Shopping for a Loan or Savings Account? Beware Online Rate Searches

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A percentage point difference on a mortgage rate could mean tens of thousands. That's why it's important to use online rate searches – but not until you understand how they work.

We live in the golden age of comparison shopping.

No longer do we have to drive to the mall and visit several stores to find the best deal. We can do it online before leaving the house, or do what a majority of smartphone owners do:  check prices online while in-store, a practice called showrooming.

Comparisons are also easier for much bigger financial decisions, like mortgages, auto loans, IRAs, and CDs. We have a rate search for all of the above, and you’ll find them everywhere else online, from Zillow to MSN.

But while this tech is valuable, it’s important not to give it more weight than it deserves. Because as Money Talks News founder Stacy Johnson explains in the video below, rate comparisons don’t always provide the full picture or the best rate. Check it out, then read on for more.

There’s no question rate searches are useful comparison and educational tools, but they’re not perfect. Let’s recap what you have to watch out for with rate searches…

1. Stacked results

It seems logical the top results would be the best ones. After all, that’s what search engines have trained us to expect. But a rate search often doesn’t work that way, and here’s why: There’s big money at stake, and some companies pay to have their results highlighted at the top.

On a Web search engine, those results are visibly differentiated as ads. On a rate search, like the one seen in the video above, it’s not always as obvious. You have to check the numbers.

Sometimes the results can be sorted: Look for tiny arrows next to column headers, click on them and you should see the results get shuffled. For instance, in our mortgage search, clicking on the APY column header will cause the results to list the lowest interest rates first. If you accidentally click it a second time, that will flip things around and list the highest rates first.

2. What’s missing

No rate search can check everything, in part because of how searches work. There are only two broad ways for a search engine to get its results.

The first is to crawl the Web, connecting to servers that host applicable content, then indexing the information. This is how search engines like Yahoo, Bing, and Google work. Every search engine has its own algorithm to figure out what stuff to include, exclude, update, and prioritize. Try searching for one phrase with multiple engines and you’ll see different results.

The second way search can work is by being directly fed data from somebody – usually from a business, but sometimes from individual users – and building a searchable database from it. This is how travel search sites like Expedia and Travelocity work. If this kind of rate search doesn’t have a partnership with a business, their rates won’t be included.

In either case, no search can find everything. That’s why our rate searches include links to many others at the bottom – so you can get several perspectives.

In short, the rate searches you’ll find online will never show you rates from banks or others that don’t agree to have their rates listed with rate search providers. So no rate search is complete until you’ve checked with community banks, credit unions, and others to find the best deal.

3. Changing rates

Sometimes a quote seems too good to be true – and maybe it is. There can be all kinds of restrictions on a rate. It might only be for new customers, or for existing ones. It might only be valid for the current date, a promotional period, or it “may change without notice.” The rate could be based on a certain credit score, employment status, or other personal factors the search tool doesn’t account for.

You may be able to use comparison shopping to negotiate a lower rate or fee waivers from a competitor, like Stacy did with his mortgage a few years ago. But be prepared to prove you qualify for the rate you say beats theirs and to show you’re making an apples-to-apples comparison. How? By calling up the companies offering the best rates, getting them to verify they’re accurate, and making them send it to you in an email.

Why rate searches are still worth doing

Despite these drawbacks, rate search tools are valuable. Because whether borrowing or saving, even a tiny change in rates can make a huge difference over time.

Mortgage rates are the best example. A single percentage point – like getting 5 percent instead of 6 percent on a 30-year, $300,000 mortgage – can save you $67,000 over the life of the loan. That’s probably enough to fund an in-state college education and still have enough money left over to start a business or retire earlier.

It’s the same with savings rates. If you’re currently earning 0.5 percent on your money market account and can find one that’s paying 1.5 percent, you’ve tripled your earnings with little hassle and no extra risk.

People drive out of their way to save a few cents a gallon on gas, or clip coupons from multiple grocery stores to get the best bargains. The same logic applies here, but the potential is bigger. Thanks to technology, the hassle is also smaller.

Bottom line? The Web is a great way to search for the best rates, but if you want to ensure the best deal, put in a little legwork yourself.

Stacy Johnson

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