What staying put really costs

Which of these are you?

• You hold more than a few thousand dollars at a rate you have never compared: compute your number in the worked example below. It takes one balance and two rates.
• Your balance is under about $2,500: the cost is real but small. Read the section on small balances before you spend an afternoon on it.
• You know you should switch and want the full decision: the cost here is only the first half. Chapter 1 subtracts what moving costs you and finds the break-even month.
• You think your bank is probably fine and have not looked: that is the most common position, and the next section explains why it persists.

What does staying put cost you each year?

Staying costs the interest you would have earned elsewhere minus the interest you earn now, over the same balance and the same twelve months. It is a forgone-interest figure, not a fee, so it never appears on a statement, which is why it goes unnoticed.

The formula this series uses is the same one the calculators use. Interest in one month on a constant balance is Balance x ((1 + APY)^(1/12) - 1), and the yearly cost of staying is twelve times the difference between that figure at the best rate and at your rate. Balance is the money you would move. Your APY is what you earn now. Best APY is what a comparable, insured account pays. Rates enter as fractions: 4.20% is 0.042. The model holds the balance constant and does not compound interest on interest, so the cost comes out slightly below Balance x gap.

Check it against the shortcut. Balance x gap is $25,000 x 0.038 = $950.00. The model returns $930.50, which is about 2 percent lower, because it converts each APY to its monthly equivalent and does not let earned interest earn interest within the year. Use the shortcut for a quick look and the model for a figure you plan to act on.

Two cautions on the inputs. The 0.40% and 4.20% are round numbers chosen to show the arithmetic. They are not today's rates and not a forecast. For today's market, the national average savings rate we track is 0.38% APY and the best savings APY we track is 4.27% APY. The national average is the FDIC's measure: the average of rates paid by all insured banks and credit unions for which data is available, weighted by each institution's share of domestic deposits. It describes the typical dollar of deposits, not the rate you personally earn, so use your own statement or account page for the first input.

Interest on savings is taxable income whether you leave it or move it (IRS Topic 403), so the comparison is pre-tax on both sides and the gap does not change with your bracket in this model.

How much does it cost across balances and rate gaps?

The cost is proportional to balance and, to a close approximation, to the gap: double either one and the cost roughly doubles. The table fixes your current rate at a hypothetical 0.50% and widens the best rate by one to four percentage points. Every figure is dollars per year from the stay-cost formula.

Read down a column to see what a balance does, and across a row to see what a gap does. The cost per $10,000 is about $99 per point of gap at this level, so a quick estimate is your balance in tens of thousands times $99 times the number of points. The estimate drifts a little high as the gap grows, for the compounding reason above.

Because the gap is the larger lever, the useful habit is to look at the gap before the balance. A 1-point gap on $100,000 costs about the same as a 4-point gap on $25,000, so the gap deserves at least as much attention as the balance.

For a longer view, hold the same balance and gap for five years and multiply. The $25,000 example at a constant 3.8-point gap costs $930.50 x 5 = $4,652.50 over five years. That assumes rates stay put, which they will not, so treat it as the cost of one more year of inaction repeated, not a prediction. How long a top rate persists is the subject of chapter 3.

Why do most savers stay put?

Inertia is well documented, and it is not mainly about missing information. In a randomized field experiment with 124,000 savings-account holders at five UK banks, researchers disclosed better savings options to depositors and found that switching stayed rare across the disclosure designs. The average potential gain was about $190 a year and the switch took about 15 minutes. The authors say pessimistic beliefs and inattention help explain the limited response (Adams, Hunt, Palmer and Zaliauskas, Journal of Financial Economics, 2021).

That result changes how to use a number like the one above. A cost figure is a disclosure, and disclosure alone did not move most people in that experiment. What helps is deciding the rule in advance, in a calm moment, so the question is not reopened each time a rate appears. Chapter 8 turns the number into that rule. For the research in plain language, see why people do not switch banks for a better rate and why removing friction does not fix it.

Two limits on that evidence. The experiment is from UK banks, so it shows how savers respond, not what US banks charge. And it measures behavior at one point in time, so it does not tell you whether your own rate is low. Only your statement can.

When is the cost real, and when is it small?

The cost is real when the balance is large enough that a few hundred dollars a year survives the effort of moving, and small when the balance or the gap is small. The honest test is to compare the annual cost with your own cost of moving, and the model's break-even function does that.

Take a smaller balance with the same hypothetical rates and a modest cost of moving: one hour of your time valued at $25, no fees and no bonus.

The table below applies the same logic to three balances. The minimum gap is the smallest constant rate gap that repays the cost within 12 months, which is Cost / Balance for a 12-month horizon. The break-even month comes from the full model at the 3.8-point gap.

The pattern is the point. On $25,000 a gap of just 0.1 point repays an hour of effort within 12 months, and the 3.8-point gap does it in the first month, so staying put is a decision with a price tag. On $1,000 you need a gap of 2.5 points just to cover one hour inside a year, and a smaller gap or a larger cost can make moving a poor trade. On a few hundred dollars it usually is.

Short horizons shrink the number too. If you expect to move the money again within three months, only three months of the gap count toward the cost of staying, which is about a quarter of the annual figure. Money you will spend soon, such as a tax payment due next quarter, belongs wherever it is safest and easiest to reach, and the gap is secondary.

Does the best rate always carry the same risk?

Not automatically. The cost figure assumes the better account is a genuine alternative: insured, with no conditions that change the rate you actually earn. Check three things before you let a large gap argue for a move.

1. Insurance. Deposits at an insured bank are covered up to the standard limit per depositor, per bank, per ownership category. A large balance can exceed it. See the Liquidity Guidebook chapter on FDIC limits.
2. Conditions. A top rate may require direct deposit, a minimum balance or a tier. The rate you earn on your balance is what counts, not the headline. Chapter 5 is about reading that fine print.
3. Duration. A promotional rate that expires is a different product from one that holds. The gap you multiply must be the one you will actually earn.

How do you run your own number?

Enter your balance and the two rates, and read the result. The calculator below uses the same break-even model as the tables, with the balance set to $25,000. Replace its defaults with your own balance, your own rate from your statement, and a rate you have checked on a specific account. Set the hold and decay inputs if you want to see what a rate that falls does to the answer.

If you would rather start from a different tool, the bank switch ROI calculator frames the same question as a return on the time you spend, and the loyalty tax calculator compares a named bank with the best available rate.

Three steps turn the result into action.

1. Write down the annual cost of staying. Use your real balance and the rate on your statement. SwitchWize calls this gap your Savings Rate Gap, but the dollar figure is the part that matters.
2. Subtract your cost of moving. Hours times what an hour is worth to you, plus any fees, minus a bonus you will actually receive. That is the switching cost defined in chapter 1.
3. Decide with a rule, not a mood. If the annual cost of staying clears your threshold, move. If it does not, set a date to check again. The planning chapter shows how to choose the threshold.