The Hidden Cost of Bank Loyalty
Loyalty is not always a two-way street, and that is true of many customers’ relationships with their financial institutions.
Some customers stick with the same banks or credit unions out of convenience and familiarity, but that loyalty can backfire. These are some of the ways your banking relationship may be standing in the way of your financial goals.
Savings rates are low
Setting up an emergency fund is an important way to protect yourself financially when faced with the unexpected. If you have enough cash to cover your expenses for three to six months, you won’t need to sell stocks or take out loans to cover unexpected expenses. However, you can still lose money in an emergency fund and other short-term savings if you keep them in a low-interest account that won’t keep up with inflation.
While banks tend to have low APYs on traditional savings accounts — and no interest on checking accounts — you can find high-yield savings accounts with annual percentage yields (APYs) as high as 4% at some online banks. A higher APY makes a big difference to your wealth, especially over time and larger balances.
For example, if you have an emergency savings fund of $20,000 sitting in an account with an interest rate of 0.01%, you will only earn $2 at the end of the year. But a 4% APY would earn you $800.
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Funds
The fees may seem small, but they can add up over time and eat into your bank balances. Some banks charge maintenance fees if you don’t meet certain requirements, such as maintaining a minimum balance or linking your two bank accounts. Today, there are many accounts that do not charge maintenance fees at all, so shop around before you commit to one bank. If you want to bank with an institution that charges these fees, make sure you understand what you should do to avoid the fees.
It’s not just maintenance fees that you need to worry about. Out-of-network ATM fees can deplete your balance if you withdraw cash frequently. Banks also tend to charge extra or insufficient funds, wire transfers and new checks. Finding a bank that will pay at least half of your out-of-network ATM fees and offer overdraft protection can help you save.
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Bonuses and benefits not available
Banks understand that the competition for new customers is fierce, and often offer incentives to refer your services to them. This could come in the form of getting bonus points or miles when you open a new credit card or a cash bonus offer when you open a new checking account.
Of course, you don’t want to keep switching banks just to chase the benefits of new customers and higher savings rates. But if you’re planning to switch, shop around to see what that switch can get you.
You don’t have to—and shouldn’t—stick with a financial institution just because it’s the easiest thing to do. If you’ve been with your bank for several years, take the time to research your other options and see if another bank fits your needs.
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