Why you should consider switching financial institutions at least once a year

This article has been in draft form for some time. With the Wells Fargo missing direct deposits fiasco, it seems like the perfect time to finally complete it and publish it. This will be a brief overview detailing the reasons that you should re-evaluate your banking relationship/s at least once a year. Accompanied are tips on selecting the financial institution that’s right for you. 

Credit unions versus banks

Let’s first make the distinction between banks and credit unions. Both credit unions and banks offer the same core banking services, like checking and savings accounts, Certificate of Deposits (CDs), etc. The difference between the two entities is in the type of financial institutions (FI) they are. Banks are for-profit and credit unions are nonprofit. While banks are in the business of making a profit for their stakeholders, credit unions are owned by their members, whom they serve.

Credit unions share their profits with their members by paying higher interest rates and offering lower financing rates.

Why people stay with the same financial institution

It’s fairly common for consumers to bank with the same company for over a decade. But, why is that?

If you’re like most people, your first checking or savings account was set up by a parent. This was likely at a bank or credit union chosen by your parent/s because they personally banked there. 

Because you only needed the account for stashing your funds, of which you likely had not much of, you probably didn’t concern yourself with things like APY, APR, and other financial terms.

As time passed, you may have stuck with the same bank or credit union out of convenience or comfort. Or, maybe you were taught to believe that staying with the same financial institution was the proper thing to do. But, not re-evaluating your banking relationship could be costly.  

Why you should consider leaving your financial institution

Savings

The obvious reason to switch financial institutions is to capture savings in the form of lower loan rates and higher savings rates. Banks and credit unions are constantly making efforts to encourage customers to keep funds on deposit with them. Some outright offer better rates. So, the choice seems easier when comparing financial institutions.

But, it’s important to consider other forms of savings, too.

Another obvious form of savings comes in the form of bank fees. Unless a banking employee is personally managing your account and/or providing financial advice, you should never pay a fee to deposit your funds at a credit union or bank. With literally thousands of banks and credit unions for you to choose from, there’s just no reason for you to pay for a checking or savings account.

There are also hundreds, if not thousands, of banks and credit unions offering bonuses to consumers who sign up for their banking services. So, even if a FI doesn’t offer the highest interest rate, if they offer a $500 welcome bonus, their offer may be worth considering if you have the potential to make more money by depositing your funds with them versus another FI.

Outgrown needs

Can your bank keep up with your needs? Are they open when you need them? Do they offer the services that you need? Are they keeping up with the times and technology or do you still have to call them or go to a branch to perform things like wire transfers? If your FI isn’t able to provide the services that you need, it’s time to find another FI that can.

Some people are just unaware that there are better options available. That’s why it’s a good idea to take a look at what other credit unions and banks are offering at least once a year.

Making the switch to a new financial institution

When starting your search for a new financial institution, start by making a list of things that are important to you. Savings should always be at the top of the list. But, aside from that, what features do you want your account to have? 

Once you know what you’re looking for, go look for it. Don’t go to a local bank or credit union. While that’s an option, it’s certainly not your only option. Instead of going to a local branch, do a quick internet search. You can bank virtually anywhere without ever visiting a branch or even speaking to a representative. 

It’s also important to not just think of the big names when searching for your next bank or credit union. In this case, bigger is not always better. Out of the top five U.S. banks, three of them (Chase, Bank of America, and U.S. Bank) are currently paying 0.01% APY on their savings accounts. The third-largest U.S. bank, Wells Fargo, is paying 0.15% APY on savings accounts, and Citibank, the fifth largest U.S. bank, is paying 3.85% APY on deposits. But, even Citibank’s rate is not the highest compared to competitors.

Some consumers are turned off at the thought of switching financial institutions because they feel that it is a burden. Switching to a new bank or credit union is usually as easy as applying for a new account and making an online transfer. 

Though this article focused on banks and credit unions, you’re not restricted to these financial institution. Recently, investment brokerages are attractive stashes for funds, with some offering four to five percent APY on uninvested funds.