Judging by their television commercials, websites and other marketing tools, banks aren’t just our pals: they’re the best friends we’ve ever had, and will ever hope to have. Basically, Shakespeare got it wrong: instead of comparing our beloved to a summer’s day, we should compare them to a bank (during any season of the year).
However, beneath the slogans, mottos, and pictures of deliriously happy customers, lies five murky things (we could call them “half-secrets”) that banks would much rather you didn’t know:
1. They may like you, but they love new customers.
Many banks offer their best rates to new customers — not to loyal customers like you. Does this mean that banks are using the profits that you helped generate, in order to enable other people to save money? Yes. Is this ethical? No. But they do it anyway.
2. That “Free Chequing” account probably isn’t free.
Banks make a surprising amount of very easy money by dinging customers who have what they believe are free chequing accounts. In truth, these accounts are usually only free if certain conditions are met, including keeping a minimum average monthly balance. And speaking of which: banks pay zero interest in chequing accounts (or it could be something ridiculously low). As a result, the purchasing power of money you’re forced to keep in there to avoid fees keeps eroding due to inflation.
3. The overdraft charge is extreme — and profitable.
Many, many years ago — we’re talking before smartphones roamed the earth and getting 10 channels on a television was amazing — banks charged hefty overdraft fees to (mostly) cover actual labor costs. These days everything is automated, yet banks can still charge those hefty fees, even though their actual bottom-line cost might be a few cents. Now, does this sound like something your very best friend would do?
4. You can (and should) negotiate.
When it comes to things like choosing a smartphone plan, most people are fine with negotiating to get the best deal. However, for many this comfort zone shrinks and disappears when they deal with their bank. Why? It’s basically because banks have always held “government-like” status. But in truth, they are businesses that have quotas and sales targets. The moral to this story is simple: if you’re looking for a mortgage, loan, account, or investment product, then don’t resign yourself to accepting the posted rate. Instead, negotiate and see if you can get something better. Pro tip: if you can refer to another bank that is offering the rate or deal that you want, then your case will be much stronger.
5. You can have accounts at more than one bank.
Many people have accounts at more than one bank, either to take advantage of a special offer or because it’s more convenient (e.g. if you get a new job at a car wrap company in St. Louis, then it might be easier to open an account with the bank across the street from work, so that you can take care of in-branch banking tasks during lunch or on breaks). The only thing you want to be aware of, is that applying for a new account will involve a “hard inquiry” on your credit profile. If you have too many of these in a short period of time, then your credit score will drop. But if you space things out, then it shouldn’t be a problem.