ShutterstockYears inside the industry gives a unique perspective.
After nearly 15 years in banking, I have witnessed firsthand how banks operate and make money. That has influenced how I choose products and interact with financial institutions.
Here is my advice on how you can get the most from your bank.
Double-check mail offers online before accepting.
1. Beware of direct mail
To win in direct mail, banks don't need to have the best product in the market. Instead, banks just need to have the best product in your mailbox on that day.
Whenever you receive an offer in the mail, go online and shop around to ensure you have really been offered the best deal.
To get the best deals, you may have to switch products.
2. The best offers are for new customers
Banking is a constant battle for customers. To win, big sign-on bonuses — like 40,000 bonus miles — are offered. If you are looking for the best deals, you will have to switch to a new product. Those lucrative offers are rarely made available to existing customers.
There is a simple reason. Most banks have acquisition teams that are paid based upon the number of accounts booked, and they are ready to spend.
And then there are "existing customer" teams looking to generate as much profit as possible, and they are less generous.
3. Be honest with yourself and focus on long-term value
Statistically, most people will stay with their new product for a long time because it isn't fun to switch financial products every year. Some people travel the world switching from bonus offer to bonus offer. which is known as travel hacking.
But most of us do not, and the data shows it. Credit-card companies are also getting better at identifying and rejecting these "gamers."
Whenever I do the math on a financial product, I choose a product based upon long-term value rather than short-term bonus offers. Sign-on bonuses are nice, but they are not the main reason I take out a product.
Dodge supplementary products banks will try to sell you.
4. Avoid add-on insurance products
Finance companies continue to make a lot of money selling insurance products with loans and credit cards. I have seen lending businesses generate 30% or more of their profit by selling credit insurance that covers you in case of death, unemployment, or disability.
The sales pitch usually sounds like this: "For less than the cost of a soda a day, you can provide your family with peace of mind."
Almost always, these products offer horrible value. Look for a good-term life insurance and long-term disability policy that covers all of your needs.
And for unemployment, you are wiser to self-insure through an emergency fund.
Credit cards facilitate spending.
5. Everyone spends more money on plastic, including you
Study after study shows that people spend more money when they use plastic, including debit cards. When you carry around a finite pile of cash, you tend to spend less money.
And the more plastic you have in your wallet, the more you are likely to spend.
I carry only one card in my wallet, and to make sure I stay in control, I have set up alerts that send me a text message with my balance every day. If I switched to cash, I would spend less, but I remain in denial.
6. Don't scream at the customer service representative
Being a customer service representative is not an easy job. The workers are not paid high salaries and are often located offshore. They are almost always not to blame for your problem. Yet they get blamed — and screamed at — all day.
Being nice to the call-center representative is a better strategy. Most call-center representatives are delegated a certain amount of authority. The nicer you are to the representative, the more likely they use their authority to waive fees and more.
Be prepared to follow through on your threats.
7. Really angry with your bank or credit-card company? Threaten to close your account
Call centers work on the basis of "delegated authority." For example, a frontline agent may be able to waive one late fee for an excellent customer. A manager could waive a bit more. The most authority usually often sits with the retention team.
And you only get to the retention team by threatening to close your account.
You have probably experienced this. You call in and ask to close your account. Your call is then transferred to a specialist. This is a good thing, because the big budget usually sits with retention.
Be firm in your desire to close, because you can often end up with an even better deal.
Use banks' suggestions as an upper limit, not a rule.
8. Just because the bank says you can have it doesn't mean you can afford it
When banks calculate affordability, they have a simple metric. They want to make sure you can afford to make the monthly payment. Banks do not think about retirement planning, college funds, or other financial needs.
You may be shocked when you see how much mortgage you can get, or how big your credit card limit is. That doesn't mean you can afford to use it all, though.
9. If you don't understand it, don't buy it
You should never be afraid to ask questions that you think are stupid, and you should avoid anything you don't understand. Complexity is the enemy of transparency and is usually the enemy of the consumer.
Remember those deep-discount adjustable-rate mortgages? Most consumers didn't understand how much their payment could increase.
People have tried to sell me complicated financial products, also known as structured products. I avoid them completely and stick with easy index funds and exchange-traded funds.
Make sure you know how money is made.
10. Understand how the money is made before buying anything
Arguably, this should be No. 1. Whenever I am being sold a banking product, I think about how the money is being made. Then I pay close attention to whenever I am being asked to do something that will generate earnings for the bank.
For example:
• Savings accounts: Banks like cheap deposits to fund their loan portfolios, so they want interest rates as low as possible. Internet banks, like Ally, are looking to fund their loan portfolio without the cost of branches. By default, they must have better interest rates because they don't have branches. So I go with a bank like Ally.
• Consumer debt: Credit-card companies lose money on rewards and make money on interest. Often, the richer the rewards, the higher the interest rate. So if I ever need to borrow money, I avoid credit cards, but I am happy to earn the rewards.
• Stock brokers: Despite the advertising, they are not financial planners and they make money on trading commissions. It is not a surprise that every time you visit one, you will be encouraged to trade. Don't be afraid to say no.
Nick Clements is the cofounder of MagnifyMoney.com, a price-comparison website that helps people find the lowest interest rate on loans and the best interest rates on savings accounts. You can follow him on Twitter at @npclements.
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