How to keep your financial flexibility while banking
If you鈥檝e ever considered聽switching banks聽to take advantage of a promotion, chances are your thought process went something like this:聽鈥淚 could聽move my account, but then I鈥檇聽have to cancel my direct deposits and stop my online bill payments. That鈥檚 too much of a hassle.鈥� These thoughts mean you鈥檝e聽been ensnared by sticky bank products.
Banks offer core products 鈥� such as聽, and 聽鈥斅爐o get clients in the door. But they also offer 鈥渟ticky鈥� products that can聽keep customers with the bank for years, including聽loans, lines of credit, debit cards, overdraft protection, free bill pay and direct deposit.
Sticky products might聽seem like a good idea at first. Customers who聽are less than thrilled with their current bank, however, might prefer having the flexibility to switch institutions over having all of their accounts in one place.
The downside of sticky聽products
To be sure, many people enjoy having all of their accounts at one financial institution. According to a , 29% of customers who聽opened an account in the last 12 months did so to keep聽all of their accounts in one place. And 60%聽of bank customers didn鈥檛 expect to move their accounts within the next 12 months.
That doesn鈥檛 mean聽respondents were聽happy with their banks. Of the 60% of customers who didn鈥檛 plan to move聽their accounts, 17% said it was聽because changing institutions would be too difficult or time-consuming.
I spent聽five years working at one of the largest banks in the Southeast, and I saw firsthand some of the ways banks keep clients. In one case, the bank discontinued its free checking account, which impacted its聽low-income clients, disproportionately young millennials and minorities.
Many of these clients wanted to switch financial institutions, but the numerous accounts they had with my bank made it challenging.聽For example, many had聽home equity lines of credit聽with discounted interest rates because they also had checking accounts at聽the bank. Moving their checking accounts聽would have increased the聽interest rates on their credit line balances.
This is聽a common way for banks to make clients stick with them. Luckily, there are ways to avoid getting stuck.
How to retain flexibility while banking
Split your direct deposit
Direct deposit is probably banks鈥櫬燦o. 1 sticky strategy. You can鈥檛 just close the checking account to which your paycheck is routed, but聽changing your direct deposit information with your employer often takes a few weeks. Unless you cancel direct deposit a few weeks before switching, you聽could have聽problems receiving your paycheck.
Avoid this is by asking聽your employer if you can聽split your direct deposit between two accounts. Half your money can go to a checking account at one bank and the other half can go to a second account at another bank. This way, if you decide to close one account, you can route聽100% of the funds to the other existing account, rather聽than opening up a聽new one.
One thing to keep in mind: Some accounts require minimum balances in order to waive fees, and it can be more difficult to meet minimums when you split your cash聽between accounts.
Avoid recurring payments
Many people don鈥檛 change banks to avoid聽updating all of their recurring payment information. It can be hard聽to remember every recurring payment you鈥檝e set up, and contacting each company with your new account information takes time. If you forget to update an account, your bill might not be paid promptly.
Instead of setting up recurring payments, consider creating reminders using Google calendar or another app and paying bills聽manually. This takes longer than having funds automatically withdrawn from your account, but if you聽prize financial flexibility, it can be worth the trade-off.
Scatter your accounts
Changing banks doesn鈥檛 have to mean turning your whole financial life upside down.
To maintain flexibility, hold聽accounts at different banks聽and track them through an app like Mint.com or, if you work with a financial advisor, ask聽if he or she uses聽software like Money Guide Pro that aggregates all of your accounts. This lets you聽monitor them all聽from one place聽without聽being tied down. If you want to leave one of the banks you鈥檙e dealing with, you鈥檒l need to move only a few accounts.
Skip overdraft protection
Most banks offer overdraft protection to help you avoid costly fees when you spend more money than you have in your checking account. They do this by opening a separate account, from which they can draw excess funds, and linking it to your checking account. This new account is one more you鈥檒l聽have to close if聽you want to leave.
Focus on tracking your transactions so聽you don鈥檛 need overdraft protection. Monitor your spending with online banking and other applications, and聽keep a cash cushion in your account to ensure聽you don鈥檛 temporarily dip into a negative balance.
It鈥檚 in many people鈥檚 best interests to avoid the sticky products that banks use to retain consumers. Following these steps will let you retain your banking flexibility.
is a fee-only financial advisor and the CEO of in Orlando, Florida. This article first appeared in .
