Recently, I have noticed a good number of postings on the 6% interest rate offered by FNBO, an online bank similar to ING or Emigrant Direct. Scores of people are moving money over there, as this rate is guaranteed until September 1st, at which point it will most likely drop down to a number more in line with its competitors.

I looked at opening an account there today, to use as our soon-to-begin savings towards a house down-payment. I could have easily added another account at Emigrant Direct, but I figured with the amount of money we would be contributing it would be worth taking advantage of a higher interest rate, even if only for six months.

Unfortunately, I was unpleasantly surprised to find that it made very little difference at all. Even assuming I earned 6% for an entire year (even though the rate is just guaranteed for another six months), with a deposit of $1000 a month I would only earn an extra $50 at the end of the year compared to how much I would have earned at 5%. Sure, $50 is nothing to sneeze at, but it’s a paltry 0.4% gain when you look at the total sum I would have saved over the year.

It made me realize that while compound interest is a wonderful thing, it does take several years to really build up steam. It’s important to note that over the course of five years, that 1% would account for an additional $1400. Would I take a risk and invest that money in the stock market, hoping for a 10% return over five years, that additional increase in interest would add up to $7300!

Of course, I know that investing money in the stock market that I will absolutely need in five years is risky business. Instead, I will be on the lookout for taking advantage of that extra 1% over the course of five years in a stable, reliable online bank account.