Money And Investing  -

Closing an Account Is Difficult

13 04 06 14 22

-------- They know it, now you know it.

Banks and financial companies know that once a client opens an account, many months may go by before the client decides to close it. Even more months may go by before the client actually executes on his/her intention of closing the account.

It is not that closing a bank account is a difficult task. Often a phone call will suffice. It is just that human nature makes us procrastinate doing things, for as long as it does not result in immediate major consequences.

Armed with that knowledge, banks use this expected behavior to their favor. They do entice you to open an account no matter how small it may be. Sometimes they incur in heavy customer acquisition costs. They hope you never close the account! They hope it will be more “convenient” – not necessarily more productive – to you to continue using their services rather than take your business elsewhere, or even nowhere.

The government also knows about this human intricacy. Sometimes it is for your own good: like an Individual Retirement Account: once you open it and fund it you are more likely to keep it, and even add to it. They even go into new customer acquisition costs by giving credits for saving (Savers Credit) to low income earners: giving money to people to save money; that is as crazy as those .com era bank offers where you could get $100 for opening an account with $10.

Subscriptions work in the same way. Once they are set up customers are unlikely to cancel them. Apparently, for some customers (me included), it is easier to keep sending the check (or allowing them the automatic charge) than to cancel it, even if the service is not even being used.

Use it to your advantage
Financially savvy people know this human characteristic and use it for their own good:

• Automatic Investments. Electronically schedule automatic investments. A 401k is a good example of this, but you can also get your bank to automatically deposit a portion of your earned salary into other savings and investment vehicles (savings accounts, brokerage accounts, extra mortgage payments).Subscribe yourself to savings
• Avoid new spending subscriptions. Think twice before opening an account or subscription service that will make you to spend money: even if there are substantial savings upfront, human nature may cost you in the long run.
• Be wary of the introductory 0%. 0% introductory rate cards are a great tool to control debt: if you repay them fast! But once the introductory period is over, it reverts to a high rate. Banks know that most people can’t pay before the end of the introductory period and will continue paying the standard interest rate: they know it, otherwise they would not offer it. They even hope you catch on new debt! Be careful about following your bank’s agenda, and don’t think that you are way above the bank smart guys. On rising interest rate periods, it will get difficult to get more 0% balance transfer offers in the future.
• Open accounts that you will not close easily Educations savings, retirement savings, car purchase savings. Put your money into separate accounts. My wife even puts it on different banks unlinked to her main bank. Procrastination may help you by leaving such money untouched.