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Managing your finances under one financial institution's roof can simplify things, and sometimes, it could lead to better offers than opening an account elsewhere. This is due to 'relationship pricing,' where banks provide preferential rates on products—often loans—because you're already a customer in some capacity.
Your bank may offer you the most competitive interest rates or loan terms simply because you've been a customer for a while. Alternatively, other banks might try to entice you with a discount if you open multiple accounts with them.
The Wall Street Journal sheds light on the intricacies of such relationships. One case: Sam Dogen, the creator of the Financial Samurai blog, moved his entire investment portfolio to Wells Fargo when refinancing his mortgage. The bank offered him a 0.25% lower interest rate than his current bank. After doing the math, he realized that while switching to Wells Fargo would require two or three hours of paperwork, it would save him $17,000 on his mortgage.
You might think, “Of course, I’ll switch to a different bank for a better interest rate right away.” But be sure to read the terms carefully. According to the Wall Street Journal, Dogen secured a quarter-percent interest rate reduction by transferring an investment portfolio valued at $1 million to the bank. If your bank account only holds a $20 birthday check from Grandma each year, don’t expect the bank to roll out the red carpet for your business.
Do this before transferring your money to another bank.
Check for fees, particularly change of custodian fees, if you're thinking about moving your investments. These fees can range from $75 to $150 per account, according to the Wall Street Journal. While this might seem like a small cost for long-term savings, it could accumulate if you're transferring multiple accounts. Also, inquire about asset management fees or ratio fees to ensure you won't end up paying more to manage your investments than you currently do.
Make sure you're clear on what deposits are required and how long you'll need to maintain the initial balance. Many relationship offers are for customers moving at least $500,000. Some banks may have more options available for customers at different wealth levels.
Before you begin transferring funds to another bank, check in with your current bank. If you share an offer from a competitor, your bank might be able to match or beat the interest rate, making it worthwhile to stay with them.
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