How to give your bank the boot

TOO MUCH: Whether you are motivated by morals or just looking for a better deal, the decision to leave is never one hundred per cent simple.
TOO MUCH: Whether you are motivated by morals or just looking for a better deal, the decision to leave is never one hundred per cent simple.

Ever wished you could fire your bank?

Welcome to Bank Transfer Day - when fed-up Americans move their money to credit unions.

What started as an angry Facebook post by California woman Kristen Christian about a new $5 monthly card fee become a media phenomenon urging people to move their money by November 5 - only slightly hampered by the fact that most credit unions were closed that day.

After a week of strong Aussie bank profit announcements, New Zealand's credit unions were also getting walk-in business from people who'd heard about Bank Transfer Day.

But whether you are motivated by morals or just looking for a better deal, the decision to leave is never one hundred per cent simple.

Do you stay for the sake of old times, leave for your scruples, or let it come down to naked financial self-interest?

Before you decide, here are three things to think about.

Just how disgruntled are you?

"Most people are actually pretty happy with their banks," says Squirrel mortgage broker John Bolton.

Even though re-financing mortgages makes him money, he generally discourages clients from changing banks if it is only to save a few hundred dollars.

Example: A $150 benefit from saving 0.05 per cent on a $300,000 mortgage can be swallowed up by a single mortgage rollover fee.

Saving a few thousand dollars is a different matter.

Or you might have another reason for leaving your bank.

A report on last year's complaints to the Banking Ombudsman showed complaints about current accounts climbed to new highs, particularly gripes about excessive fees or accounts being frozen or closed without permission.

Another bugbear was poorly explained home loan contracts, said the Ombudsman's annual report.

It seems that nothing riles people more than being stung with a whopping fee that was not properly explained in the first place.

People usually switch because of a fairly major bad experience, says Bolton.

And while it used to be harder, these days most banks and credit unions have staff to smooth the changeover by taking care of direct debits, bill payments and internet banking.

Even moving a mortgage is not the drama it used to be, says Bolton.

"It's fairly easy to shift a mortgage and some of lenders have in-house teams to manage that process."

"If you are genuinely grumpy, move," he says.

Who benefits?

Credit unions are owned and operated by members - as their owner/customers are called - making them appealing to people who don't like to see profits heading offshore.

Members vote on a one account, one vote system; and profits go towards community sponsorship and to offset fees, service costs, and interest rates, say New Zealand Association of Credit Unions' chief executive Henry Lynch.

Bank Transfer Day boosted membership of New Zealand credit unions, Lynch says, although member numbers for October are not yet available.

(In the year to September 30, membership of the 175,000-strong network rose about 3.5 per cent).

On the other hand, the big Australian banks have some of the best credit ratings and weathered the credit crunch better than most other big banks, helping reassure Kiwi customers of their soundness.

Bolton - a former general manager at ANZ National - does not think the large bank profits of last financial year will continue.

"During the credit crisis the banks had provision for quite high losses that didn't eventuate, so they basically write those provisions back which has gives them a great result." Banks lending margins are also larger during times of transition such as the current switch from fixed to mostly floating mortgage rates, he says.

"My view is that with increasing competition, and absolutely no growth out there, you are going to see the banks struggling to make profits."

Like any break up, you should head for the door only if you are going to end up feeling better off in the long run.

"Go with the bank that's going to give you the best overall service and....consistently good pricing," says Bolton.

What are you borrowing?

Credit unions are by nature more conservative than commercial banks, says Lynch, so they are unlikely to go for the debt-up-to-the-eyeballs approach employed by some banks pre-credit crisis.

That helps keeps the books in balance and lowers the default rate - Lynch says no credit union failed during the global financial crisis.

But Bolton says it may also restrict what you can borrow.

Credit unions are legally obliged to foster financial literacy, and that means taking care when handing out debt.

"We're not going to say. 'Please go ahead and renovate the bathroom, here's another 30 grand, just chuck it on the mortgagee'," says Lynch.

"It's about making sure it's the right thing for everyone."

Most, but not all, credit unions offer mortgages, but they don't lend to businesses or property developers, says Lynch.

If you are after a personal loan, a credit union can be a cheaper option than a major bank.

But if you're looking at switching from one major bank to another just to get a better interest rate on your home loan, there might be no need - your existing  bank will normally match whatever a competitor offers, says Bolton.

"The reality is there is a lot of competition out there at the moment...but a lot of it occurs what I call '
below the counter'. You're not seeing it publicly like in 2006 and 2007, when there were a lot of really aggressive rate wars."

That means it's up to borrowers to ask around.

"In this environment it's definitely a good thing to negotiate. You will definitely benefit from talking to more than one bank to establish the best deal you can get."

As for breaking a fixed loan, the fees involved means it is seldom worthwhile if it's only to chase a better rate, says Bolton.

"Earlier in 2009 and 2010 it was sometimes worth breaking a fixed mortgage to get a better floating rate," says Bolton.

"Today those sorts of benefits don't tend to exist anymore. Generally speaking the cost of breaking will reflect basically the amount of interest you'd save."

Complicating matters are those staggered mortgage rates that seemed like such a good idea when you signed up.

Bolton says it is a good idea to fix parts of your loan for different periods, so you spread the risk that rates will rise or fall over time.

But if you want to change banks, you will have to wait until the longest loan comes to the end of its fixed term - unless you want to pay a break fee.

"The only rationale we see today to breaking loans is if there's bigger issue," says Bolton, for example an illness or relationship break-up.

If you're locked in and you want to switch without paying break fees, you might just have to wait  - maybe until the next Bank Transfer Day.