Convenience or comparison? Why sticking with 1 bank might not be the best option
Switching financial institutions, or at least shopping around, can be worth it, expert says
Consumers love the convenience of one-stop shopping for their financial needs — but it could be costing them.
In a poll conducted by Ipsos and commissioned by LowestRates.ca, an online interest rate comparison site, six in 10 Canadian respondents said they prefer to have all their financial products and credit cards at one bank.
When it comes to credit cards specifically, two-thirds of those surveyed said they trust their primary bank to offer them the best card for their needs and financial situation. That's despite the fact that credit cards vary greatly, including their interest rates on outstanding balances — some offer rates below 10 per cent, while others can charge as much as 30 per cent.
Justin Thouin, CEO of LowestRates.ca, says Canadians' trust in their banks costs them in the form of higher fees.
"Why would the banks offer their best rates and cut their profit margin and cut their revenue if consumers are going to continue to take and accept whatever they're offering?"
To get a deal — you have to find it
Thouin says there can be some benefits to going all-in at one financial institution, including potential negotiating power on products like mortgages, but only if the client actually negotiates.
"We think it's crazy that Canadians spend so much time comparing flights, comparing hotels, comparing vacations online, and yet where they spend most of their money — on personal financial products — they just walk into the bank and accept the first offer they're given," he says.
A Canadian Bankers Association spokesperson argued that Canadians are aware they have plenty of choice in the financial services marketplace and know they can shop around.
Robin Walsh cited research done by the CBA that showed 65 per cent of Canadians deal with more than one financial institution and 34 per cent deal with three or more.
In CBA's survey, almost one third of respondents said they had switched banks to save money.
When it comes to daily banking products, such as credit cards or savings accounts, certified financial planner and fee-only financial adviser Shannon Lee Simmons suggests Canadians should shop around and not necessarily settle on just one bank for everything.
"Yes, moving your chequing account is something that makes everybody want to vomit," Simmons says, referring to the hassle of automatic payments that may need to be cancelled and set up again. "But there are other pieces in your finances that you may be able to move around every now and then that are way worth your time."
For example, Simmons says, if another bank or credit union offers a savings account with a significantly higher rate, holding money there would be worth the trouble of moving it.
Habits are hard to break
But it's not just convenience that convinces many people to stick with one bank for everything, says Philip Oreopoulos, an associate professor at the University of Toronto who specializes in behavioural economics.
He says even in the face of a better deal, people tend to stick to their routines.
"Also, there's the paradox of choice," wrote Oreopoulos in an email. "Facing more choice actually makes us more indecisive and likely to not switch or take action at all."
The idea is that a person gets "so flooded" with possibilities they feel "it's impossible to sort through what would be best and so doesn't end up choosing anything."
Rate comparison websites like LowestRates.ca, RateHub.ca, and RateSupermarket.ca, try to take the legwork out of collecting available offers, but still present consumers with long lists of credit card options, mortgage providers and more.
Thouin at LowestRates.ca is still convinced that a person's primary bank is not the right choice for everything.
"It's impossible for one bank to be the best match for a consumer in every category," Thouin says.