5 Reasons to Break Up With Your Big Bank
April is Financial Literacy Month, and I’ve been thinking a lot about compound interest. It’s a simple financial concept that could help your money grow significantly, but your big bank might be stopping you from fully benefiting from it. In this post, I’m going to dive into why that is and what you can do about it.
What Is Compound Interest?
Let’s start with the basics. Compound interest is one of the simplest and most powerful financial concepts. It’s when your money earns interest, and then that interest itself earns interest. Over time, this effect can make your money grow exponentially. You might have heard about the magic penny example. Here’s how it works:
If I gave you the choice between $1,000,000 today or a magic penny that doubles in value every day for 30 days, which would you choose?
You’d probably go for the million dollars, right? But the magic penny, doubling every day for just 30 days, would end up being worth $5.3 million! Crazy, right?
Now, of course, there’s no investment that can double your money every day, but the concept of compound interest is real, and it can work wonders for your savings. Currently, with interest rates around 4-5%, you could be missing out on serious growth just by keeping your money in a savings account or a short-term CD.
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Why Big Banks Could Be Holding You Back
Big banks, like JP Morgan, Bank of America, Citigroup, Wells Fargo, and US Bancorp, are notorious for offering little-to-no interest on checking and savings accounts. I’m guilty of using Bank of America myself, and honestly, I barely earn a few dollars a year in interest despite keeping a decent balance in my account.
Here’s the thing: If your bank isn’t paying you at least 4% annual interest, you’re probably missing out on the benefits of compound interest.
Let’s say you have $50,000 sitting in a big bank. If you moved that money to a high-yield savings account or money market fund that offered 4% interest, you’d earn $2,000 just by making that simple change! And if you kept doing that for several years, that could mean thousands of dollars in “easy money” for you.
The thing is, these big banks aren’t going to tell you about these options.
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4 Reasons You Should Consider Breaking Up with Your Big Bank
If you’re not earning interest and your bank isn’t helping you grow your money, here are four reasons you should consider making a change:
1. No Compound Interest
As I mentioned earlier, if your bank isn’t offering at least 4% interest, you could be leaving a lot of money on the table. A high-yield savings or money market account can allow your money to grow through compound interest, helping you earn more on your savings with minimal effort.
2. High Fees
Bank fees are another reason why big banks can be a drag on your finances. Overdraft fees, ATM fees, and account maintenance fees can really add up.
For instance, if you get hit with five overdraft fees in one month, that could be hundreds of dollars in penalties. The worst part? Banks rarely offer ways to avoid these fees unless you’re constantly tracking your account.
Online banks, however, often don’t charge account fees and usually offer free checks and better ATM access. Plus, some even reimburse ATM fees, which is a major win.
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3. Limited Features
Let’s face it: many big banks aren’t exactly known for their cutting-edge technology. For example, Bank of America’s online tools are lackluster compared to other financial institutions. But with online banks or brokerage accounts, you can get much better tools for tracking your spending, earning interest, and managing your investments. Some even offer amazing expense tracking reports to help you stay on top of your finances throughout the year.
4. Convenience
When was the last time you went to your physical bank? Many people, especially with the rise of mobile banking apps, find that they rarely, if ever, need to visit a physical branch anymore.
There are so many ways to deposit checks, pay bills, and manage your money without stepping foot in a bank. In fact, for most people, the need to have a physical location for their bank is practically nonexistent.
With online banks, you can do all your banking from your phone and even have access to physical ATM networks that don’t charge you fees. The convenience factor alone can make switching to an online bank worthwhile.
Bonus: No Love for Long-Time Clients
Here’s another thing I’ve noticed: Banks don’t always show much love for their loyal customers. I recently tried to open a small business account with Bank of America, assuming my long history with them would give me some perks. But no—my new account would require a $3,000 minimum balance and charge me a $15 monthly fee. This wasn’t a huge deal breaker, but it made me realize I could do better elsewhere.
In contrast, online banks or credit unions might not only eliminate fees but also give you better benefits without punishing you for being a long-time customer.
Time to Make a Change?
Remember, compound interest can be your best friend when it comes to growing your savings. Don’t let a big bank hold you back from benefiting from this powerful financial tool.
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As always, have a great day, a better week, and I look forward to talking with you on the next blog post, podcast, YouTube video, or wherever we have the pleasure of connecting!
Written by Ryan Morrissey
Founder & CEO of Morrissey Wealth Management
Host of the Retire with Ryan Podcast