Does closer = better?
Posted by Kevin Correll on April 29, 2009 in General
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I recently reread Freakonomics and realized again how much I love the way Steven Levitt exposes the irrational choices we make every day without realizing it.
Because of the work I’m doing with PerkStreet, the book got me thinking about how people decide on which bank to use. When you look at what you’re actually doing, it’s a pretty big leap of faith yet most of us treat it like getting gas for our cars. After all, you trust your bank to hold your hard earned money and to make sure that you can get to it when you need it but most of us just drive to the closest branch and open an account on the spot. And why wouldn’t we? After all, banks are all pretty much the same, right?
The fees banks charge may vary a little and maybe the new account sign-up offers might be different, but the products they offer can vary greatly based on your particular needs. For instance, if you own a laundromat and you’re dealing with hundreds of pounds of quarters each week, having a bank that’s close to your place of business might matter more. Or, if you keep at least $50,000 in your account each month, you should consider getting a high yield money market account with an attached checking account. There are plenty of examples of specific banking needs a person might have and yet proximity still drives the majority of peoples’ decision making about their bank.
Is proximity to a branch really the best way to choose a bank? I’d say it’s pretty irrational, yet when I started my first job I opened an account at the bank across the street from my office. As it happened they were giving away toasters for signing up, but I didn’t know it until I walked in the branch. After I opened it, I went to that branch only once: when I needed a certified check for the down payment on my house. Turns out, having a bank across the street wasn’t my important need after all.
If I had to do it over again, what would I look for? Since I already got myself a very nice toaster, it wouldn’t necessarily be the sign-up bonus. I’d find the bank with the most fee-free ATMs I could find and I’d make sure I wasn’t going to be hit with a bunch of unnecessary fees. And given the amount I spend on my debit card I’d find the best debit rewards program. Getting something back just for spending my own money would be pretty compelling to me. (Sure, it’s a convenient claim for a guy in my situation to make but that’s also the reason I’m at PerkStreet to begin with.) Unless of course the sign-up offer was for one of those convection toaster ovens. Then I’d take a second look.
