Time pressure = bad decisions

Ramit Sethi · December 11th, 2006

Vanessa writes:

I’m in the middle of a real estate deal and have $80,000 to park for one month until I fork it over to the seller, so I thought I’d open a high-interest (5.05%) HSBC account. I began the “15 minute” transaction on Friday morning. For some reason, the bank was not able to complete it online, so it had to verify my existing bank account with two tiny depositions. They didn’t show up until today, Monday. Then I called the bank to see what the next step was and I was told that I should receive an email “any day now” and that no one could complete my application. I sent an email and was told that someone would respond to me within 48 hours.

I can practically hear the lost interest ticking away!

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I then got back onto the web site, navigated around until I got to the right place, and completed my application. Which still hasn’t been verified or anything.

This process seemed so old-school for what should be an easy Internet transaction. Any advice about opening high-interest accounts, or any banks that have a better process?

My response:

Can I be honest? It sounds like you’re being a little impatient. One or two days here or there doesn’t make a big difference—we’re talking about just over 10 bucks a day. I’d encourage you to think long-term and pick the best place that makes you comfortable, not be in a rush to make some money. Even though banks may be Internet based, they have strict security rules that take time for a reason.

Contrary to the idiotic investing magazines and TV shows, getting rich is not a sprint. It’s a marathon, and fortunately one in which I can remain in my room, typing away furiously and incurring absolutely zero sweat. If you find yourself under the gun to make a financial decision quickly, I’m willing to bet it’s almost always a bad decision.

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  1. Impatient? Sure. And no, getting rich isn’t a sprint. But if she’s only got a month to float this and try to skim as much interest as she can off the top. She doesn’t have a ‘long term’ on this particular transaction. She’s not really going to *lose* anything off a bad decision, but every day longer it takes her to get the money into that account is about $10 gone. $10 may not be much for you, Ramit, but $300 for a month would be my Christmas shopping money and then some. But if she only gets two weeks, suddenly it’s only $150. And so on…

    So, I can sympathize, even though it doesn’t sound like there’s much she can do.

  2. richfromyourhome

    That’s really unfortunate that it’s taking so long! I understand they have these security protocols, but we live in the information age! It shouldn’t take as long as it seems to be taking this lady.

  3. Transcendental Success

    I’m with Susan. Diligence at reclaiming or saving a few dollars here and there is how the standard “work and save” model succeeds. If that’s her model then she’s doing well

  4. Come on now. It’s a bank account, meant to be long term. There are rules and procedures. The only thing different about internet banks is that they don’t have tellers walking around. They need to abide by all the rules and regulations of other banks, most times even more because they don’t have the benefit of having you walk in to verify your identity. I’ve heard similar rants about ING’s high yield account. People complain about the “two tiny deposits” and they take so long to clear, etc, etc. If one of these online banks happens to “accidentally” let some random John Doe withdraw your entire savings, I bet you’d be pissed.

    If you want to make quick cash, look somewhere else, not a bank account. That’s just not what the purpose is.

  5. if you were a citibank customer, you could open their e-savings account, which pays pretty much the same interest, much faster. i think mine was open the same day i applied.

  6. MyNameIsMatt

    I have an account with ING, and once it’s setup, it’s the easiest thing to use. However, setting up the account does take probably a week or two because of all the backend stuff that needs to happen. It would be nice if they could speed up the sign up process, but really, it’s everything after that which matters.

    I agree with Susan on the nice Christmas money, but if you’re getting anxious about $10 a day for 30 days, then you’re way too worked up. On the level of priority, the $80k (down payment I presume) is a much bigger deal than the interest for a few days. She should have been more prepared for this. If she wanted the account, she should have set it up before she needed the money in there, and always pad the amount of time you think it’ll take. It’s too bad the money is lost, but I think she’s thinking a little too small.

  7. Was this really asked of you? I’d imagine a quick call to the bank would have expedited the process.

  8. Ramit Sethi

    Yep, got the question last week by email. I agree about the phone call, too.

  9. How does she have that much cash and no high yield savings account? It seems like she should have planned this out better. She shouldn’t be upset at the banks, she should be upset at herself.

  10. Ramit, I think you missed the point! This isn’t about getting rich, this is about taking advantage of a window of opportunity (in this case, one month) to leverage the $80k. I agree that it’s not much money we’re talking about, but I think the point is that Vanessa was saying “I recognize a short-term opportunity here that I don’t want to lose,” which I can respect. If she had $400,000 liquid in a very-short-term situation (as I did once) you can bet that every day of dumping into a quickie 30-day account would make a larger difference. (In my case? I couldn’t risk the money so I hustled it into a 45-day CD as quickly as I could!)

  11. hsbc is the worst for setting up online high yield savings, such a slow process through mail. emigrant is usually up to par and has good rates and recently updated their site.

  12. Landlord Shmandlord

    “If you find yourself under the gun to make a financial decision quickly, I’m willing to bet it’s almost always a bad decision.”

    It is amazing how many salespeople/businesses/etc try to take advantage of this.

    I’ve also found that people (including myself) tend to be more susceptible to these types of schemes when purchasing real estate (high excitement, nervousness, etc). That is, unless they’re consciously looking out for sharks.

    As you said, in these types of situations you have to remember that it is O.K. to pause and carefully think through the situation at hand.

    Or, you could just GO GO GO.

  13. I have to agree that HSBC is painfully slow in their process. It seems that things get parked at various points in the process and are waiting for someone to look at them.

    Besides the length of setup time, HSBC has been a wonderful bank with excellent service.

  14. Setting up new accounts usually takes time due to security provisions…. I guess if you don’t know this you are upset that you are losing interest, but the answer is to be prepared and open it before you need it.

  15. By law, Banks have to report deposits greater than $10,000 cash to guard against laundering drug money to the Federal Reserved Bank.

  16. I would have bought or sold a good stock Future 🙂