It’s a common belief that job loyalty doesn’t always reward you financially—this applies to bank loyalty as well. I spent eleven years with my previous employer, and if I had switched jobs more frequently, I could have potentially made an additional $1 million. Similarly, when raising capital, I realized the importance of shopping around for banks that offer the highest interest rates on deposits, instead of sticking to one out of loyalty.
For example, Fidelity is an institution I use that automatically invests idle cash in a money market fund, SPAXX, which yields about 5% annually. Despite this, I found myself reluctant to move funds from my primary bank, Citibank, out of a sense of loyalty.
Here’s why bank loyalty can be costly:
I’ve been with Citibank since 2001, drawn by its global presence which supported my frequent travels to Asia. My loyalty was solidified in 2002 after a scary incident in China where I was forced to withdraw a large sum of money to secure my release from captors. Upon contacting Citibank, they promptly investigated the incident and reimbursed the stolen amount. Their responsive customer service won my loyalty, and I continued to use their services extensively, even when it wasn’t financially the best option.
Over the years, I took out multiple mortgages and opened a personal line of credit with Citibank. My relationship with the bank proved mutually beneficial. They earned significantly from my deposits and transactions, and I received excellent customer service and access to financial products that otherwise might not have been available to me.
However, loyalty to a bank can lead to missed financial opportunities. For instance, after selling some bonds and leaving a large sum in a Citibank account that yielded only 0.2%, I missed out on higher returns I could have earned elsewhere. It was my investment advisor at Citibank, Jeff, who eventually suggested moving my funds to Fidelity for a better yield. Despite his advice, I hesitated because of my loyalty to him and Citibank.
Ultimately, I moved $750,000 to Fidelity to benefit from a higher interest rate, demonstrating that while loyalty can have its perks, it also has a cost. In terms of returns, I was foregoing about $3,000 monthly by not pursuing better rates sooner.
The lesson here is to know when to stay loyal and when to shop around. If your financial institution isn’t offering the best returns or rates, it’s wise to consider alternatives, especially when significant amounts are involved. While personal relationships and quality service are important, they should not come at the expense of financial growth.
Moving forward, I’ve learned that it’s sensible to maintain multiple banking relationships, allowing flexibility to transfer funds where they can earn the most at any given time. This strategy ensures that you’re maximizing returns without compromising on service quality or personal relationships.
In summary, while loyalty to a bank like Citibank has its benefits, especially in terms of customer service and financial advice, it’s crucial to continually assess whether your money could be working harder elsewhere. In an era of competitive banking services, we owe it to our financial health to periodically reevaluate where we keep our money, ensuring our financial decisions are rewarding us with the best possible returns.
