The best bank to choose to manage your financial affairs is an extremely important decision. That said, in many cases you might have picked a bank pretty much from random in your teens or your parents picked one for you when opening a children’s savings account on your behalf. Chances are, you have grown up with it, know it well and think no more about it.
In all likelihood, your parents will have chosen the institution they use rather than search out the one with the best bank accounts and facilities for you.
There is a withering away in modern society however of customer and brand loyalty. People are far more likely now to move their money or their loans to where the returns are greatest and the costs lowest. It is worth looking at the options because excellent long term deals are available, and there is often the chance to pick up a sweetener to move.
There will always be an element of inertia though. It takes time to research the best banks and switching current accounts for example will involve moving over possible a myriad of standing orders and direct debits, going both in and out. It is also likely that the best bank rates will be available with one company for savings accounts, with another for mortgages and yet another for fixed rate bonds.
This of course complicates the issue and can have a real although difficult to measure cost, the opportunity cost of your time. What could you have done if you were not filling out transfer forms, submitting documents to prove your identity and discussing pros and cons with the bank staff? Multiply this by the huge range of financial products that are available and often necessary in modern life, and by the fact that you might want to consider the best bank interest rates or mortgage rates on an annual basis for example. You might have spent your time to earn money in another way or simply had more leisure time. The latter although hard to quantify without doubt has significant value.
Although this sounds somewhat abstract, this kind of trade-off comes up again and again. How much time and effort to you want to spend for what gain? Is a $5 improvement in interest rate earnings with the best bank savings account each month worth the hassle of changing banks? Is $1? Is $50? The answer might be yes or no. It depends on your personal circumstances and values.
Some practical ideas that might make working the system to your best advantage are listed below.
1. If time is important, consider looking at the best online bank products. Once you have signed up and got your internet log-in details, it will take less time than a visit to the bank to manage your investments. The same philosophy can apply to telephone accounts.
2. Some banks offer great sweeteners to open an account. This can be anything from a cash payment to shopping vouchers to a gift. Beware though. Unless you plan to change to another provider quickly, check the underlying terms and rates. These might be far less favourable than the headline catching offer they are promoting.
3. Many banks are often new current accounts that require you to make a monthly payment in. Benefits can include a whole raft of products such as free travel insurance, household boiler maintenance and car breakdown services. It is really important to add up what you are likely to save against the additional cost. And always read the small print. Is boiler servicing included as well as maintenance for example? If not, you might still need to take out a separate policy for that.
4. Lots of financial products offer introductory bonuses, for example an additional 0.75% on top of the standard savings rate. This will tend to expire after a set period making the account far less competitive. Banks count on the fact that a proportion of people will forget or not bother to look elsewhere are the end of this introductory period and move elsewhere.
5. Beware automatically accepting other products from the bank where you might hold most of your account for example. These big businesses are very good at suggesting lots of other services that you need but not necessarily at the best price. This includes everything from mortgages to savings to house insurance and income and unemployment insurance.
6. Some fixed term savings accounts can offer a great savings rate but you need to be sure that you won’t need that money quickly or risk loosing most or all or any interest otherwise due.
7. Overdraft facilities on current accounts seem really helpful on the face of it, giving you added security, but going in to the red can incur large interest charges. This can quickly wipe out the benefits of a great savings account you have found elsewhere, so monitoring your account regularly is really important. On the flip side, leave too much money sitting in your current account, which generally earns very little interest, and you are not taking advantage of earning much higher rates with the money deposited in a savings account.
8. Finally, when moving money around the financial system, think about how safe the money is should an institution fail. Different countries have different policies regarding levels of cover for each institution. This might mean it’s sensible to split savings and investments across a number of different service providers. Make sure too that the providers you are dealing with are not part of the same umbrella corporation.