Loyalty is a virtue!
It might seem like it belongs in history. In times of knights in shining armour and “loyal subjects” bowing to kings and queens. But in reality, loyalty will help you.
People grow strong relationships on the back of loyalty. Loyal people recognize the importance of the connections they have fostered. Be it loyalty between friends, your neighbourhood, or even loyalty to your country.
I’m a loyal person. I am loyal to my partner, my family, and my work. I am loyal to businesses, especially if they have been loyal to me. I am loyal to my bank.
I have been loyal to them ever since I opened my first account with my parents’ help two decades ago! And people are loyal to their banks, on average only changing once every 16 years.
But does being loyal to your bank pay off in the long run?
Banks have a lot of power. And you need them to be loyal to you. You need them to run your entire life. Every transaction is electronic. They know the longer you stick with them, the harder it is for you to leave.
The only bargaining chip you have is to bluff and say you are considering switching banks. Remember, though; you can only bluff so much before the bank calls you out.
And why would you want to leave your current bank?
You don’t need to switch banks unless you have a good reason too. In my earlier post, I mentioned people change banks because they are either;
- Getting charged too many fees
- Have had a bad service experience
- Can get a better deal elsewhere
Time to refinance
We had to renew our fixed term for our mortgage recently. I went in to negotiate with my personal banker to get the scoop on what rates were on offer. My bank had given me a market-leading rate previously, so I was expecting this time it would be the same.
Especially after the recent news, they would be the first bank in NZ to post a cash profit of 2 billion per year.
But the rate they offered me was the advertised rate, which was by no means the best-advertised rate around. I negotiated with them to try to get the rate lower, but they wouldn’t budge. I tried my normal tactic of going to another bank and getting their offer to bring back to my bank. When they see I can get a better offer somewhere else, they will have to match it. It’s worked for me before.
My bank read the offer and said they were offering the best they could. But would love to offer me a better deal if they could. At this stage, I have bluffed with my loyalty. I threatened to switch banks try to strong hand them into a better deal. It doesn’t feel right doing this.
Especially when you have a strong relationship with your personal banker, but I have been loyal to this bank for two decades, I hoped they would have been loyal to me.
So, I started to analyze all the costs of changing banks and taking up this better offer. There are a few things to weigh up to make sure it is a better deal for you to switch banks. Time to get the trusty spreadsheet out
My new bank offered me an interest rate of 0.15% lower than my current one. They were also going to waive any loan set up fees, which is $400.
I calculated what I would save in mortgage interest over the two years. Surprisingly it was less than I was expecting. The difference between the two rates was only $1100 over the two-year period.
Right of the bat, I was questioning whether this would be worth it. All that effort for $1100? Then I snapped out of it and realized I would have to work more than a whole week at my work for $1100 in my hand. Besides, my new bank has also offered me a cash bonus.
Switching Margin: $1100
The new bank offered me a cash bonus of $3500 to switch my mortgage over to them. This cash bonus swallowed up by lawyers fees when purchasing a new property. I knew the lawyer’s fee would be smaller as it was only refinancing, not a new sale.
I was banking on the lawyer’s fee to be around $1000 to transfer my mortgage- no pun intended, but you can see what I did there. Anyway, I would have $2500 cash left. Time to buy some new toys….
No, I planned to put the cash bonus onto my mortgage to lessen the principal in reality. This was I would have $2500 less principal accruing compound interest. That brought the total saving over two years up to $1700 and shortened the mortgage term by 1 month.
So switching was looking better already.
Switching Margin: $5200
I have no account fees at my current bank because all my accounts are online accounts. My new bank didn’t offer different “types” of accounts.
They offered a service where you pay a flat rate of $5 monthly to have as many accounts as you like. You can open and close them online as well. This feature seemed neat, but I wasn’t too happy with the account fee. The account fee over two years would cost me $120. So that is eating into what I am calling my switching margin.
Switching Margin: $5080
They gave me a deal on a credit card as well. Currently, I have a rewards credit card that I earn Airpoints with which I can spend on flights. The card also comes with free travel insurance. I travel at least twice a year for work. My current tactic is to work up my card points, pay for flights using them, and apply for free insurance. And then get work to reimburse me for cash. It seems to work out so far.
Update: If you are looking to use your credit card to cover business travel- remember to read the fine print- A reader pointed out to me that certain credit cards don’t cover business trips- mu current card will cover business trips so long as more than half of my entire prepaid travel expenses have been paid on my card.)
When I originally got the card, they waived the fee for two years. On the third year, I got charged the fee. I promptly rang my bank to question what this was- I had forgotten about it. They said it was the six-monthly card fee.
After some talking, I managed to get them to waive it for those six months. So I had a credit card without any fees for 2 and a half years.
Now though, my credit card is costing me $69 every six months. My new bank offered me the same deal. A credit card with no fees for two years. Plus an extra $250 in cash back if I spend $2500 in the first 3 months. I’ll hit that since I pay for most things using my credit card.
So a savings of $276 over 2 years in credit card fees, plus $250 cashback
Switching Margin: $5606
I got the bank to give me a quote on my insurance since they lapse at the same time as my mortgage did. I had my contents, car, and home insurance with my earlier bank. My new bank came back with quotes for all three.
I saved $188.39 on my house insurance, $157.03 on my contents, and a massive $265.44 on my car insurance.
Admittedly, I did lower the value of my contents, house, and car on the policies. As well as increase the access amounts. They also gave me a good discount and a $100 bonus for having multiple policies with them. When you get insurance, always ask to pay in one lump sum, you get a better rate that way. That is a massive saving of $710.86!!
Switching Margin: $6216.86
Cost to change
Now, as I mentioned earlier, you need to get your lawyer involved in switching your mortgage. I contacted my lawyer, who quoted $1500 for the work. I was not happy about that. It’s a lot of money for switching over some funds and changing the land title.
I researched and found an online firm based out of a law firm in Napier, who would do the entire process for a flat fee of $899. Now, I was sceptical of this at first. An online law firm, alarm bells were ringing. But I did some research, and it seemed legit. I contacted them, and the response didn’t read to me as a scam. I gave them the go-ahead.
They were excellent! They made the process smooth, and all communication was done over email. I would highly recommend them if you are going to re-mortgage with another bank.
Switching Margin: $5316.86
Closing account fee
My old bank has a clause in their loan document that will cost $100 to close the account. I didn’t know about this until after the process was finished. I rang to ask about it, to try to haggle them to reverse it. But they wouldn’t.
Total Bank Switching Margin: $5216.86
Switching banks benefited me by a total of $5216.86 over a two-year period. A good deal. It would take me eight weeks to earn that much money, and by switching, I will pay off my mortgage 1 month earlier.
Not a bad effort for what was little work on my behave. Most of it was done through email. In total, I spent about 10 hours on it. $5K worth for 10 hours of work, I should be a lawyer at those rates.
So, was I petty to change banks for a savings of $5216.86? Should I have been loyal to my original bank?