As digital banking improves, Americans are gaining greater access to a wide range of financial services. And in the wake of these improvements, many are realizing that one bank or credit union is not sufficient.
Over the past decade, I’ve held accounts (not credit cards) at 15 separate financial institutions. Initially, I wasn’t happy with my primary bank, Bank of America. They became my bank through a merger, and I’d just stuck around because it was easy. At the time, Bank of America wasn’t staying on top of the online banking innovation, and I was fed up.
So I started looking for a bank or credit union that was a better fit because I knew there had to be preferable options out there. What I found was that my banking experience could be greatly enhanced by not being loyal to a bank.
Here’s just a few of the essentials, I was looking for:
It’s my personal mission to ensure I never pay bank fees. Banks earn interest on my money, so I don’t need to pay them for the privilege of holding on to it.
Over the years, I’ve navigated the minimum daily balances and qualifying direct deposits to ensure the monthly service fees are waived. But I draw the line with banks that required me to use a debit card 8-12 times per month. I maximize my credit card rewards on each purchase and credit cards offer significantly more purchase protection than a debit card. So I can’t bring myself to sacrifice potential earnings just to avoid a fee.
In addition to monthly fees, many banks have gouged their customers with junk fees like insufficient funds fees, late fees, and convenience fees. Thankfully, the Consumer Financial Protection Bureau is getting serious about penalizing banks for excessive fees. But until the predatory practices get reigned in, I chose to avoid banks with hidden fees, even if I’m comfortable avoiding them.
Even when banks make it easy to avoid monthly service fees, they don’t tend to offer high yield savings accounts. Chase, my primary bank, offers a dismal 0.01% APY or if you jump through a number of hoops they’ll double that for a very unimpressive 0.02%. But I want any funds I hold in savings to earn as much as possible, so those percentages don’t work for me.
Since most high yield savings accounts don’t require a minimum balance, I’ve opened several and regularly move money around to maximize my interest. I have a Premier Members Credit Union account that earns 2% on the first $2,000 and a Sallie Mae account that earns 0.7% on balances up to $10,000. Currently, my savings are in Marcus earning 0.85% with a $100 offer for depositing new funds for 90 days.
When I opened a CD, I found that the interest rates at my current banks were lacking. Instead, I shopped around and found a higher APY at American Express banking division. While their other products didn’t meet any of my needs, I earned a quarter percent more in interest than any other CD available at the time.
I’ve also taken on loans through FIs where I didn’t hold an account. If the institutions offered enticing products, I opened additional accounts. But in many cases, I repaid the car loan or made mortgage payments with no additional institution interaction. In nearly every case, I was offered better interest rates from a bank seeking my business than from those where I held an account, so make sure to shop around.
Since I split my money among several bank accounts, it’s important to be able to move funds between accounts seamlessly. Instant Account Verification (IAV) lets you authorize your bank to deposit and withdraw funds from accounts outside of that financial institution. But not all FIs are created equal.
I’ve had a Capital One 360 Savings account for years. However, despite several attempts, I still cannot initiate deposits or withdrawals from my Capital One account. Instead, I need to initiate the transfer from another institution.
Similarly, I opened a checking and savings account at Blue Federal Credit Union. I loved the interest bearing checking option and hoped I could make this my primary FI. But this credit union issues a single account number for all accounts and designates separate accounts as S1, S2, and S3. Because letters are not an acceptable identifier at other FIs, I couldn’t accurately designate the correct account. My direct deposit ended up in my savings and transfers ended up in my member share account. The inability to communicate with other banks meant I constantly needed to babysit my accounts.
Unfortunately, you can’t determine if a digital banking experience works for you until you try it. I’ve opened countless accounts for the welcome offer, but never moved that bank to the top of wallet because the digital options just didn’t work for me.
On a similar note, I want to be able to see all my accounts in one location. So I need a bank that offers the full range of account aggregation. Unfortunately, many aggregators simply don’t cover all the institutions people need to link. I’ve found it nearly impossible to link my Sallie Mae or my Premier Members Credit Union accounts. Most of my banking apps have struggled to let me link my LPL investment accounts. And Chime, for all its ease of use, only allows you to link accounts for fund transfers, not budget management.
Even when I successfully connect my accounts, the account links break frequently. Some links break so often that I’m required to re-authenticate on nearly each log in. Other apps appear to initially link successfully, but due to 2-Factor Authentication that doesn’t happen in real time, you can spend days trying to get the connection established.
Beyond the ability to link accounts is the importance of accuracy. My Empower app continues to list my mortgage debt as available cash, even though it can identify the checking ACH transfer as a mortgage payment.
Currently, the BECU app is excelling in ease and accuracy of account aggregation. However, you’d never know that from the online interface, as only the CU app offers this feature.
I love travel and while it’s easy to avoid foreign transaction fees with a travel friendly credit card, it’s much more difficult to avoid foreign conversion fees. My BECU debit card has an incredible offer for no currency conversion fees and offers a $3/month ATM reimbursement fee. Over the years, I’ve avoided a number of fees during international travel.
Unfortunately, on a recent trip, my BECU debit card PIN wasn’t recognized. Thankfully, I also had my Chase debit card, but that included some hefty fees for currency conversion and out of network ATMs. Capital One checking offers a debit card option with $0 currency conversion fees, so this may be an option once they resolve their issues with IAV.
While my willingness to adopt new accounts is higher than the average user, I’m not alone. In fact, a 2018 Go Banking Rate survey found that 50% of Americans used more than one bank and 11% of those surveyed banked at four or more financial institutions. And those numbers are only increasing. A December 2021 Phoenix Synergistics survey exploring banking loyalty, found that the average household has accounts at 3.3 financial institutions.
Gone are the days where a single product can draw in new customers and the enticement of single location banking will increase engagement. In fact, even customer longevity doesn’t equate to customer loyalty. While Chase has been my primary bank for a decade, they’ve never held my primary savings, housed my investments, or provided a loan. I have opted to bank elsewhere for some of the highest revenue producing financial services.
Banks’ and credit unions’ perception of customer loyalty may be further skewed by the impacts of fintechs on market share. There is an invisible migration of funds to non-traditional FIs where customers never close their account, but shift their primary financial management to another provider. Cornerstone reports that 15 million consumers identify their primary spending account as PayPal or Cash App. This means that traditional FIs now have sizable gaps in the financial picture of their customers.
There’s no getting around it, consumers are shopping around. Phoenix Synergistics found that even customers who were loyal would switch FIs to gain new features or services (30%), financial advice & guidance (28%), a higher interest rate on savings (26%), fewer fees (25%), and better online or mobile banking (25%). Even extremely loyal customers would consider switching for special features or services or to receive financial insight. But research shows financial wellness tools including calculators, 360 financial overviews, and budgeting tools could improve customer retention.
Further, consumers also expect their financial institutions to be loyal to them. Of the 2,000 survey respondents, 60% expected a perk for hitting a 5 year anniversary with a bank or credit union. Sadly, this is an expectation that is going unmet. Bill McCracken, President of Phoenix Synergistics, states “Even just a text saying ‘thank you,’ or a special promotion like extra interest, can go a long way”.
It’s time to reinvision how banks incentivize customers. What are you doing to join long-term loyalty? Are you creating better and better products to wow your users? Does your platform provide high quality financial wellness tools? Are you reducing fees? Do your customers love the ease of your mobile app? Are your interest rates truly competitive? These are no longer banking luxuries. They’re what your customers demand. And if you don’t offer them, they will find them somewhere else.
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