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Bank shoppers ignore rates, fees

By Claes Bell ·
Thursday, March 3, 2011
Posted: 11 am ET

J.D. Power has a new report out on how people shop for a new bank, and some of the results are a little surprising, at least for me.

The study found that the biggest factor that attracted new customers to a bank was brand image, followed closely by advertising and having bank branches in convenient locations.

Fees and interest rates, on the other hand, were barely a factor; they drove a paltry 4 percent of customer purchase decisions, according to the report. From the J.D. Power press release:

Pricing -- fees and interest rates -- carries relatively little weight in influencing customer purchase decisions, despite recent heavy media coverage of changes to fees for bank accounts and credit cards.

For personal finance writers, reading a study like this is a bit like swishing Scope around in your mouth or walking out the door on a really cold day: refreshing in a harsh kind of way.

Writers spend a lot of time talking about fees and interest rates, because they substantively affect personal finance outcomes. Surveys like this are a perfect way to remind us that, as with public policy, indie films and the NHL, only a fraction of the public really cares.

So if they don't care about fees, what do bank shoppers care about?

In the polling J.D. Power conducted for the report, an abundance of convenient branches was the No. 1 reason people gave for settling on a particular bank. But thanks to innovations like direct deposit and online banking, few people actually visit branches regularly, says Rockwell Clancy, vice president of financial services for J.D. Power. So why would having branches close by matter?

"In a business where the value is fairly intangible, branches are one of the most tangible elements," says Clancy. "They're a tangible branding device. They're there every day I drive by. They're a symbol of solidity in an industry where's there's not a lot of it, and so they take on this sort of outsized role."

I think Clancy's on to something here. When you put your money in a bank, in a way you're taking a leap of faith. You're taking tangible, real money, and giving it an institution that will simply convert it into ones and zeros in its computers until you withdraw it again. Psychologically, it makes sense that people would be more willing to do that if the bank in question had some kind of solid, physical presence nearby you could go if there was a problem.

Aside from branch convenience, the other big factor driving bank shoppers was a combination of advertising, promotions and brand image.

"We took those with the highest acquisition rates -- guys like Chase, PNC, Suntrust -- and then looked at what they were doing that was different from the rest of the pack, and promotional offers like gift cards were very pronounced," says Clancy.

So why would spending big bucks on Madison Avenue ad men and shiny but probably small-potatoes gift cards draw in the customers?

"Advertising, again, is something that's tangible," says Clancy.

But while low fees and high rates didn't seem to be a great way to attract new customers, high fees did seem to be an excellent way to drive existing customers away. A sizable portion, 17 percent, said high fees or low interest rates at their last bank caused them to switch. Another 13 percent dumped their bank over "unmet expectations," showing that more substantive criteria had an influence over whether a bank could keep a customer.

What do you think? How do you choose a bank? Are fees the key, or do branch convenience and branding play a bigger role?

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April 27, 2011 at 1:29 pm

Westfield Bank has great rates

financial literacy
March 09, 2011 at 11:44 am

i appreciate your article about the Bank shoppers ignore rates, fees . thanks for posting this .

Debra James
March 08, 2011 at 3:05 pm

Claes, there are many people who still prefer or need to do their banking in person. The largest group of people that I believe fall into this category would be the elderly, disabled, and those with language barriers.

My mother has direct deposit of her Social Security check, but doesn't use a computer, cell phone or the Internet, and has shown to be a little irresponsible/vulnerable with a debit card (I am not sure if some local merchants weren't taking advantage of her, because some transactions looked suspicious), and previously racked up quite a debt in overdraft fees. So, she has to go into the branch to withdraw her spending money, because she longer has the card.

Although ATMs are a great convenience for many people, they present great opportunities for thieves to target people for robbery, especially the elderly and disabled. Being inside of the branch provides them the ability to perform their financial transactions with some level of privacy and safety.

Personally, in my household we go to the ATM or in the bank (if I happen to be with my mother when she does her banking) every few months to withdraw a couple of hundred dollars to have cash in the house. Most of our purchases are via credit card, but we do carry a little cash for the occasional lunch or small purchase.

Just like the song goes, "When I grow up, I want to be an old woman", and when that time comes I too will probably choose to go inside of the branch to get my cash.

March 04, 2011 at 10:38 am

I would agree with the findings of this study. I left Suntrust bank because of their TERRIBLE customer service and extremely high fees. When it was time for me to pick another bank, I went with Bank of America instead of a credit union because I liked how many branches they had near my house and near my family members in other states. I tried just using a credit union, but when I visited my family in TN, it was a 20 min drive (each way) to do any kind of banking. It was pretty frustrating. So Bank of America's many convenient locations was an important factor. I also talked to friends who had BoA accounts and they were very happy with the customer service and online banking.

Claes Bell
March 04, 2011 at 9:52 am

I think you're right that branch convenience is a priority for a lot of people, but I think its utility for bank customers is actually pretty overrated. Between the advent of direct deposit, debit supplanting cash, and ATMs being able to perform most of the functions of a bank branch, the need for branches has really diminished. How many times a year does the average bank customer even visit a branch?

Debra James
March 03, 2011 at 2:58 pm

I think people don't give a lot of thought about fees when choosing a bank that will primarily support their cash transactions like, payroll deposits, ATM transactions, POS transactions, and online bill payments. It seems to me that people start to do rate comparisons when its time for them to buy an investment product or borrow money. Often times, the institution they choose to get those items is not their retail bank, and they don't always close their existing bank account to open a new one at the investment or loan company. They may open ANOTHER account to take advantage of a multi-account discount or to more easily facilitate payments.

The thing that is most important to people is convenience; if there are plenty of branches close to their home, work, friends and family, and places where they travel to. That's why big banks are so popular, because there are very few towns in this country where you cannot find their physical presence.