Millions of Americans have never switched banks, a recent survey commissioned by DepositAccounts found. Even more profess loyalty to their current financial institution.
This reluctance to switch banks — especially to an online-only bank — could collectively cost the country billions of dollars.
- An estimated 96 million Americans have never switched banks, collectively leaving up to $42 billion in interest income on the table each year.
- Of the millions of Americans who have never switched banks, almost 75% say the reason is because they're satisfied with their current account.
- Almost half (47%) of those surveyed don’t know how much interest they’re earning on their savings account.
- Most Americans (42%) incorrectly think traditional banks such as Wells Fargo and Bank of America offer the best rates for saving accounts.
- Nearly 33% of Americans won't consider opening an online savings account. Of this group, 38% say it's because they're satisfied with their current account, 24% prefer to bank in person and 22% don't see the benefit of an online savings account. Also, 18% don't feel online savings accounts are trustworthy. (Note that respondents could select all that apply.)
Loyal to a fault: Those who have never switched banks
Banks appear to be a sticky product for Americans — 75% of the country says they "feel loyal" to their current bank, while nearly 85% of Americans responded "no" when asked if they wanted to change banks.
That's great news for traditional banks like Wells Fargo or Bank of America because almost 70% of account-holding Americans bank primarily with one of these legacy institutions. A much smaller share (20%) bank primarily with a credit union, while an even smaller percentage (6%) primarily bank with an online-only institution.
When the survey respondents who have never switched banks were asked why, the most common reason cited was satisfaction with their current bank (almost 75% of respondents). Trailing far behind in second place was "too much of a hassle" (13%), followed by "not sure which bank to switch to" (6%).
Switching primary banks requires a lot of legwork. It can include remembering every automatic recurring bill payment associated with the bank (and switching these over to your new bank), going to your work's human resources department and telling them to send direct deposits to a new account and more. But the main hurdle preventing millions of people from switching banks seems to be that they don't see the need. To paraphrase an old saying, “If it's not broke, why fix it?”
Making the switch — the young and the restless
It's important to remember that while nearly 40% of those with bank accounts have never switched accounts, the majority of Americans have done so at least once in their banking lives. In general, the older one is, the more likely they are to have switched banks. For example, 35% of those ages 18 to 21 (considered part of Generation Z) have done so, compared with 66% of baby boomers (ages 54 to 72).
However, younger generations are far more likely to express interest in switching banks than older Americans. Of those Gen Zers, 25% said they want to switch banks, as do 21% of millennials (ages 22 to 37). Compared with the 14% of Gen Xers (ages 38 to 53) and 8% of baby boomers, a greater portion of the younger generations are more willing to go with a new bank.
Are bank loyalists informed or ignorant?
Is the loyalty that the majority of Americans feel toward their current bank borne out of the fantastic level of service and products offered by these financial institutions? Maybe, but we also found huge swaths of the country don't pay attention to rates or use them as a metric when choosing a new bank.
For example, roughly 41% of Americans feel traditional banks offer the best interest rates on savings accounts, while only 25% believe online-only banks have the best rate. Surprisingly, 63% of Gen Z and 55% of millennial respondents think traditional banks offer the best rates. Those are two age cohorts you might not associate with trusting large financial institutions to provide the best deal.
In reality, the average APY earned by a savings account at an online-only bank far outpaces the average of a traditional bank or credit union. Analysis from DepositAccounts shows the average rate for online-only banks sits at 1.52% APY, while the average at traditional banks is 0.26% and 0.23% at credit unions.
Besides misidentifying where the best rates are, many Americans don't keep track of how much interest their current savings account earns for them. Nearly 47% of those surveyed admitted to not knowing this number. While a greater proportion of those who obtained at least a bachelor's degree knew that online banks offered a higher rate (and what the rate of their current savings account earned), a college education shouldn't be a requirement to get the most from your deposit account.
If more Americans knew how much interest they could earn with an online-only bank savings account, they might feel less reticent to switch to an internet bank than they do now. According to the survey, nearly one third of the country refuses to open a savings account with an online-only bank. As you can see below, the reasons resemble those given by the group of Americans who have never switched a bank account.
Would 38% of the country still feel satisfied with their current account if more Americans knew about the interest rates available at online-only banks, or were more aware of interest rates in general?
DepositAccounts by LendingTree commissioned Qualtrics to survey 1,005 Americans who have a bank account. The survey was fielded May 21-22, 2019, and the overall margin of error for all respondents is +/-3%.