There are many reasons why the experts suggest that you consider whether or not you change banks. Lately, it has been about the strength of the bank and whether it will be around years from now or another insolvency statistic. The main reason to change is that you are probably tired of getting hardly any interest paid on your savings account. Maybe you just realized you are getting paid .01% on your savings account versus 4% elsewhere. Regardless, the advice is the same – “change your bank!”
I find that there are three reasons why people are hesitant to change banks.
First, it is a hassle changing banks when you have auto-deposits, automatic payments established, etc., set up and working just fine. Most people are not in a hurry to move and set up all of those transactions again.
Second, people don’t realize how little interest they are getting. According to depositaccounts.com, 63% of banking customers do not even know the interest rate that is being paid on their savings. They assume it isn’t much because it has been that way for years. People don’t realize there could be a big difference between the interest they are earning versus the much larger interest rate that other savings or money market accounts are paying.
Finally, they realize the difference, and they just don’t want to move for various reasons. People are motivated by their values and might see other reasons to stay that are stronger than higher interest rates.
What I think is wrong with this situation is not the bank – it is the advice. The advice to change your bank assumes that you are going to solve all of these problems by going to another bank. Guess what; the interest might be a little higher, but in most cases, you will just get more of the same.
Instead, how about keeping your bank for banking purposes and moving your savings account to a higher-yielding money market account? What’s wrong with keeping your bank and having two institutions, getting the best of both worlds?
There is a tendency to think of our bank as one-stop shopping. Today, I think that advice might be outdated (at least for now). In most cases, you can set up an account online with a new financial services company and move money between the bank and the new savings/money market account with a click of a mouse. Here are a couple of tips to consider:
Check to see if the new account is insured by the FDIC or if the account is protected by SIPC protection against company bankruptcy. That is a personal decision regarding how you feel about insured accounts.
Give your bank a chance to get you higher interest rates. They might come through, motivating you to keep it one-stop shopping. Banks are very aware of the potential of savings accounts being moved to another institution.
Higher interest rates are nice. However, there are a lot of banking intangibles that you might find more important... relationships being one of them.
Be careful with online banks. They could look like a one-stop banking concept. However, there might be some unintentional risks hidden.
If you have further questions for Bob, please visit the Ask Bob page on the website, and Bob will get back to you.