The Hidden Cost of Loyalty: Why Staying With Your Bank Could Cost You
Loyalty isn’t always a two-way street, and that is certainly true for many customers’ relationships with their financial institutions.
Some customers stick with the same banks or credit unions due to convenience and familiarity, but that loyalty may be costing them. These are some of the ways your banking relationship may be standing in the way of your financial goals.
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Low savings rates
Setting up an emergency fund is an important way to protect yourself financially in the face of the unexpected. If you have enough money to cover three to six months’ worth of your expenses, you won’t have to sell stocks or take out a loan to cover a surprise cost. However, you can still lose money with an emergency savings fund and other short-term savings if you keep them in an account with low interest that won’t be able to 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 substantial difference for your wealth, especially over the long run and for large balances.
For instance, if you have a $20,000 emergency savings fund sitting in an account with a 0.01% interest rate, you’ll only earn $2 by the end of the year. But a 4% APY would earn you $800.
Fees
Fees may seem small, but they can add up over time and eat away at your bank balances. Some banks charge maintenance fees if you don’t meet certain requirements, such as maintaining a minimum balance or linking two of your bank accounts. Nowadays, there are plenty of accounts that don’t charge maintenance fees at all, so shop around before you commit to one bank. If you want to bank with an institution that does charge these fees, make sure you understand exactly what you need to do to avoid the charges.
It’s not just maintenance fees you need to worry about. Out-of-network ATM fees can take a bite out of your balance if you’re regularly withdrawing cash. Banks also tend to charge for overdrafts or insufficient funds, wire transfers and new checks. Finding a bank that will cover at least a portion of your out-of-network ATM fees and offers overdraft protection can help you save.
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Missing bonuses and perks
Banks understand that the competition for new customers is fierce, and they tend to offer perks for moving your services over to them. This could come in the form of earning bonus points or miles when opening a new credit card or a cash bonus offer when opening a new checking account.
Of course, you don’t want to keep switching banks just to chase new-customer perks and higher savings rates. But if you do plan to switch, shop around to see what that switch could get you.
You don’t have to — and shouldn’t — stick with a financial institution just because it’s the easy 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 is more suitable to your needs.
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