The Promotional APY Trap: Banks' Favorite Bait-and-Switch

How Promotional Rates Work

Promotional APY offers follow a predictable pattern:

1. Eye-catching rate: Banks advertise rates 1-2% higher than market (5.50% when competitors pay 4%)
2. Short duration: The rate lasts 60-90 days, buried in fine print
3. Steep drop: After the promo expires, you fall to the bank's standard rate—often 0.50% or less
4. Inertia wins: Banks bet you won't notice or won't bother moving money

Real Examples (Past Promotions)

These aren't made-up examples—promotional rates that plummet after the intro period are extremely common in banking.

The Math: Why It's Worse Than It Looks

Let's calculate the real return on $10,000 with a promotional rate:

The "5.50% APY" promotional account earns $227 less than a boring 4% account. The headline rate is a lie.

Why Banks Use This Tactic

1. Customer Acquisition Cost

Banks calculate it's cheaper to overpay for 90 days than to advertise. A $100-150 "loss" during the promo period buys them a customer who might stay for years.

2. Switching Costs Are Real

Moving money is annoying. Updating linked accounts, waiting for transfers, re-entering routing numbers—banks bet you won't bother.

3. Rate Blindness

Most people don't check their APY monthly. By the time you notice the drop, months have passed at the penalty rate.

4. It's Legal

As long as the terms are disclosed (however buried), promotional rates are completely legal. Regulators don't prevent this practice.

How to Spot Promotional Rate Traps

Red Flags

• "Introductory" or "promotional" anywhere in the offer
• Rate significantly above market (currently 5%+ when others pay 4%)
• Fine print mentioning duration: "for the first 90 days"
• "New customers only" (designed to hook new deposits)
• APY with asterisks: 5.50%* always means conditions apply

Questions to Ask

1. What's the rate after the promotional period?
2. How long does the promotional rate last?
3. Is there a minimum balance or other requirement?
4. What's the bank's standard savings rate?

When Promotional Rates Make Sense

To be fair, promos aren't always bad—if you play the game correctly:

• Calendar it: Set a reminder to move money before the promo expires
• Be realistic: Will you actually move the money? Most people won't
• Calculate the real return: Is the short-term boost worth the hassle?

If you're disciplined and will definitely move money after the promo, you can extract value. But most people don't—that's exactly what banks count on.

Steady Rates: The Boring Better Choice

The best savings accounts don't need gimmicks. These banks pay competitive rates—the same rate—forever:

• Pibank: 4.60% APY, no promo, no expiration
• Barclays: 4.00% APY, steady and reliable
• Ally: 3.70% APY, same rate for 15+ years of operation
• Marcus: 3.65% APY, Goldman Sachs stability

None of these will wow you with a 5.50% headline. But over a year, they'll earn you more than promotional bait-and-switch.

The Bottom Line

Promotional APY rates are designed to exploit human psychology: we're attracted to big numbers and bad at following through on calendar reminders.

The math is clear: a steady 4% beats a "5.50%" promo that drops to 0.50%.

Don't chase introductory rates. Find a bank that pays fairly all the time, and leave your money there. Boring wins.