I don’t know about you guys but many of my friends have never changed banks in their lives. If you’re like me, you started from your “Dollarmite” account in primary school, and from there your account’s rates and features changed according to the bank’s standard policies. At the age of 18, you probably were introduced to overdrawing fees, or standard monthly charges, or perhaps your savings interest rates were cut in half.
If this is you, and you’ve never changed banks in your life, there is an unfortunate probability that this has COST YOU MONEY – unless of course you were fortunate enough to have your parents implement a 20 year banking strategy from your birth to maximise benefits according to your specific banking needs.
Didn’t think so.
And when I say cost you money, I’m not talking frugal figures here, I’m talking $$$. So here’s some generic advice that will apply to almost anyone that has never changed or even spoken to their bank in their life.
1) If you pay any type of monthly fee for your everyday account – change banks
2) If you have paid an account overdraw fee on your everyday account – change banks
3) Pretty much, if you pay any fees on your everyday account – change banks
When setting up your accounts, choose accounts that will realistically suit you, not ones that sound good or should suit you. For example: accounts that require minimum deposits or no withdrawals in order to get certain interest rates are great, but if there’s any chance of you not reaching these requirements, they may not worth your time. Let’s look at the following scenario:
You want to set up a savings account to save for a new holiday. Your bank offers you the following accounts:
Account 1: 2.70% interest provided you make at least $200 worth of deposits and never withdraw!
Account 2: 1.80% standard rate.
Assuming you make the same deposits to each account, Account 1 will come out on top if you meet the requirements at least 2 out of every 3 months. If you’re not so reliable or your income isn’t regular, this account just might not be worth it. I would always try to stay conservative in my estimations of my savings habits.
Furthermore, don’t consider interest rates as the most important factor in selecting your bank! In fact, Ramit Sethi instructs quite appropriately that choosing accounts based on rates is only valuable in its ability to teach good habits and that instead you should focus on three things: trust, convenience and features. Check out his article here.
In reality, any money you put in a “savings” account is theoretically COSTING you money. Check out the rates of inflation in Australia over the last few years and see if your bank is beating it. (Don’t lose hope there’s ways you can beat inflation – but this is for another time)
The moral of this story is that paying one $10 overdrawing fee cancels out your year’s worth of interest on $500, so sometimes it’s best to shuffle your priorities.
Ultimately, if you treat this exercise just like you would your job (why wouldn’t you – money saved is worth just as much as money earned) you’ll be able to find the right bank for you. Trust me it’s worth it.