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> Voluntary Simplicity
Too Much Is Eventually Enough
Promotional RatesBack when I first invested in certificates of deposit, it was all very straightforward. You gave your money to the bank for a term that was usually a multiple of six months, and the longer you could give it to them for, the better rate they'd pay. That made sense to me—having the money for a longer term opens up more options, and so is more valuable to the bank.
Over the past year or two, though, a new scheme seems to have become standard. You give your money to the bank, and the longer the term, the better the rate … but the rates are uniformly terrible unless you pick the one particular term, say, 13 months, or 17, that has a promotional rate.
That didn't make sense to me, at first. Why would it be valuable to the bank to have the money for exactly 13 months? The answer, I think, is that the value comes from somewhere else. Most CDs automatically renew at the same term, so all the bank has to do is keep shuffling the promotional rate around, and if you're not paying attention, you'll get stuck with a terrible rate the next time. All the unusual terms do is give the bank more room to shuffle.
I'm sure the banks think themselves very clever, but I doubt the end result will be to their liking. Before, I might have found a good bank and trusted them to give me the best rate they could; but now that I know I have to pay attention and check the rates every time a CD comes due, there's no reason for me to check the rates at just one bank. So, the banks are completely destroying any loyalty that might have existed.
In the process, they're also inflicting complexity on me, creating hassle where none existed before. Grr!
I don't think it's actually related, but I'm reminded of the following idea about cicadas (quoted from Arms Races and Manipulation).
Periodical cicadas are three species of the genus Magicicada. All three species have two varieties, a 17-year and a 13-year variety.
Anyway, returning to the point, banking isn't the only industry that has problems with promotional rates, loyalty-destroying behavior, and inflicted complexity. Consider long-distance phone service. Back before I managed to get myself on all their “do not call” lists, I used to receive regular telemarketing calls from long-distance phone companies offering temporary promotional rates … and if I'd accepted, I would have had to pay attention and check the rates every time a promotional rate expired.
Even when I'm not paying a temporary rate, I still can't trust the phone company to give me the best rate available. Just recently, for example, I obtained a $2 reduction of my monthly fee just by calling in and asking for it. So, since I have to pay attention and check, I might as well check the other companies while I'm at it … and so I do.
Convergence in Biology
@ May (2002)