Shopping Around for Interest Rates: Is Staying Loyal to Your Bank Costing You?

The rate gap is bigger than most people assume

Check savings and fixed deposit rates across South African banks on any given week and you will usually find a spread of a percentage point or more between the lowest and highest offer, sometimes wider on promotional or notice accounts aimed at pulling in new deposits. That is not a rounding error. On a meaningful balance, held for years, a one or two percent difference in rate compounds into a real gap in what you end up with.

The reason the gap exists is straightforward. Banks price deposits based on how badly they need funding at that moment, not based on what is fair to existing customers. A bank running a campaign to grow its deposit book will often pay more for new money than it pays on money that has been sitting with it for a decade. Your existing bank has very little incentive to volunteer a better rate to you unless you go and ask, or leave.

So the starting question is simple: have you actually checked what your current rate is against what is available elsewhere, recently, rather than relying on what you remember signing up for? Rates move. An account that was competitive two years ago is not guaranteed to still be competitive today.

What loyalty is actually worth

Staying with one bank is not just inertia, it carries some real value that is easy to underweight when you are staring at a rate comparison table. Bundled accounts, fee waivers tied to your total relationship with the bank, a credit score history the bank already understands, and the plain convenience of one login and one app all count for something.

Some banks also run relationship pricing, where the interest rate or fee structure on one product improves once your total balances or product count with them cross a threshold. If moving your investment elsewhere would drop you below that threshold and cost you a fee waiver on your transaction account or a better home loan rate, that cost has to be subtracted from whatever the new rate gains you. It rarely gets counted, and it should.

None of this means loyalty is automatically the right call. It means loyalty has a price tag too, and the honest comparison is the higher rate elsewhere minus the value of what you would give up by leaving, not just the higher rate on its own.

Worked example: is the switch worth it

Say you have R150,000 sitting in a fixed deposit at your current bank, earning 7.5% per year. A competitor is offering 8.75% on the same term. Run both through the Compound Interest Calculator over five years and the gap is around R11,700 in extra interest earned at the higher rate, before tax. That is not pocket change.

Now weigh that against what moving actually costs. If your current bank waives your monthly account fee because your total balances cross a relationship threshold, and moving R150,000 away drops you below it, you might lose something like R600 a year in fee waivers, R3,000 over the same five years. The net benefit of switching drops from R11,700 to roughly R8,700, still worth it in this case, but a smaller number than the headline rate difference suggested.

Run the same maths on a smaller balance, say R15,000, and the picture changes. The same 1.25 percentage point gap over five years is worth roughly R1,170 in extra interest, which the admin of opening a new account, moving funds, and possibly losing a fee waiver can easily eat into or erase. Scale matters. A rate gap that is clearly worth chasing on a large balance can be marginal or not worth the effort on a small one.

What actually moves when you switch

Opening a new savings or fixed deposit account at another bank is usually not difficult on its own, most can be done online or through an app within a day. The friction is elsewhere: updating any debit orders linked to the old account, waiting out notice periods on notice accounts before you can withdraw without penalty, and in the case of fixed deposits, accepting that early withdrawal before maturity often comes with a reduced rate or a penalty.

If the money you are comparing rates on is locked in a fixed deposit that has not matured yet, the comparison is not just old rate versus new rate. It is old rate versus (new rate minus whatever penalty applies to breaking the existing deposit early). That penalty can be substantial enough to make waiting for maturity the better option even when the new rate looks attractive.

It is also worth checking whether the higher rate advertised is a genuine ongoing rate or an introductory one that steps down after three or six months. Some accounts lead with an attractive headline rate for a limited period and revert to something closer to the market average afterward. Read the actual rate schedule, not just the number in the advert.

Where negotiating beats switching

Before moving anything, it is worth simply asking your current bank to match or beat a competitor's rate, especially on a larger balance. Retail banks do not always advertise this, but relationship managers and private banking desks frequently have some room to improve a rate for a client who is otherwise about to walk, because keeping an existing deposit is cheaper for the bank than acquiring a new one through a marketing campaign.

This works best when you have a specific competing offer in hand rather than a vague sense that rates elsewhere are better. Banks respond to a concrete number, not a general complaint. If you can get close to the competitor's rate without moving anything, you keep every bit of the loyalty value discussed earlier and still close most of the rate gap.

It does not always work. Smaller balances and standard retail accounts often get a flat no, since there is less room to negotiate on a product priced for the mass market. But it costs nothing to ask, and it is worth doing before you go through the admin of switching institutions.

A simple way to decide

Work out the rand value of the rate gap on your actual balance over the period you plan to hold the money, using the Compound Interest Calculator to see the real number rather than eyeballing a percentage difference. Then subtract anything you would lose by moving: fee waivers, relationship pricing, early withdrawal penalties, or the value of your time doing the admin. What is left is the actual benefit of switching, not the headline one.

If that number is small relative to the effort and the balance involved, staying put and asking your current bank to improve the rate is usually the lower-friction path. If the number is large, meaningfully larger than what loyalty is worth to you, the switch pays for itself quickly and the admin becomes worth doing. Either way, running the actual numbers beats going on the rate you remember or the one your bank happens to mention first.