Why It Pays to Have a Good Relationship With Your Bank

A new working paper from the National Bureau of Economic Research found that borrowers with stronger, longer-standing ties to their bank were able to secure larger loans and slightly lower interest rates — often without having to pledge as much collateral — than customers with little or no established history at the bank.

The researchers analyzed more than 55,000 loans to 10,000 borrowers at a single bank in the mid-19th century, tracking how relationship length, intensity and exclusivity influenced loan outcomes over 35 years.

Although the study focused on a very different era of banking, its insights still hold up today.

Your relationship with your bank is one you might not think about much, but your bank knows it well. Every deposit, loan payment and debit-card swipe builds a kind of financial friendship — one that can pay off when you need help most.

But those benefits aren’t limited to major financial moves. A longstanding relationship can also make everyday issues, like resolving a debit-card fraud dispute, faster and less stressful because your bank already knows and trusts you.

When fraud strikes, familiarity matters

When something goes wrong, an established relationship with your bank can make all the difference.

In a recent Money story, one editor shared how her long history with her bank helped her resolve a debit-card fraud case quickly. As soon as the charges hit her account, the bank began the reimbursement process and quickly refunded her money — recognizing that the spending behavior didn't match her usual money habits.

According to Paul Benda, executive vice president of risk, fraud and cybersecurity at the American Bankers Association, her long-standing relationship with the bank played a key role.

“They knew you as a customer, and they knew that your card had been compromised,” Benda tells Money. “But if you’re a new customer with the bank or if the charges are similar to what you’d normally make, the bank will probably have more investigating to do.”

Andrew Latham, a certified financial planner, says that familiarity can give customers an edge, but it's not a substitute for vigilance.

"When a banker is familiar with your typical account behavior, they can respond more personally and effectively," he explains. "Still, it’s important to keep an eye on your accounts and advocate for yourself because not all banks are proactive or equally responsive."

Why long-term ties matter when life changes

The same trust that smooths out small problems can also help when life takes an unexpected turn — whether it's job loss, a medical emergency or even a major milestone like buying your first home.

“Credit unions work to have a comprehensive understanding of their members' financial journeys,” says Tansley Stearns, president and CEO of Community Financial Credit Union.

“Throughout life's joyful and dark moments, credit unions build deep relationships with our members. These connections enable us to offer solutions tailored to real-life circumstances.”

Stearns notes that many credit unions use data from the United for ALICE (Asset Limited, Income Constrained, Employed) Initiative to better understand the real-world financial pressures their members face — from housing and childcare costs to health care and unexpected expenses.

“Insights from ALICE data inform programs such as small-dollar loans, financial counseling, and community investments, ensuring that support is tailored, empathetic and grounded in the real needs of the community,” she says.

Those connections also prove valuable during crises like the ongoing government shutdown, when furloughed workers often turn to their credit unions for zero-interest loans, waived fees or the ability to skip loan payments.

“Long-standing relationships meant credit unions could act quickly, understanding members’ histories and offering solutions that helped them weather the financial disruption,” Stearns says.

Why smaller banks and credit unions can offer a relationship advantage

Relationship banking isn’t just about perks — it’s also shaped by the wider financial landscape. Smaller banks and credit unions often emphasize personalized service and deep knowledge of their customers’ financial histories, which helps them offer faster, more tailored support when challenges arise.

But relationships like these depend on smaller and community banks being able to compete — and some lawmakers say the system is stacked against them.

During a Senate hearing on July 22, U.S. Senator Elizabeth Warren, D-Mass., argued that the current $250,000 Federal Deposit Insurance Corporation, or FDIC, limit puts smaller institutions at a disadvantage compared with the nation’s largest banks.

The FDIC cap is the maximum amount the federal government guarantees per depositor if a bank fails, protecting consumers from losing their insured funds.

After the 2023 collapse of Silicon Valley Bank and Signature Bank, Warren noted, big firms with billions on deposit were made whole, while smaller banks that failed later received coverage up to only $250,000 (citing two examples in Oklahoma and Texas in the years following the 2023 SVB crash), leaving "millions of dollars of uninsured balances" lost.

“One way to help level the playing field,” she said, “is to increase deposit insurance limits for business transaction accounts — bank accounts that businesses use to make payroll and rent.” Raising those limits, she argued, “would help small banks compete.”

Raising the FDIC insurance cap has bipartisan support and could make a difference for community institutions — the same ones that tend to know their customers best.

For everyday consumers, policies that strengthen small and midsize banks can help preserve the kind of trusted relationship that makes a difference when your debit card is compromised, your job situation changes or you just need a human who understands your financial history.

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