Look for “Relationship Prices” When You Need a Loan
Managing your money under the roof of one financial institution can make your life more convenient. And, in some cases, it can help you get better deals compared to opening a new account with another bank. This is because of the “relationship pricing” that occurs when a bank offers you a special rate on a product – usually a loan – because you are already a customer in some way.
This may mean that the bank you have been using for a while is offering you the best interest rate or loan terms. But it can also cause other banks to lose discounts if you open more than one type of account with them instead.
The Wall Street Journal highlights how complex these relationships can be. One example: When Sam Dogen (who runs the Financial Samurai blog) was shopping around to refinance his mortgage, he transferred his entire investment portfolio to Wells Fargo at an interest rate 0.25% lower than what his original bank was offering him. … … He calculated and decided that moving to Wells Fargo would take two or three hours to sort out the paperwork, but save him $ 17,000 on his mortgage.
You might be thinking, “Damn it, I’ll switch to another bank immediately to get a lower interest rate.” But be prepared to read the terms of any such offer carefully. According to the Wall Street Journal , Dogen was cut interest rates by a quarter percent because he transferred a $ 1 million investment portfolio to the bank. If you’re hoping for a special rate for a bank account that you only keep open because your grandma deposits a $ 20 check every year on her birthday, don’t expect banks to bow down at your feet for your business.
Do this before transferring money to another bank.
Find out about the fees, especially the fees for changing the deposit if you are planning to transfer investments to another bank. They can range from $ 75 to $ 150 per bill, the Wall Street Journal notes, and while this may seem like a low cost for long-term savings, it can increase if you reshuffle multiple accounts. When checking fees, ask about asset management fees or prorated fees to make sure you don’t pay more to manage your investments than you do now.
Make sure you understand what deposits are required and how long you need to maintain the initial balance. Many relationship deals are for clients moving at least half a million. Some banks will have more options for clients with different wealth levels.
And remember to double check with your current bank before starting transferring funds to another. If you share an offer that’s on the table of one of their competitors, your bank might offer a discount on the interest rate that will keep it going.