Banks are increasingly using credit card rewards to woo consumers into long-term relationships, allowing them to sell other financial services. But why remain faithful to one bank for everything: checking, savings, investing, mortgage, home equity lending, auto loans and credit cards?
Experts say that when you’re approached with what financial institutions call “relationship banking,” your reply should probably be, “I’m just not that into you.” In many cases, it’s better to play the field and optimize among several financial institutions.
True, housing your financial life under one roof offers simplicity and convenience, but it might not yield the best array of financial products.
“It’s always a good idea to shop around,” says Ted Beck, president and CEO of the National Endowment for Financial Education. “With any banking relationship, you need to understand their products and compare services.”
Maybe one bank offers $1,000 in value from a credit card sign-up bonus but you lose many times that by taking out a pricier mortgage than its competitors offer, or earning lower returns on savings or investing.
“[Credit card rewards] may be a factor, but it should not be the only consideration,” Beck says. “Larger balances with one institution can mean more clout, but what are you getting for it?”
The desire for devotion
Relationships aren’t a priority only for hometown banks and consumer-friendly credit unions. Megabanks are now using the come-on of credit card rewards as a lure for banking devotion. Card benefits come in the form of sign-up bonuses and ongoing rewards for spending that can be redeemed for cash back and free travel, for example.
- Chase offered a 100,000-point sign-up bonus on its popular Chase Sapphire Reserve℠ — double the standard offer and worth up to $1,500 — for customers who also took out a mortgage with Chase.
- When it was introduced, the flashy and lucrative U.S. Bank Altitude Reserve Visa Infinite Card was reserved for U.S. Bank customers only.
- Bank of America® gives reward boosts to its credit card holders through its Preferred Rewards program when they stash money at the bank or its investment accounts.
JPMorgan Chase officials have been clear in talks with Wall Street that the bank’s lucrative sign-up bonus on the Chase Sapphire Reserve℠ — while a significant short-term money loser — was aimed at acquiring desirable customers and then selling them other Chase banking services. “We now have them, and we intend to deepen relationships with them,” Chase Chief Financial Officer Marianne Lake said during the bank’s second-quarter call with stock analysts.
U.S. Bank took a different tack. It required early applicants to have an existing consumer account with the bank before they could apply for the card and cash in on its lucrative sign-up bonus and rewards.
“It’s an investment in the relationship,” Bob Daly, a senior vice president at U.S. Bank, said during a May event in Chicago to launch the card. “They’re working with us, and we want to work with them.”
Consumers are playing coy
Still, a large percentage of consumers seem wary of placing all their eggs in one financial basket. Forty-one percent of North American banking customers are unwilling to buy additional products or services from their banks, according to a December report by Forrester Research.
“Customers are no longer predisposed to having a relationship with their bank,” said the report by Forrester Chief Marketing Officer Victor Milligan.
So while pitches for relationship banking via lucrative credit card rewards can be tempting, clinger alert: They might lead to a one-sided love affair.
Information related to the Chase Sapphire Reserve℠ has been collected by NerdWallet and has not been reviewed or provided by the issuer of this card.
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