January 28, 2007

hsbc direct new money promotion - worthwhile?

I received an email from HSBC yesterday, promoting their new 6% APY for "new money." The gist of the deal is that through April 30, you'll get a 6% APY (vs. the regular 5.05%) for all new money deposited into your online savings account. The higher rate is nice, but is it really worth it in all situations?

A friend of mine just IM'ed me about the promotion, and thought he'd be able to get $300/month from the promotion if he: 1) sold off his stock holdings, valued at $20k, and 2) deposited that amount into HSBC. His rationale was based on text from HSBC's email saying that you'd receive $150 for every $10k deposited. The text was actually misleading (or my friend misinterpreted that text). Basically, for every $10k, HSBC would be giving you $50/month via the new rate.

[Here's my math: $10k x 0.06 (the APY) / 12 (number of months in a year)]

So the total gain from depositing $10k would be $150. In my friend's situation, the gain would be $300.

Is that worthwhile? I may be wrong, but I don't think it is. First, if the stocks he has right now are poised for growth (and they're technology stocks so I believe they are), then by selling, he'd be jumping off the proverbial bandwagon before the proverbial parade starts. Second, by selling his shares, he'd have to pay capital gains tax, which eats into his net gain.

Don't get me wrong -- getting 6% yield without any risk is a good thing. However, it depends on what the opportunity cost is. I personally think this is a great offer if you've got a ton of cash you can move into HSBC, from another vehicle that clearly won't get you the same kind of return (such as a money market account, checking account with a pitiful APY or you're doing an app-o-rama).


gen3ric said...

Hmm...wow I didn't even see that promotion. Darn, I just moved a large portion of money into my HSBC account too. Oh well.

But anyway, 6% APY is slightly different than an APR which is slightly less than 6%. Just something banks use to make it look more appealing than it actually is. Don't get me wrong, 6% APY is still hands down better than anything else I've seen for online savings, or regular savings.

My opinion stands on what kind of risk your friend is looking at, and be sure your friend has considered any capital gains taxes that he may have to pay on his stocks. Cheers!

digerati said...

Of course it's not worth selling investments to place in a bank account. First off, stock investments are sky rocketing in the last few months, so you're likely getting a better than 6% return right now. (That's the same reason HSBC can offer 6%, because they turn around and invest it at a higher rate.)

It is probably worth moving money to HSBC if it's in another bank account of you have a CD expiring, or you are depositing checks. Then you are earning good interest instead of less interest or none at all.

APY designates the percent you make including the compound effect during the year. APR is the percentage they add to your current balance when calculating.

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