Why Do Banks Limit How Much You Can Save

[gavinmccallister]

I am wondering why banks offer some high rates, and then limit how much you can deposit, wouldn't they want more money to have in their bank.

I wish banks would quit limiting the amount you can deposit, how does everyone else feel about this?

[gavinmccallister]

Re: <<Why Do Banks Limit How Much You Can Save-->

Some banks offer a 10% APY but limit you to only $2500.00 or a 6% APY and only letting you put in $2500.00. Banks seem to want your money, yet they want to still be in control by limiting how much you can deposit.

[gavinmccallister]

Re: <<Why Do Banks Limit How Much You Can Save-->

The banks are FDIC insured they are promotional rates, now with the 6% rates why limit you to $2500.00

[34saving]

Re: Why Do Banks Limit How Much You Can Save

I've gotta think that most people don't limit the amount they deposit -- they just don't get the promotional rate on all of their money. Outside of this forum, how many people do you know with multiple accounts that have the same function? The bank lures them in with the 10% and then gets all of their money for life.

[DivaJen]

Re: Why Do Banks Limit How Much You Can Save

I've gotta think that most people don't limit the amount they deposit -- they just don't get the promotional rate on all of their money. Outside of this forum, how many people do you know with multiple accounts that have the same function? The bank lures them in with the 10% and then gets all of their money for life.

I agree. I took advantage of the 10% rate on balances up to $500 for my DD at Affinity Bank. I'll be withdrawing the interest periodically and redepositing it elsewhere, as the rate of return on the money above the initial $500 is less than 1%! I suspect they figure most people will deposit their $500 and then just let the money sit there, interest and all. It also, in this case, establishes a relationship with a young investor, so that they'll have a favorable opinion of this bank as they get older. Heck, she got a free piggy bank.

I'm thinking too that banks have to make more in interest (loans) than they pay out (bank accounts) so they can only offer so much interest via promotional rates before it starts costing them money to do so. That makes sense to me.

[WellManicuredMan]

Re: Why Do Banks Limit How Much You Can Save

I agree. I took advantage of the 10% rate on balances up to $500 for my DD at Affinity Bank. I'll be withdrawing the interest periodically and redepositing it elsewhere, as the rate of return on the money above the initial $500 is less than 1%! I suspect they figure most people will deposit their $500 and then just let the money sit there, interest and all. It also, in this case, establishes a relationship with a young investor, so that they'll have a favorable opinion of this bank as they get older. Heck, she got a free piggy bank.

I'm thinking too that banks have to make more in interest (loans) than they pay out (bank accounts) so they can only offer so much interest via promotional rates before it starts costing them money to do so. That makes sense to me.

To me it wouldn't even be worth it to open another account just to make 10% interest on only $500. That's only about $4 a month. But I'm anal about keeping things simple (ie: as few accounts as possible).

[jmjj215]

Re: Why Do Banks Limit How Much You Can Save

Netbank definitely got me on this type of thing. I deposited 1k for the free shuffle. Now I'm too lazy to write the requisite letter to close the account (I cleared their six month hurdle two months ago). So it sits that at an uncompetitive rate. I really should be doing that..

[autoxer]

Re: <<Why Do Banks Limit How Much You Can Save-->

I am wondering why banks offer some high rates, and then limit how much you can deposit, wouldn't they want more money to have in their bank.

I think they are limiting how much they pay out in interest. They'll hold as much money as you want in a lower interest account. The high rate/low limit is just to lure you away from other banks.

[DivaJen]

Re: Why Do Banks Limit How Much You Can Save

To me it wouldn't even be worth it to open another account just to make 10% interest on only $500. That's only about $4 a month. But I'm anal about keeping things simple (ie: as few accounts as possible).

It's an account for my daughter at a local bank. Normally I wouldn't want umpteen hundred bank accounts to deal with either, but the 10% interest and the chance to grow her money was a good one. The bulk of her money is earning more like 4-5%. I like the idea of being able to go get $50 from there once a year, free and clear.

[Broken Arrow]

Re: <<Why Do Banks Limit How Much You Can Save-->

I am wondering why banks offer some high rates, and then limit how much you can deposit, wouldn't they want more money to have in their bank.

I believe it's just a bait to get you through the door. After that, they're hoping that you'll do business with them in other ways as well, and that's how they'll make money off of you. Otherwise, the promotion itself is a loss leader. Therefore, it would make sense to put a cap on it.

In that way, it's no different than any other stores or shops that offer a small sale on certain items to get you in the door, and then betting that you'll buy other things from them (that are not on sale) while you're there.

[cicy33]

Re: Why Do Banks Limit How Much You Can Save

It's an account for my daughter at a local bank. Normally I wouldn't want umpteen hundred bank accounts to deal with either, but the 10% interest and the chance to grow her money was a good one. The bulk of her money is earning more like 4-5%. I like the idea of being able to go get $50 from there once a year, free and clear.

Hate to burst your bubble but it isn't free and clear. You have to pay income tax on that interest. Which isn't much if that is all you are getting but still have to pay it! You are supposed to report all interest income on your tax return and if you don't the bank reports it with your social so they will find out about it!

[DivaJen]

Re: Why Do Banks Limit How Much You Can Save

Hate to burst your bubble but it isn't free and clear. You have to pay income tax on that interest. Which isn't much if that is all you are getting but still have to pay it! You are supposed to report all interest income on your tax return and if you don't the bank reports it with your social so they will find out about it!

True enough - and of course we declare interest earned...on our accounts. Until my daughter earns more than $700 a year in interest, however, we don't owe taxes on the interest that she does earn. So at this point that money is free to us. No bubbles burst here.

[Ima saver]

Re: Why Do Banks Limit How Much You Can Save

I agree, it is just a promo thing@ They can't pay out 10% on a LOT of money and only charge 7% on mortgage loans.

[getforfree]

Re: Why Do Banks Limit How Much You Can Save

how old does the child have to be to be able to open an account? Maybe I can open accounts for my kids and let them earn $700 each without having to pay tax on it. My DD still in diapers, that will cover the cost of it.

[Broken Arrow]

Re: Why Do Banks Limit How Much You Can Save

Well, as far as I know, some banks have children's accounts that you can open for them anytime really. The only bad thing about it is that they usually give you next to nothing in interest, and when they do give you interest, you still have to pay tax on it.

It's usually better to stick their money in your own account, or perhaps a 529 instead.