Return to Thunderdome: Calculating the Value of the ING “Signing Bonus” Versus HSBC’s Higher Interest Rate

When I compared ING and HSBC, I discussed how HSBC’s annual percentage yield of 5.05% is significantly better than ING’s annual percentage yield of 4.4%, but I felt that ING’s service was significantly better. One of the comments, from Boston Gal, made the astute observation that ING’s current “signing bonus” of $25 did a good job of offsetting HSBC’s higher interest rate, thus making the financial difference a wash.

I wanted to calculate this out to see whether or not this is true and to determine whether or not you’re saving money by using ING versus HSBC over a period of one year. Obviously, for longer term investments than this, you should be considering a certificate of deposit; if you’re moving funds pretty regularly, then service becomes a bigger factor and the balance shifts more toward ING.

First of all, I need to convert the stated APY on each account into the actual earned interest rate. ING’s APY of 4.4% becomes an interest rate of 4.314% when compounded monthly, while HSBC’s APY of 5.05% actually amounts to an interest rate of 4.937% when compounded monthly.

So, how much would you have to deposit in HSBC for the superior interest rate to overcome ING’s $25 “signing bonus”? To calculate this, I set up an Excel spreadsheet with ING’s interest rate and HSBC’s interest rate as static values and a cell in which I could enter different initial deposits. The spreadsheet would then take this initial deposit, calculate the interest each month, and then produce a difference between the totals at the end of the year.

At first, I entered $250, the minimum amount needed to get the ING signing bonus. At this level, at the end of the year, the ING account held $24.38 more than the HSBC account. Not bad.

Next, I tried an initial deposit of $10,000. At this level, the HSBC account held $38.99 more at the end of the year. A win for HSBC.

So, the correct number had to be somewhere between these two amounts. After entering many different values, I found the sweet spot: in order to overcome the ING “signing bonus” in a single year, a person would have to make an initial deposit of $4,002 in an HSBC Direct savings account.

What does this mean? If you discard all other factors, the ING signing bonus means that ING is the best solution for beginning savers, whereas if you have a large principal, you’ll make more at HSBC. The cutoff number for one year’s worth of saving is $4,002; for longer periods, other investment options are likely to beat either bank.

In my opinion, ING is much stronger than HSBC on service-related issues, which is clearly a factor to take into account when selecting your savings account. I stand by my recommendation that ING is the best choice for beginning savers; for those with large balances, other options besides online savings might be better yet.

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  1. AS says:

    Have you looked at Emigrant Direct at all? I believe that they are also offering a 5.05% interest rate. I am considering switching my ING account to that bank at the end of the year. I have been watching their website for a while, and it seems like they always offer higher interest than ING. I’m not sure about the service issues, though.

  2. Kory says:

    AS, just don’t try to open a custodial account with Emigrant. They don’t offer them, but ING does.

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