Working Class Economist: If a Bank Doesn’t Know Your Name, Bank Somewhere Else

Last week I encouraged people to ditch their credit card for anything but the most extreme of situations—and there aren’t many—in order to avoid the cancer sweeping the nation: credit card debt.

This week I’m asking you to ditch your bank. Not any bank you might have, but a very specific variety: the one that doesn’t know your name, the anti-Cheers where you are just a number, a statistic, a “we’ll help you only if you make us” type that needs to be dumped immediately. A bank like this is most likely one of the five mega banks (like the infamously greedy Bank of America or Citibank), in which case I would recommend switching to a locally owned, independent bank as soon as you can.

I say this because of the hundred little ways it can pay off for you. Advantages to a locally owned, single branch bank might include: better interest rates on CDs, lower interest rates on loans, higher probability of getting a loan that won’t bankrupt you, more favorable conditions for mortgage loans, and a much higher likelihood of getting a favorable small business loan should you need one.

This logic is counterintuitive to the typical wisdom that a larger bank can better service your needs because of sheer economies of scale. “Well, they’re so big surely they can afford to approve my small business loan” or the extremely wrong “Well Bank of America makes so much money they’ll probably offer low interest rates on loans.”

All banks exist to make money. Mega banks exist to make the MOST money, and that means a Scrooge-like instinct to screw you out of every penny they can. Banks like this can’t help it, and it’s what led them to need bailouts in the first place while dumping the majority of their toxic assets onto anyone unfortunate enough to do business with them Including smaller branch banks they were affiliated with, which is why I’m emphasizing banks that are entirely independent instead of just smaller chain banks.

Banks like this are much more likely to actually have to compete for your business because they need it. It might mean something as small (that adds up) as an extra percentage point on your savings account or something much larger like a cheap, fixed rate mortgage loan. And if someone knows to call you “Jim” or “Jane Johnson” and knows you’re an honest person, they are much more likely to approve a small business loan for your restaurant than a loan manager at Wells Fargo who hasn’t bothered to learn your name after five years of business.

This last year Wachovia (the fifth largest bank in the nation) and Wells Fargo (the fourth) just merged to create a really megabank when they were already enormous as separate entities. You really think a bank like that has time (or interest) in learning your name?