In the financial world you'll often come across deals to entice in new customers, and equally there are deals to be had for loyal existing customers - but which is better? We take a look at whether loyalty ever pays when it comes to running your finances.
It wouldn’t be unreasonable to think that in the financial world, the new customer is king – after all, so many deals seem to be available for ‘new customers only’, whether that’s in the form of discounted premiums on insurance or an unbeatably low rate on a balance transfer credit card. Of course the main reason for this is that providers of financial services need to drum up new business on an ongoing basis to stay current – and to stay afloat.
Nevertheless, you’ll often come across deals that are open to existing customers only too, such as a preferential interest rate on a loan if you already have a current account with that bank or a more attractive rate on a remortgage. These are designed to retain the custom these providers have already secured in order to build up a loyal customer base.
So how do you know whether to stay true to a provider you’ve been with for years or go looking for something better elsewhere? It all depends on the financial product you’re in the market for.
Credit cards
If you’re looking to get a new credit card you may find that the bank that provides your current account will offer you an ‘own-brand’ credit card. Of course, the convenience of holding a credit card with the same provider you bank with can be a bonus when you are looking for a low-hassle way to take out a credit card.
However, though you might be offered a competitive deal by your bank it doesn’t mean it’s the best deal available, or the most appropriate for your circumstances. For this reason it's important to shop around and do your own research – by comparing the credit cards available on the market you may be able to find one that suits you better so you pay less for your purchases or balance transfer.
Also, it’s worth noting that holding a credit card and a current account in the same place can cause a potential problem if your bank invokes a clause called the ‘right to set off’. This means that your bank can, without warning, siphon money from your current account to pay off outstanding debt on your credit card if you fail to make repayments (though this is rare and banks will generally only invoke it as a last resort).
It is worth noting however that you will often be unable to apply for more than one credit card from a particular issuer, irrespective of the actual provider as you will already count as an existing customer. For instance MBNA issue cards for Virgin, AA and many other big brands as well as their own brand of credit cards. Bear in mind that you’re unlikely to be able to transfer balances between cards issued by the same company, so it’s important to check this out.
In this way it's usually better to be a new customer when it comes to credit cards. However it is still worth noting that there are deals to be had for existing customers.
Mortgages
In the case of mortgages it’s important to shop around on a regular basis throughout the life of your mortgage rather than automatically stick with the same provider throughout the entire term. As while mortgage providers (particularly in today’s market) will often bend over backwards to offer discounted rates to new customers, very competitive deals are often made available to existing customers too.
As such it's important to compare the cost of moving to the best new customer mortgage deal you're eligible for, with the cost of sticking with a deal offered by your current mortgage provider.
Of course before switching mortgages however you’ll need to find out whether you will incur any penalties for switching. For instance if you're part way through a fixed term deal it's likely you’ll have to wait until the fixed period ends to shop around, but there’s still no harm in ‘window-shopping’ for a better deal mid-term.
Loans
As with credit cards, banks will often offer preferential rates for unsecured loans to those who already hold a current or savings account with them. As such it is worth looking into what your current bank can offer you in terms of amount and interest rate if you are in the market for a personal loan.
However there’s really no sense in just taking your bank up on their offer without first scoping out the market for deals from other lenders who potentially could offer you a higher amount at a lower price. You may find that another lender you never would have otherwise considered can actually offer you a more competitive rate than the ‘preferential’ rate offered by your bank.
Savings accounts
When it comes to savings accounts you will often find that the bank you hold your current account with will offer you ‘preferential’ or ‘special’ rates of interest if you also decide to open a savings account with them. Undeniably, the convenience of having your savings account in the same place as your current account can be appealing.
However, the rates offered by banks for ‘linking’ a savings account with your current account often don’t stand up to scrutiny. What is advertised as a great rate by your bank may in fact be down the lower end of the competitive rates you may be able to get on a savings account elsewhere. So, before you decide to go for the savings account offered by your bank it makes sense to scope out the competition and see how much harder your saved money could be working elsewhere.
Remember that there is a difference between savings accounts that you are encouraged to open when you’re in the process of opening a current account, and those that are only available to existing current account customers. Savings accounts that you are encouraged to open concurrently a new current account often pay minimal interest because it’s assumed you won’t notice because of the convenience.
Current accounts
Current accounts are one of the sticking points in the consumer world of finances in that many of us prefer to stay with the same bank we’ve been with for years rather than up sticks and move to a new current account home. Loyalty to a particular bank can be worthwhile if you are happy with their service and with the benefits the current account provides you with, and if the account fits your individual banking needs down to the ground.
However if you have been with the same bank for years this is unlikely to be the case (except for perhaps continued good service). Your banking needs change over time and the current account that suited your financial habits 5 years ago is unlikely to suit them now. Plus, the market changes so often that better deals are sure to be found elsewhere along with accounts that fit you better. As such, it does pay to shop around when it comes to current accounts, and perhaps get in the habit of reviewing your account every year or so.
Insurance
The question of loyalty when it comes to any kind of insurance is a no-brainer – the cardinal rule is always to shop around. Of course staying with one insurer for a period of time can mean you build up your no-claims bonus, but nowadays these can be shipped from one insurer to another anyway.
If you aren’t shopping around each time your insurance is up for renewal then you’re missing a trick – ideally you should be scoping out the market each time you’re due to renew or buy new insurance, and never accepting your renewal or first quote. As such loyalty doesn’t pay when it comes to insurance, and it’s nearly always better to be a new customer than an existing one.
