4 reasons you should be using more than one bank

Many Canadian adults have multiple facets in their financial portfolio: a credit card, line of credit, mortgage, car loan, savings account, chequing account, TFSA and an RRSP. However, should they all be tied to one financial institution? Canadian experts say no, it's better to spread your wealth and debts across at least two banks to safeguard your savings in case anything goes wrong.

"Banks have trained us to think it's good to keep all our accounts with one bank for convenience, ease, building a relationship," says Richard Moxley, author of the Nine Rules of Credit and spokesman for eCredit Fix, which helps consumers learn about improving their credit scores. "People get comfortable with one bank and I understand the draw of it, but I've seen too many people get burned by this."

Moxley and Brian Pritchard, a credit counsellor and senior vice president at BDO Canada, explain why you ought to have an account with a second or even a third financial institution.more-than-one-bank

1. To have access to cash, credit when fraud strikes.
If your bank suspects fraud, it'll freeze your accounts and you'll have to replace your existing affiliated credit and debit cards with new ones, which could take up to 10 business days.

If you're holding onto a single credit or debit card, you won't have access to any of your payment tools during that time. This is a nuisance if you have big payments to make, if you can't visit the bank to withdraw money or if you're travelling, Pritchard says.

"You've been a victim of fraud, your accounts are drained, you're stymied because there's no money left," he says. "At least if you had another bank account, you'd have money there."

2. To safeguard your assets from "right to ‘offset'" clauses.
The right to "offset" means your creditor can take funds from one account to settle a debt with another account within the same financial institution. This typically kicks in if you haven't made any payments to outstanding accounts for 90 days.

"Any person in the debt industry will tell you to switch your bank account because creditors will try to pull anything they can out of your account if you owe money to the bank," Moxley says. "They'll grab what they can and freeze everything the moment they can."

You don't get to determine how the funds in your account should be allocated, either. Moxley has seen families default on cheques for rent because their entire paycheque ended up in the hands of their bank.

"The bank takes it all, which leaves everyone else upset," he says. "It leaves you powerless."

However, if you have a credit card with one bank, and your chequing account is with another, your creditor can't get to your cash because it isn't tied to the same institution.

3. To maintain your banking history if changes happen to your account.
Your banking agreement can change for a number of reasons. For instance, you might get divorced and end a joint line of credit, your creditor might sell your contract to a competitor or your account may close on you without warning.

Suddenly, all of the banking history you've built with that institution is over, and if that's the only bank you've ever used, you're starting with a blank slate.

"Your credit history will be reported, but it could mean you start at zero with new reporting," Pritchard says. Even if you just decide to switch banks, you'll start all over, he says.

Instead, forge multiple relationships with banks so you're in good standing even if one account closes unexpectedly.

4. To have some leverage, get better offers.
Your bargaining chip is your ability to walk away as a responsible client.

After talking to an expert with one of the major banks, Moxley says he learned that if a consumer had five products with a single bank, the bank's offers to that consumer would decrease.

"At that point, they basically had it in their system that they had you, and they wouldn't be offering you anything else because it was such a pain in the butt for you to switch," Moxley says.

He says, in short, banks get "complacent" with you.

Instead, you're better off letting two banks court you. If you're shopping for a new credit card, line or credit, investments account or insurance, for example, look at the features from various banks.

"It's beneficial because banks and lenders will be aggressive about certain types of products, they'll be expanding at different times, or they'll have different promotions," Moxley says. "But this doesn't work if they already believe they have you."

Let them fight for your clientele, and you may snag better deals.

See related: Author account: How my bank account has evolved with me, How to fight credit card inactivity fees, Mobile banking trends help branchless banks evolve
Published March 8, 2016

Most recent Credit Account Management Stories