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How to keep your financial flexibility while banking

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(Read caption) A sign for Wall Street outside the New York Stock Exchange (July 15, 2013). Keeping your banking flexible can be key to avoid getting stuck with one financial institution.

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If you’ve ever considered switching banks to take advantage of a promotion, chances are your thought process went something like this: “I could move my account, but then I’d have to cancel my direct deposits and stop my online bill payments. That’s too much of a hassle.” These thoughts mean you’ve been ensnared by sticky bank products.

Banks offer core products — such as checking accounts, savings accounts and certificates of deposit — to get clients in the door. But they also offer “sticky” products that can keep customers with the bank for years, including loans, lines of credit, debit cards, overdraft protection, free bill pay and direct deposit.

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Sticky products might seem like a good idea at first. Customers who are less than thrilled with their current bank, however, might prefer having the flexibility to switch institutions over having all of their accounts in one place.

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The downside of sticky products

To be sure, many people enjoy having all of their accounts at one financial institution. According to a 2014 EY Global Consumer Banking Survey, 29% of customers who opened an account in the last 12 months did so to keep all of their accounts in one place. And 60% of bank customers didn’t expect to move their accounts within the next 12 months.

That doesn’t mean respondents were happy with their banks. Of the 60% of customers who didn’t plan to move their accounts, 17% said it was because changing institutions would be too difficult or time-consuming.

I spent five years working at one of the largest banks in the Southeast, and I saw firsthand some of the ways banks keep clients. In one case, the bank discontinued its free checking account, which impacted its low-income clients, disproportionately young millennials and minorities.

Many of these clients wanted to switch financial institutions, but the numerous accounts they had with my bank made it challenging. For example, many had home equity lines of credit with discounted interest rates because they also had checking accounts at the bank. Moving their checking accounts would have increased the interest rates on their credit line balances.

This is a common way for banks to make clients stick with them. Luckily, there are ways to avoid getting stuck.

How to retain flexibility while banking

Split your direct deposit

Direct deposit is probably banks’ No. 1 sticky strategy. You can’t just close the checking account to which your paycheck is routed, but changing your direct deposit information with your employer often takes a few weeks. Unless you cancel direct deposit a few weeks before switching, you could have problems receiving your paycheck.

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Avoid this is by asking your employer if you can split your direct deposit between two accounts. Half your money can go to a checking account at one bank and the other half can go to a second account at another bank. This way, if you decide to close one account, you can route 100% of the funds to the other existing account, rather than opening up a new one.

One thing to keep in mind: Some accounts require minimum balances in order to waive fees, and it can be more difficult to meet minimums when you split your cash between accounts.

Avoid recurring payments

Many people don’t change banks to avoid updating all of their recurring payment information. It can be hard to remember every recurring payment you’ve set up, and contacting each company with your new account information takes time. If you forget to update an account, your bill might not be paid promptly.

Instead of setting up recurring payments, consider creating reminders using Google calendar or another app and paying bills manually. This takes longer than having funds automatically withdrawn from your account, but if you prize financial flexibility, it can be worth the trade-off.

Scatter your accounts

Changing banks doesn’t have to mean turning your whole financial life upside down.

To maintain flexibility, hold accounts at different banks and track them through an app like Mint.com or, if you work with a financial advisor, ask if he or she uses software like Money Guide Pro that aggregates all of your accounts. This lets you monitor them all from one place without being tied down. If you want to leave one of the banks you’re dealing with, you’ll need to move only a few accounts.

Skip overdraft protection

Most banks offer overdraft protection to help you avoid costly fees when you spend more money than you have in your checking account. They do this by opening a separate account, from which they can draw excess funds, and linking it to your checking account. This new account is one more you’ll have to close if you want to leave.

Focus on tracking your transactions so you don’t need overdraft protection. Monitor your spending with online banking and other applications, and keep a cash cushion in your account to ensure you don’t temporarily dip into a negative balance.

It’s in many people’s best interests to avoid the sticky products that banks use to retain consumers. Following these steps will let you retain your banking flexibility.

Jerry D. Mitchell II is a fee-only financial advisor and the CEO of Incite Wealth Management LLC in Orlando, Florida. This article first appeared in NerdWallet.


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