In a world where banking products with low fees and decent interest rates are few and far between, most bank customers can't afford to stick with one institution. After all, one bank offering great home loans may not be able to compete with the savings account rates offered by another. Conducting business with multiple banks means taking advantage of more opportunities to save and grow your money.
However, there is something to building a strong relationship with one bank. Just like a relationship between two people implies an expectation they'll receive a higher level of trust and priority in each other's lives (in theory, anyway), committing to a single bank can provide many of the same benefits.
Financial institutions often push away unprofitable customers, which means becoming BFFs with just one bank may prove difficult if you don't have a lot of cash to offer. But those bank customers who actually add to bank revenue -- through large deposit and loan balances -- can reap numerous rewards from this win-win situation.
What Is Relationship Banking?
Relationship banking refers to the marketing of financial "packages" to customers, rather than one-off accounts or loans. By cross-selling banking products, institutions can increase total assets per customer and subsequently, total revenue per customer.
However, relationship banking isn't just about the bank's bottom line and can beneficial to the customer, too. For one, building a relationship with your bank means establishing trust on both ends. Your bank trusts you to meet your financial obligations, and you trust them to meet your financial needs. The stronger the bond of trust, the more financially beneficial that relationship becomes for both parties.
As Peter Koh, Senior VP at Wilshire State Bank explained to the Smart Business Network, "Trust is the foundation for all banking decisions."
That trust can exist on a more personal level as well. Joanne Cleaver, who recently bought a condo with her husband in the small west Michigan town of Manistee, attributes the strong business relationship they built with their Northwestern Bank loan officer, Laura, to the overall smooth home buying process they experienced despite hangups along the way.
"Because my husband and I travel a lot, we found that on our closing date he would be in Dallas and I would be in Minneapolis. We thought we were on top of it with getting all the papers notarized and over-nighted to the title company, but on the Friday morning of closing one set of papers was nowhere to be found," recalls Cleaver. Nonetheless, Laura was quick to help and had all the needed paperwork "signed and delivered for the next Monday morning -- by 1 p.m." In fact, Cleaver said it was the least stressful closing the couple had experienced in 30 years of homeownership.
Five Reasons to Build a Relationship With Your Bank
1. Access to better interest rates and loan terms
Greg Meyer, banking expert and founder of The Credit Union Guy Blog, notes that financial institutions "concentrate their sales efforts on bringing in a larger share of the customer's wallet," which can work to the customer's advantage. Namely, more affluent bank customers can gain access to better interest rates than what is advertised to the general public.
Meyer calls this "relationship pricing" on loans and savings products, explaining "depending on the size of your overall relationship, you may be able to get higher rates on your time deposits and lower rates on your borrowing." He adds that the benefits increase with the size of the customer's total deposits, often tiered to kick in at $10,000, $25,000 and $50,000.
2. Fewer fees
Because you're considered to be a highly valuable customer, things like checking account overdraft fees are easy to have waived. Not to mention, maintaining higher balances means you're likely to be exempt from common monthly maintenance fees, which are generally only charged when accounts fail to meet a minimum deposit requirement.
3. Added convenience
Benefits of relationship banking go beyond the obvious financial savings. Eve Callahan, Senior VP of Corporate Communications for Umpqua Bank told me that for both individuals and businesses, "long-term relationship banking provides one point of contact and streamlines financial management."
In essence, because a bank is already familiar with your financial situation, it takes less time to gather your information and vet the accuracy of what you report. This is not only beneficial when it comes to things like combining statements or transferring money, but also when applying for loans when the approval process can be lengthy and complicated if the lending institution doesn't "know" you from a previous business relationship.
4. Higher level of customer service
Meyer says that many branch managers are judged by their office's profitability, and losing a big customer could be the difference between showing profit for a branch and not.
"As a manager myself not too many years ago, I had always assigned my best bankers to my top clients," notes Meyer, explaining, "A bank manager should treat his or her best and most profitable clients like royalty."
It's not unusual for customers with particularly profitable accounts to be treated with a much higher level of customer service, often having a single person appointed their personal banker to handle any need as it arises.
5. Long-term insight and planning
Belonging to a bank that is familiar with your financial status and history can also be extremely helpful when it comes to planning for the future. For instance, Callahan tells me strong banking relationships with customers allows Umpqua Bank to take a more proactive role in their lives, allowing them to "identify opportunities to enhance their financial position and grow as their lives do."
The same is true for business customers in which, according to Callahan, a long-term banking relationship is essential. "During the tough economic environment of the past few years, we were able to work as financial advisors and partners with our long-term clients -- we understood the complexities of their business and could talk through the fluctuations they experienced as a partner," she elaborates.
Becoming Friends With Benefits
So how can you get on good terms with your bank and starting seeing more of the benefits outlined above?
According to a Kiplinger article from earlier this year, full benefits of befriending the biggest banks are realized once you have at least $25,000 deposited with the institution. Lisa Gerstner writes in the post that these preferred customers enjoy "priority customer service, often with a dedicated phone number, as well as the potential to earn higher rates on deposits and bigger rewards on credit and checking accounts."
That means unless you meet this $25k threshold, don't expect preferential treatment. No matter how long you've been a customer, there's not a whole lot in it for the bank to keep you happy unless you're helping to keep its profits up.
For those with modest finances who simply don't have the cash to woo the personal attention of a major financial institution, keeping a wide circle of acquaintances may be the better option. And while national banks are focused on maintaining larger customers, know that there are thousands of community banks and credit unions throughout the U.S. that can provide you a lot of the same advantages with less of a financial commitment on your end.