Time to Take a Fresh Look at Your Bank Services

Building with 'Bank' Sign Visible: A Financial Institution

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Credit Sesame discusses how bank services have changed due to economic changes.

People tend to form habits. They go to the same grocery store week after week. They have the same person cut their hair month after month. They have a go-to auto shop and maybe a favorite bar or restaurant. Chances are, they’ve been with the same bank for years.

Maintaining consistent habits is convenient, but a wise consumer is alert to opportunities for cheaper goods, better service, or new products. When a business or industry changes, that’s a good time to take a fresh look at whether better choices might be available. Bank services are not different.

Banking is an example of a business that’s going through significant changes. This makes it the perfect time to take a fresh look at your bank and consider other alternatives.

Recent changes in the personal finance sector may impact banking relationships. This may be an excellent time to shop around for a new bank.

Credit card rates are rising quickly

Interest rates have risen sharply this year in response to high inflation. Loan rates are up, but the impact is felt most significantly in credit card rates.

Many credit card rates are tied to the bank prime rate. When that rate rises, the credit card rate rises automatically. This shouldn’t affect the rate you pay on an existing balance, but new purchases attract the new interest rate.

Besides being based on the bank prime rate, credit card rates also adjust according to a customer’s credit status. So, rates may rise more quickly for some customers, depending on their credit scores and other factors.

When rates change quickly, as they’ve done this year, card issuers may react to differing degrees, some sooner than others. So, this is an excellent time to check your credit card’s competitiveness. The card that offered the best rate for someone with your credit status a year ago may no longer be the best option.

Deposit rates are rising slowly

Deposit rates may change what you should look for in bank products. This is because some deposit rates are rising more than others, and the type of deposit product you need may have changed.

Deposit rates are rising too slowly

Banks have responded quickly to rising interest rates for credit cards and loans. In contrast, they’ve been much slower to raise the rates they pay customers on deposits.

For example, according to mortgage finance company Freddie Mac, 30-year mortgage rates have risen by almost 3% this year. Over the same time, FDIC figures show the average rate banks pay on a savings account has increased by just 0.11%.

The good news for consumers is that not all banks make the same adjustments. Some are more aggressive about raising savings account rates than others. The same also goes for rates on money market accounts and CDs.

The banks that offered the highest rates a year ago might no longer be the best options. Also, as rates rise, there may be more of a difference in the rates you can get from different banks. That can make it more worthwhile to look around and see if there are better options.

Rising rates may change the type of deposit product you need

As rates have changed, the type of deposit account you want may have changed. When interest rates are relatively stable for several years, committing to a longer-term CD makes sense to earn a higher interest rate. However, during a period of rising interest rates, a longer-term CD could end up locking you into sub-par rates by the time it expires.

According to the most recent FDIC figures, there isn’t much reward for committing to a longer-term CD. The average 1-year CD earns 0.60%. That may not sound great, but it is significantly better than the average savings account rate of 0.17%.

However, committing to the average 5-year CD earns a rate of 0.74%. That extra 0.14% yield over a 1-year CD may not be worth the risk of locking yourself in for longer.

The point is banks may have changed their rates recently, but the type of deposit account you’re looking for might also have changed. Those are cues to shop around to see which bank offers the best interest rate for your needs.

Overdraft fees are disappearing – from some banks.

In recent years, banks have taken a lot of heat from regulators and politicians about overdraft fees. Some consumer advocates consider these fees excessive, and several banks have changed their policies in response to the pressure.

Some have eliminated overdraft fees. Others have lowered them, while some banks haven’t changed them.

If you sometimes overdraft your checking account, it might pay to have a bank that doesn’t charge overdraft fees. This would be a good time to look for one. There are certainly more out there now than there were just a year or two ago.

Online bank services have changed branch dynamics.

Location was once a big reason for choosing a bank. It was convenient to do business with a local bank, a branch close to where you live, work, or shop. The importance of the local branch has declined in recent years, though, for several reasons.

Banks are starting to put less emphasis on their branch networks. An extensive network of branches was once a key to a bank’s ability to reach many customers. Now, banks view branches more as an expense they can do without. Online bank services have taken the place of many branches.

Over the past ten years, the number of branches of FDIC-member banks has declined by 15%.  The number of bank branches has fallen for nine straight years now, with more branches closing last year than in any other year in the FDIC’s history (which goes back to the mid-1930s). In other words, the trend toward fewer branches seems to be accelerating.

This is not as disruptive to customers as it once might have been because convenience is now defined differently. More and more, customers are looking for banks to have strong online capabilities and mobile apps. It’s less critical to have a branch on your local street corner when access to your bank is as close as your desktop or your smartphone.

As an added incentive, online banking often offers better rates than in-person banking, so there is value in going along with the convenience of online bank services.

Fast-changing interest rates, new fee policies, and less emphasis on location have changed what banks have to offer. To get the most out of your bank, you may want to take a fresh look at which one provides bank services that best meet your needs in today’s environment.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

Richard Barrington
Financial analyst for Credit Sesame, Richard Barrington earned his Chartered Financial Analyst designation and worked for over thirty years in the financial industry. He graduated from St. John Fisher College and joined Manning & Napier Advisors. He worked his way up to become head of marketing and client service, an owner of the firm and a member of its governing executive committee. He left the investment business in 2006 to become a financial analyst and commentator with a focus on the impact of the economy on personal finances. In that role he has appeared on Fox Business News and NPR, and has been quoted by the Wall Street Journal, the New York Times, USA Today, CNBC and many other publications.

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