarding account.