Pick a Bank, Not Any Bank: Loyalty May Be Key to Cutting Costs in New, Regulated Environment

June 30, 2010 No Comments »

It seems like every week we hear about new laws reducing the fees banks can charge. From a limit on credit card interest hikes to a cap on late fees to a virtual end to overdraft fees on both credit and debit accounts, the government is making it more difficult for banks to charge customers for transactions that “break the rules.”

Depending on your worldview, this may be good or bad. On one hand, many bank fees are unreasonable or excessive, and it makes sense to regulate them. On the other hand, the banks set up a system in which those who handled their finances responsibly skated by for free, or even made money via bank reward programs. If banks now take away these perks, many people will feel they are being penalized in order to help those who couldn’t handle their finances.

Regardless of your opinion, the reality is that new regulations on the banking industry are sure to level the playing field in terms of who pays what. Those who are responsible with their money are still likely to have to pay fees, while those who’ve made mistakes will not be penalized nearly as harshly. (I should take a moment to state that even the most responsible consumers mess up once in a while, and are understandably furious over huge fees for small transgressions, so I don’t want to portray this as a situation in which “good” customers must pay the price for the actions of “bad” customers.)

With the costs of banking likely to go up across the board, what can you do to limit the damage in terms of the fees and interest you pay for the convenience of credit cards, debit cards, checking accounts, etc.?

One word: loyalty.

It’s a novel concept, yes. For those of us under age 60 or so, the thought of being loyal to a bank is a quaint notion. This ain’t the 1940s; we don’t know our neighborhood banker, we don’t go to the neighborhood bank to get all of our loans. No way. Instead, the banking industry has taught us to chase the deal. Who’s got the best interest rate? Who’s got the best rewards? Who’s offering something for nothing?  From credit cards to car loans to mortgages, we have learned that loyalty to any financial institution is asking to be taken for a ride. Why get my mortgage from the bank that offers free checking when I can find a better rate from the out-of-state company with the online-only bank? Just as employers have encouraged worker disloyalty by laying people off in batches to please shareholders, banks have encouraged customer disloyalty by offering “deals” on the front end and trying to make money on the back end through fees, tricky interest rate hikes, and other fine-print “gotchas.”

But… the rules may be changing. Well, actually, they are changing. New laws are forcing lenders to re-think how they look at customers and how they make profits. One of the strategies they are reluctantly embracing is the old-fashioned notion of making money from loyal customers who do all their banking in one place instead of chasing a la carte deals.

OK, maybe that works for the banks, but what’s in it for you? Well, just as your insurance company may give you a price break if you buy multiple policies (such as car and home insurance together), banks are getting into the groove with price breaks (or extra perks) for those who show loyalty with multiple accounts at the same institution.

Examples:

  • Chase offers an auto loan discount of up to 0.50% when you have a Chase checking account and a discount of up 0.75% total if you also have your monthly payment deducted straight from that checking account. Chase also offers reduced banking fee packages (or higher interest on deposits) when you keep multiple products such as checking, money market accounts, and CDs with them.
  • Wells Fargo offers free, interest-earning checking for those with a Wells Fargo mortgage, or those with over $5,000 saved/invested in Wells Fargo accounts.

These types of incentives are not new, and the examples I use may not be the best on the market. The point is that you can expect banks to get more aggressive and creative in their use of loyalty incentives, while at the same increasing the costs for “free agents” who shop their money around looking for flashy deals.

In the new, highly-regulated banking world (for example, see my recent article on credit card regulation), it may be time to shed your fear of commitment and settle down with one bank. Offering your loyalty might not be as fun as playing the field, but it could be a whole lot cheaper.

This is a guest post from Adam Jusko, founder of IndexCreditCards.com, an information and comparison site for credit card offers that maintains a list of over 1200 cards.

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