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What is relationship banking, and is it worth it?
Do you feel as though your relationship with your bank is impersonal, or that you’re treated like just another dollar sign?
Relationship banking aims to fix that. This strategy is about offering a more personalized experience and building long-term connections with bank customers. But with the rise of online banking and other convenient, low-cost financial tools, is the extra effort of relationship banking worth it?
Maybe. Here’s what you should know about how relationship banking works and whether it’s right for you.
What is relationship banking, and how does it work?
Relationship banking focuses on building long-term relationships between the bank and its customers. Unlike the typical banking experience, relationship banking emphasizes understanding the customer’s broader financial needs and goals to provide a comprehensive, personalized service.
Often, relationship banking clients have a dedicated banker or relationship manager who acts as their go-to resource for questions or assistance.
Why? Banks know that customers often work with their competitors. You probably have a primary bank, for instance, but may also put some money in a high-yield savings account with an online bank, or have your investments overseen by a wealth management firm.
Relationship banking encourages customers to do all or most of their banking with one bank, rather than spread their wealth across other companies. For instance, if you’re a relationship banking customer, you might have a checking and savings account, mortgage, car loan, insurance policy, and wealth management services all under the same roof.
However, relationship banking isn’t available to everyone. Many customers, especially those with simple financial needs, don’t generate enough revenue through fees or interest to justify the cost of personalized banking services. Typically, this benefit is reserved for high-net-worth individuals and business clients.
Read more: How do banks make money?
Pros and cons of relationship banking
If you’ve been offered relationship banking by your financial institution, it might sound pretty attractive. And there are a few major benefits. But relationship banking also comes with some downsides that you should consider first.
Pros
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Personalized service: Having a dedicated banker who knows your financial situation and can recommend the best products to maximize your wealth is one of the biggest benefits of relationship banking. Plus, you won’t have to rely on a call center with long wait times to ask a question or get advice.
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Access to credit: Having a long-term relationship with your bank can increase the likelihood that you’ll qualify for loans or lines of credit since the bank is familiar with your history as a customer and risk profile.
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Exclusivity: As a relationship banking client, you may be offered better interest rates, reduced fees, higher credit limits, investment opportunities, and other perks that aren’t available to other customers.
Cons
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You could limit yourself. If you become too loyal to one bank, you might miss out on better deals elsewhere, such as higher returns on your savings or lower financing rates. Or your bank may push financial products that you don’t really need.
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Higher costs: Some relationship-based services come with higher fees. You’ll need to determine whether the benefits you get out of relationship banking are worth the potential added cost.
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Your money could be at greater risk: Bank failures and cyberattacks are pretty rare, but they do happen. When your assets are spread across several financial institutions, you minimize the chance of running into issues if something happens with one bank.
Read more: 4 steps to take following a bank outage
Is relationship banking right for you?
Whether or not relationship banking is a good fit for you depends on what you’re looking for from your financial institution and your larger financial goals. You’re probably a good candidate for relationship banking if the following is true:
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You value personalized attention and advice.
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You have complex financial needs or a large amount of assets.
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You prefer loyalty and stability over constantly seeking out better deals.
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You’re willing to pay for these added services and perks.
On the other hand, relationship banking may not be a good fit if you have relatively simple financial needs and are comfortable managing them on your own. The same is true if your top priority is getting the best deals for your money, and you don’t mind shopping around for them.
