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Reasons To Dump Your Bank (& How to Get Away With It!)
Like a pair of old pants, sometime we grow out of our financial institution and just need something different. There are many reasons why you may want to dump your bank but it really comes down to the detail that we’re not happy and want something new.
For today’s episode, we’ll look at some of the common reasons why people break up with their banks and then create a roadmap on how to ditch them for good. Thankfully it’s actually not that hard to switch over and that you’ll be much better off afterwards.
One of the most important things is that we need to remember that your financial business is very valuable, and you should do what’s best for you. Dealing with financial institutions can make you feel like you’re just a number, but I assure you that this is not the case and the FIs should earn your business.
Their are many reasons why individuals want to switch their banks, ranging from lack of customer service, high fees, poor performance, and better products offered elsewhere.
Dump Your Bank Reason 1: Poor Management
One of the biggest concerns brought up about financial service is the lack of suitable customer service and advice. This often germinates from banks pushing their products at the expenses of exploring what’s best for you – known as the product-first strategy.
The product-first strategy creates a conflict of interest because banks have the incentive to maximize their profit off of your business – which can unfortunately be at the expense of giving you the best advice.
We have spoken about this a lot but at the branch level but it’s important to understand how most banks work. Their banking representatives have very aggressive sales targets that they must meet. The outcome of a bank rep hitting their sales target are pretty important – including keeping their jobs, career opportunities, and financial compensation. So the incentive to meet these targets is strongly intertwined with all dealings at the branch.
So this then translates to a problem where a these bank rep may often not fully explore your financial situation and needs. Instead they will often take the product first method of recommending products before they know your full situation.
Overtime, this structure can create an erosion of trust that pushes clients away
Dump Your Bank Reason 2: Not There For You
Other common reasons why people dump their bank is that they are not there for them. If a financial institution is managing your money then they should be contacting you once or twice a year to just review your current holdings and financial situation.
It’s imperative for banking representatives to check to see if there are any life changes that would affect your personal situation and if so, to adjust accordingly.
Dump Your Bank Reason 3: High Fees & Low Interest
Another big cause of bank divorce is about how much they can charge in fees and how little they pay in interest.
Bank fees are expensive an unlimited account will often costs around $15 per month which translates to $180 a year or $900 over 5 years or $1,800 over 10 years or… you get the point. This Money can be better used for other purposes.
Unfortunately bank fees are only part of bank charges. The mutual funds also typically have fees that are more expensive than other low-cost investments like ETFs and can cost an additional 1 to 2% more in MER. On a $50,000 investment portfolio that’s an additional $500 to $1,000 a year in fees!
On top of this you may have debt that charges interest – like overdraft, car loans, etc. etc.
And I’ll be honest, if you’re receiving suitable service for the costs than it’s worth it, but in many cases we’re not.
The banks also offer interest rates that are very subpar.
A great example of this is a promotion that CIBCs was running over the summer for their high-interest savings account that offered a 2.0% rate for the first 120 days and 0.10% base rate afterwards. This sounds nice, but doing the math shows that this is an annual rate of 0.76%. Plus, this promotional rate was only available to new clients and existing account holders only received 0.10% for the whole year.
Other reasons to ditch your bank include lack of access to the banking services neede – both in-person or digital, people could have been mistreated, disagree with ethical choices of the banks and more.
Easier Than Ever to Dump Your Bank
The good news is that if you are looking at breaking up with your bank, it’s never been easier. Online and regional offerings offer access to services that have better customer service, lower fees and higher interest rates.
There are online chequing accounts with no monthly fees, Roboadvisors like Wealthsimple offer investment management that has fees that can be as low as 1 to 2% less than typical mutual funds fees and online high interest savings accounts like EQ bank offer interest rates on savings that are currently sitting at 1.7%.
Regional offerings like credit unions and chaisses poplaires – as their called in Quebec can also offer a banking experience where that beats the banks. When you deal with these organization you are a partial shareholder of the credit union and many offer ethical business models such as have neutral environmental impacts.
You’ll also want to consider the amount of deposit insurance that you have at the institutions. Federally regulated banks have deposit insurance of $100,000 while credit unions and chaisses poplaires have amounts that vary by province.
Steps to Dump Your Bank
So the first step with dumping your bank is to decide what type of service you’re looking for. Some important questions to ask yourself is if you’re happy with online options, how many transactions you expect to do, does the access to the banking services meet your needs and more.
If you want, you can also try one last time to talk to your bank if they have any options that will meet your needs.
Once you’ve decided where you want to go, the next step is to facilitate the transfer. The trick here is to transfer over your income and preauthorized payments and not have an NSFs. You’ll also need to reissue any issued uncashed cheques and make sure that you don’t miss any infrequent transactions like CRA deposits.
The biggest risk here is that you’ll miss a pay due to not taking the right steps or not have enough funds to cover a preauthorized payment and be hit with an NSF fee.
Thankfully many banks will help facilitate the transfers and while they don’t say it, can reimburse you for fees charged due to the transfer. If you transfer, there may also be a cash bonus or product bonus at the new financial institution – such an iPad.
Usually you start with transferring over your pay to the new bank account and then your preauthorized payments. It’s typically recommended to keep your old account open for a month or two just to make sure that all of your transfers are changed over – you’ll also want to have some funds in the old account to process any transactions still slated to be process there. Once you’re done transferring banks, you can then finally close that old account!
Now when you’re transferring banks, you may also have an old credit card in the mix. You should consider not cancelling this card as your credit score will likely be impacted – especially if you’ve had this card for ages. If you have lots of credit trade lines then you may not be as impacted, but care should be taken.
Also, you may want to keep some basic product alive at the old financial instition if you have been dealing with them for a long period of time. The reason for this is that you have a history with them and this can lead to you having an easier time getting approved for credit at lower rates. Banks use internal rating scored and your duration with them are included.