HSBC 6.00% APY: Is it Really Worth it?

The personal finance world is buzzing with the news of the HSBC 6.0% APY offer. You can’t step into a forum or cruise through the blogsphere without bumping into a thread that discusses this offer. And since I saw it for the first time during the weekend, I have been kicking myself for parking almost $55K of mostly 0% credit card BT money in a CD. The CD matures only in June :(

But as I read more about the HSBC offer, I begin to realize that it isn’t really that big a deal. The CD I currently have is at the same rate as the other average high yield savings; 5.00% APY, which I think is around 4.91% interest rate. The HSBC promotion offers 6.00% APY, which is 5.84% interest rate. And, more importantly, the high HSBC APY is valid only on new money and only for the period of January 29, 2007 through April 30, 2007. That’s around 3 months. At the end of this period, the interest will go down, likely back to the rate before the offer period. So, let’s see how much of a difference it would make, if my money were liquid and I could transfer it to HSBC. (NOTE: these calculations may be valid even for others considering transferring money from one of their other high yield savings accounts to HSBC.)

For the sake of the argument, let us start with the figure of $55K. Also, for now I am assuming that the compounding happens monthly. At the end of first month, the balance on my CD is $55225.04 [55K + ((1/12) * (4.91% * 55K))]. In the same time HSBC balance would have become $55267.67. Considering this as the starting balance next month and repeating the calculations two more times, I have at the end of April, an amount of $55677.89 in my CD and could have had $55806.91 in the HSBC account. That is a difference of around $130.

Now, I have also come across several complaints that HSBC takes at least two days to complete transfers. So, assuming that the money was liquid, it would take me two days to transfer the funds in and two days to transfer the funds out. That is four days with NO interest! For a conservative estimate here, I am going to divide the interest earned by the CD $677.8912, by the total number of days the offer is valid, ie 92, to obtain a rough estimate of daily earnings of $7.4. For four days, that’s around $30. So, really, for opening an account and transferring $55K, which by no means is a small figure, I make a measly profit of $100 compared to what the money is earning right now!

Even if my money was liquid, I think I would pass. Its not worth the hassle of moving around all that money for a difference of only $100.

So, is the HSBC deal just a lot of hot air. Of course not! So, who will be able to really benefit from this offer? As I see it, two sets of people.

(a) Those who have a lot of liquid money sitting in some low interest account. From HSBC’s website, transferring in $10,000 will result in an total profit of $150 over the 3 month promotion period. So, to make some real money, you need to be able to transfer a lot of money. Considering that most people who read this post are financially savvy, I doubt if anyone here will have a large amount of liquid money sitting in a low interest account. :)

(b) Those that have access to high credit lines and can procure a large amount of money from 0% credit card BT offers. For such people though, this offer is SWEET! Take the money from the credit card companies. Park it in HSBC and let it collect the 6.00%APY. Return the original amount to the credit card companies and pocket the interest. How much can you pocket? It all depends on your credit score and how willing you are to let it be dinged for a short period. Sigh, too bad I pulled the trigger a few months back and have it all sitting in a CD at 5.00%APY. I could possibly round up another $10K now, but considering the returns on $10K, the impact on my credit score (since I already have a high balance), and possibly a balance transfer fee, I just don’t think it’s worth it.

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digerati said...

While you're debating the minute differences of 5 or 6% on CDs and interest barring accounts, I have to ask why anyone would willingly place $55,000 in any account like that when the market is returning a conservative average of 15% this year?

Successful Personal

ispf said...

Almost $50,000 of that money is not ours, that's why :) It's from the proceeds of 0% balance transfers on three different credit cards. We wanted to park that money in a place with absolutely NO risk, since we have to return it in a fairly short period (two 20K transfers are for 1 year and the 10K one is for 15 months). Also, we wanted to ensure that no matter what, we would not be tempted to use it (for investment or otherwise). So we chose to lock it in a CD instead of liquid high yield savings accounts. Its the part that the money is not liquid that got me wondering if we had made a costly mistake going the CD route.

cindy@staged4more said...

I too, contemplated on opening the account at HSBC because the seemingly attractive offer. But it's just not worth that much hassels of paperwork and switching money back and forth considering I would probably make like $10 on it.

It's just doesn't seem worth all that effort.