Why Banks Pay More For New Money Than Old

The best available savings rates are usually on accounts that are open to new customers, while long-held accounts pay less. This is a pricing structure rather than an oversight.

Acquisition and retention have different costs

Attracting a deposit from another institution requires beating whatever that institution pays, plus enough to overcome the effort of moving. That is expensive.

Keeping an existing balance requires only that the customer does not move it, and most customers do not, because the effort is immediate and the benefit is gradual.

A bank paying the same rate to both groups would be spending on retention what it only needs to spend on acquisition, which is why the rates diverge.

Closed accounts stop being repriced

Institutions frequently launch a product, gather deposits, then close it to new customers and open a successor at a competitive rate.

The closed account continues, but its rate is now managed for a captive balance rather than a competitive one, and it typically drifts down over time.

Because the account name and the customer's experience are unchanged, nothing signals that the product is no longer the one that was originally chosen.

Inertia is measurable and is priced in

Banks can observe how much of a balance leaves at each rate level, and that relationship is the input into how far a legacy rate can be allowed to fall.

The result is a spread between headline rates and average paid rates, funded by balances that do not respond, which is a known feature of deposit markets.

Regulators in various places have intervened with rules on notifying customers of rate changes and on the gap between new and existing products, and these rules vary by jurisdiction and change.

Bonus structures formalise the same effect

Introductory rates that include a temporary bonus achieve the divergence explicitly, with the account paying a competitive rate for a period and a residual one afterwards.

The advertised rate is the combined figure, which describes only the first period and not the rate the balance will earn once the bonus ends.

Whether the account remains competitive afterwards is entirely separate from whether it was competitive when opened, and the two are frequently confused.

The practical response is a review interval

Since the drift is gradual and unannounced in substance, the mechanism that catches it is a scheduled check rather than a reaction to any event.

Comparing the rate actually being paid against currently available accounts, at a fixed interval, converts an invisible decline into a decision point.

None of this indicates that any particular account should be chosen; it explains why the rate on an account tends to fall relative to the market simply through being held.