Ramit Sethi explains that banks use bait-and-switch promotional interest rates (e.g., a temporary 4% introductory APY) to lure customers. The high rate is typically capped and reverts to a much lower regular rate after a few months (in the fine print), while banks continue earning high interest by lending deposited funds; banks rely on customer inertia to keep deposits long-term.
Your bank is ripping you off. Let me show you how these banks work. Bait and switch interest rates okay, so why would anyone sign up for a bank with a really low interest rate? Well, banks use bait and switch rates of high interest savings to lure you in. They'll give you a nice fat introductory 4% interest rate. That looks amazing unless you read the fine print, which nobody does. If you do, you'll see that that amount is capped and it drops to their normal rate after a few months. Meanwhile, your bank is still lending out that money at high interest rates, and they expect you once you put your money in there, you're probably not going to switch it.
