FOOL SCHOOL
Change Your Bank

August 30, 2002

Did you know that we are more likely to divorce or move house than change banks? It's true! Most of us open our first ever bank account in our teens and then we stick with it forever and ever and ever. Why? Looking back, did you really know what you were doing when you first toddled into the local Grabbit & Run and exchanged smiles with the nice lady behind the counter before signing on the dotted line and handing her your precious pocket money? Or the meagre income from that newspaper round? Or your first grant cheque for college? No, of course, you didn't!

Banks count on their customers not doing even the least little bit of homework before opening an account. And then, after they've snapped you up faster than the closing jaws of the hungriest crocodile, they count on you being too lazy to try somewhere else.

You'll know by now that banks make big profits. Huge profits, actually They do this by taking your money and investing it, ostensibly for you, but really for themselves and their shareholders. Their job is to make more out of you than you do out of them and they're pretty good at it too:

• They use jargon to keep you confused.
• They offer high introductory interest rates and then quietly lower them.
• They hide the fees and costs in the small print.
• They use pretty adverts on the telly to make you think they care about you.

They do have costs, of course -- the most obvious being the interest rate that they pay you (which is why so many of the major high street banks tend to offer a miserly 0.000001% on your current account!). But, to be fair, it costs a bank to maintain a branch network, to provide statements, to let you play around with your standing orders and to withdraw money from cashpoint machines. All these facilities are inducements to attract and keep you as a customer, and it costs the bank to provide them. But by offering many of these facilities online they can reduce these costs.

Much of the above might make you feel a little nervous when it comes to choosing a bank but there's no need. What we have is a simple balancing act. If a bank scores well in one area, it is bound to score badly in another. We Fools just have to make sure that it scores well in the areas which we hold dear to our hearts, leaving it to score badly in those areas which we couldn't care less about.

You'll need to make a list of the services that you want and then ask the banks that interest you for the information you want. Some will provide the answers online (a Good Thing) while others require you to phone them up (a Black Mark). You may want to draft a standard e-mail asking specific questions and send it to all of them so you can find out who is really on their toes.

What About Loyalty?

There's really no need to consider loyalty anymore, is there? Your friendly bank manager no longer exists. Nowadays, it's cashpoint machines, robotic voices on the end of your touch-tone telephone and computerised statements. Why should you be loyal? This move towards technological efficiency is certainly benefiting them, so why not take advantage of it yourself?

Compare online banks in the Fool's Banking Centre