It might seem like it would be most convenient to deposit money to an account or get a loan at the bank you use.

In reality, though, interest rates can vary a lot and have a big impact on how much you can save or make.

You will be much better off financially if you compare rates.

On a fixed deposit, for example, data from comparison site GoBear shows that interest rates in early December ranged from 0.1 per cent at Citi to 0.25 per cent at HSBC to 1.73 per cent at Hong Leong Finance.

If you have S$10,000 in your account, you would earn about S$163 a year more at Hong Leong than at the lowest rate.

The impact for mortgage loans is even larger.

Mortgage loan refinancing rates for the first year, based on data from comparison site iCompareLoan, ranged from 1.82 per cent at Standard Chartered Bank to 2.38 per cent at HSBC.

You would pay about S$1,400 less a year in interest if you go with the 2.38 per cent rather than the 1.82 per cent. 

And research by adjunct researcher Jodi Gardner from the National University of Singapore (NUS) showed that consumers who use comparison site Onelyst can get lower interest rates and fees from moneylenders. By using Onelyst to find a low rate of 0.8 per cent rather than the standard 4 per cent for a S$2,000 loan for one month, she said, consumers could save S$128 the first month and a further S$82 if they default for another month.

WHY PEOPLE DON’T COMPARE

Since the savings are so large, it seems surprising that consumers don’t compare rates and save money.

There are several reasons for that behaviour. 

For example, research in the United Kingdom, led by assistant professor of finance Christopher Palmer of the Massachusetts Institute of Technology, found that even though switching to a savings account at another bank takes just about 15 minutes and results in average potential gains of £190 (S$345) in the first year, pessimistic beliefs about the costs and benefits of switching was driving inattention to rates and causing people to stick to what they have been using.

Secondary mortgage provider Federal Home Loan Mortgage Corporation (Freddie Mac) in the United States found that borrowers could save an average of US$1,500 (S$2,030) on a mortgage loan by getting one more rate quote and about US$3,000 if they get five quotes.

Nearly half of the consumers don’t shop for better rates, however, and many don’t seem to realise that rates vary widely. Freddie Mac — citing research into seemingly irrational economic behaviour by Nobel prize-winning economist Richard Thaler — said that consumers search too little, get confused while evaluating complex alternatives, and are slow to switch from past choices even if it costs them.

“These types of behaviour can lead to borrowers relying solely on their existing banking relationship or a single referral from a friend,” it added.

Interestingly, credit information provider Noddle said that an average consumer in the UK spends six days investigating cars before making a purchase, five days shopping for a holiday, three days looking for an outfit to wear for a special occasion and only 3.6 days investigating mortgage options.

Moreover, 19 per cent accepted the first deal they were offered. Noddle said that not getting the right mortgage loan may lead to consumers paying an extra £3,000 a year on a typical £200,000 mortgage.

One other challenge in Singapore, NUS adjunct researcher Jodi Gardner said, is that a lack of transparency about the cost of loans affects consumer’s abilities to benefit from competition. With moneylenders, for example, “it is very difficult (and in some cases impossible)” for borrowers in Singapore to compare rates, she said.

Comparison website Value Champion also noted that even some savings accounts can be “quite complex”, while comparison website SingSaver said that fixed deposit rates can also be “a little tricky to determine”.

HOW TO COMPARE RATES

Whether you’re looking at simple savings accounts or fixed deposits, or contemplating a mortgage, it’s important to overcome inertia or the belief that all financial institutions are the same and compare rates.

You can be anywhere from tens to thousands of dollars better off with that small effort.

The easiest way to compare interest rates on deposits and loans is to use a comparison website such as GoBear, iCompareLoan, MoneySmart or SingSaver.

When you input your deposit or loan amount and the duration you are considering, the sites show a variety of options.

You can easily compare the details of the offers and then contact a financial institution to open an account.

It may also pay to look at bank websites for deals, because some banks have programmes that pay higher interest if you consolidate your banking.

Whereas the standard interest rate on a One account at UOB bank is 0.05 per cent, for instance, you can earn up to 3.88 per cent a year when you spend S$500 monthly on your credit card and credit your salary of at least S$2,000 or pay three bills every month via automated payment facility Giro.

The interest rate on a DBS Multiplier account similarly shoots up from 0.05 per cent to 3.8 per cent a year when you have your salary credited to the account and have transactions in three categories.   

Overcoming inertia or a belief that rates are largely the same and then comparing interest rates can make a big difference and put your financial life in a far better position.