If you’re reading this, you’re likely among the nearly 95% of U.S. households that maintain bank accounts. Yet a 2019 study found that just 4% of U.S. customers had switched banks in the previous year.
This tide could be shifting, however. A 2020 survey taken after the onset of the coronavirus pandemic indicated 14% of U.S. consumers were looking at changing their primary bank within six months. The most potential switchers were among online banking customers and the fewest were among credit union customers.
Paul McAdam, senior director of banking services at market research company J.D. Power, cautions that switching banks can be a heavy lift. He changed banks about a year ago and spent a few hours making adjustments, such as reestablishing direct deposit and bill payment services. If you decide to jump from one bank to another, McAdams suggests asking family and friends for recommendations and researching banks online.
So, why should you get out of a rut and break up with your bank, even if it means carving out valuable time to do so? There happen to be six solid reasons to consider a bank swap, other than moving or another life change.
1. Higher APYs
The APY, or annual percentage yield, represents the total amount of interest you can earn during a one-year period for a deposit account at a financial institution, such as a savings account at a bank or a checking account at a credit union.
Let’s say your current interest-bearing savings account at a bank provides an APY of 0.05%, but you find a savings account at a different bank that offers an APY of 0.50%. You may want to shut down the account with the APY of 0.05% and open an account at the bank with the richer APY of 0.50% so that you can collect more interest on your money.
Keep in mind, though, that an attractive APY may be offset by higher fees or unreliable customer service. Therefore, it may not be worth it to switch banks if a higher APY is the only substantial advantage.
In a study by J.D. Power based on surveys taken in April, July and October 2020, 8% of Americans who had switched banks blamed the decision on interest rates that weren’t competitive.
2. Lower Fees
Banking fees can certainly add up. Forbes Advisor’s 2020 checking account fee survey found the average overdraft fee for a checking account is $24.38, while the average monthly maintenance fee is $4.90. If you were hit with one overdraft fee of $24.38 during the year and paid an annual total of $58.80 in monthly maintenance fees (12 x $4.90), you’d be staring at $83.18 in fees. That would be enough money to cover the average monthly residential electric bill in Colorado.
But fees vary, based on the type of financial institution. For instance, the average overdraft fee for a checking account at a traditional bank is $29.50, compared with $29.29 at a credit union and $16.33 at an online bank, the Forbes Advisor survey shows. Meanwhile, the average monthly maintenance fee at a traditional bank is $9.40, versus $2 at a credit union and $2.33 at an online bank.
“It really is important for customers to read the details about policies and fees,” McAdam says.
Taking all of this information into account, you may be persuaded to switch from a traditional bank with higher fees to a credit union or online bank with lower fees. Make sure you focus on more than the fees, though. Why? You could end up being disappointed by trading a traditional bank with high fees but exceptional customer service for an online bank with low fees but poor customer service.
The J.D. Power study indicates fees that were too high or too numerous had driven away 7% of bank switchers. “Younger customers are a lot more fee-sensitive than older customers,” McAdam says.
3. Better Customer Service
Banking customers put a premium on customer service, and Americans’ attitudes about that customer service appear to have shifted due to the coronavirus pandemic.
“In normal times, customer experience in banking is about making customers happy—with the result that they are more loyal, use products more, and cost less to serve. In the context of Covid-19, superior customer experience means clarity and transparency, support for digital tools with which many customers are still unfamiliar, and new products and services for customers in distress,” consulting firm McKinsey & Co. says.
The J.D. Power study finds that 9% of Americans who had switched banks did so because of poor customer service.
“It really does boil down, for the most part, to poor branch or [call] center service—long waits, staff who may not be particularly helpful or may not be knowledgeable,” McAdam says. “Branch and [call] center service are really the core issues.”
If you’re unhappy with your bank’s customer service—perhaps you’ve had unpleasant encounters with bank employees or you’re displeased with its mobile app—you might consider shopping around for another place to do your banking business. In doing so, though, you may sacrifice a higher APY or lower fees.
4. Better Features and Perks
Bank XYZ offers its checking customers a debit card and even cash back deals for purchases with that card. You’re jealous. Your bank, Bank EFG, provides a debit card but not cash back deals. So, you decide to hop from Bank EFG to Bank XYZ to take advantage of the cash back benefits.
Or a bank may offer you a cash incentive for opening a new account. The J.D. Power study shows 9% of Americans who had changed banks did so to take advantage of a promotional offer, such as a $500 cash incentive.
Various features and perks can make it appealing to switch banks. Yet, it may not be wise to switch if it means giving up easy access to ATMs or bank branches, or other benefits.
5. More ATMs and Branches
You love your bank. But you hate that it operates so few branches and has limited access to ATMs. And you wouldn’t be alone in feeling this way.
A 2019 survey by the Federal Reserve found that, of those U.S. families who used online banking in the previous 12 months, 79% had visited a branch of the financial institution where they have their primary checking account and 67% had visited a branch of the financial institution where they have their primary savings account. But, in the wake of the pandemic, fewer Americans rely on branches as the No. 1 option for their bank accounts.
Meanwhile, the use of ATMs has barely budged as a result of the pandemic.
While banking habits may have been altered due to the pandemic, many consumers still value ATMs and branches, so some of them may want to go with a financial institution whose ATM and branch options are more robust. In the process, however, they might be giving up higher APYs or attractive perks.
In the J.D. Power study, 19% of Americans cited the convenience of branches as the main reason for choosing a bank—making it the No. 1 reason for picking a bank. Only 8% chose their bank based on the convenience of ATMs as the main reason.
6. Allure Of Online Banking
The pandemic has fueled Americans’ interest in online banking.
A 2020 survey commissioned by the American Bankers Association shows that 29% of customers had relied on online banking as the main vehicle for managing their bank accounts before the pandemic. After the pandemic, that figure rose to 32%. (Use of mobile banking apps experienced a similar spike.)
“Covid-19 has primed consumers to be more interested in digital channels than before,” according to professional services firm PwC.
Digital banking not only offers convenience. Online banks may also deliver higher APYs and lower fees than their traditional counterparts. However, as PwC points outs, many consumers continue to visit branches for services that are available digitally. In fact, a 2020 study by J.D. Power showed customer satisfaction was higher among customers of traditional banks than online banks.
Still, you may be willing to deposit your money with an online bank in exchange for potentially higher APYs, lower fees and other bonuses.
When It’s Time to Go
The decision to stay with your bank or to seek out another is a personal one, based on your financial habits, needs and preferences. If you find that the advantages of switching outweigh the time and trouble of doing so, Forbes Advisor’s guide to switching banks walks you through the process of closing accounts at one bank, transferring automated deposits and bill pay, and opening accounts at your new bank.
