Over time, you're probably going to have several types of financial accounts. Most people start with bank accounts, including a checking account and a savings account. After that, you'll likely need a credit card to build credit, a brokerage account to invest, and possibly auto loans or a mortgage, too.
You could go with different financial institutions for everything you need. A bank account at one bank, credit cards from another, and so on. Or you could keep it simple by using the same bank for all your accounts. To decide if that's a good approach, let's look at the pros and cons.
1. You could qualify for special perks
When you use the same bank for everything, it's more likely to offer you extra benefits. For example, you could receive targeted credit card offers or fee discounts on loans.
One of the most well-known examples of this is the Bank of America Preferred Rewards program. Clients who have at least $20,000 across eligible Bank of America accounts receive a variety of extras, including higher rates with the bank's rewards credit cards and an interest rate boost on its savings accounts.
2. It's easier to manage
Managing your money is faster and more convenient when all your accounts are in one place. Need to transfer money from your checking account to your savings account? You can do it instantly if both accounts are with the same bank. If your savings account was at another bank, it could take a couple of days for the transfer to process.
You also don't need to manage logins and passwords for multiple banks. And when you want to review your finances, it's easier to do when you can access all your accounts with a single login.
3. It could help you qualify for credit cards and loans
You don't need to bank somewhere to get a credit card or loan there -- but it could help, in a few ways. It gives the bank a better idea of your financial situation. The bank also may be more comfortable loaning you money or issuing you a credit card when you're using it to store your savings. Last but not least, banks sometimes send clients pre-approval offers for credit cards. Although these don't guarantee approval, they indicate the bank believes you're a good fit for that card.
4. Options are more limited
The biggest drawback of only using one bank is that you're limiting yourself to a small selection of financial products. You could end up missing out on valuable benefits this way. For example, if your bank doesn't offer any high-yield savings accounts, that could cost you hundreds of dollars in interest per year. After all, many of these accounts currently offer APYs of 4% or higher, compared to the national average of just 0.37%.
You can run into the same problem with other types of financial products as well. Other banks may have credit cards with better sign-up bonuses or brokerage accounts with fewer fees.
5. Fraud could be more of an issue
Using multiple banks is a good way to give yourself some additional protection against fraud. Let's say your bank accounts are compromised and you need to freeze them. If you only have accounts with one bank, you could be unable to withdraw money and pay your bills with them until the issue is resolved. Or, if anyone gets into your online banking account, they'll have access to all your financial products. With multiple banks, you get the security of not having all your money in the same place.
6. You may run into a limit on how much credit you can get
As mentioned above, in some ways, using the same bank helps when applying for credit. However, there's also a downside, at least if you want to get multiple credit cards. Banks are only willing to extend so much credit to each client.
Imagine you have two credit cards with your bank, each with a $10,000 limit. If your bank has decided that it's not going to extend you more than $20,000 in credit, it will deny future credit applications for that reason. If you're open to credit cards from other banks, you'll have more options and be less likely to run into these kinds of credit caps.
7. It's more work if you want to change banks
People usually stick with the same bank for a long time, but it's not always a lifelong relationship. You may move and find that your bank doesn't have great branch or ATM access in your new area. Or maybe you run into frustrating customer service issues and decide that you need a new bank.
Whatever the reason, if you use the same bank for everything, switching is a more complicated and time-consuming process. It's easier if you're only switching your bank account, compared to if you also need to get new investment accounts and credit cards.
There's nothing wrong with keeping your finances mostly tied to one bank. It's easy to manage, and you could get special perks. However, be open to financial products from other banks as well. Your bank probably doesn't have all the best options across the board, so if you're willing to open accounts elsewhere, it could benefit you financially.
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