Many investors think that having their home loan, investment loans, credit cards and savings accounts with the one bank is a good thing.
I’ve had people tell me what a great benefit it is, as they get fee waivers and special discounts for having all their accounts with the one bank. They may even have their very own ‘personal relationship manager’. Don’t they feel special!
What the unsuspecting investor doesn’t realise is what is really going on here – which is the fact that everything is geared in favour of the bank.
Let me lay it on the line and explain some of the risks of this situation:
Risk 1: The bank knows your entire spending history and habits
The bank can see if you pay your loans on time and whether you pay extra or just the minimum repayment. That’s fairly stock standard.
But, then there are your credit cards; the bank can see whether you pay the balance off in full each month, or just make the minimum repayment. It can also see all of your spending habits. It can see where you like to shop – Kmart or upmarket boutiques? – where you like to dine out or where you shop for groceries.
Data-crunching software is incredibly sophisticated these days, to the point where some banks are using information you post on social media to help them ascertain your ‘risk’. Do you really want your bank having that much information and power at their disposal?
Risk 2: The bank knows how much you have saved
Next, there is the savings account that most people generally have their pay deposited into. Now your bank knows how much you earn (down to the last cent) and how much you have left at the end of each pay period. It also knows when you receive a pay rise, as your regular pay income into your savings account will increase.
With all of this information at their disposal, the bank knows if you are a saver or a spender. In fact, it has a complete picture of your financial spending habits, including where you shop, how much you spend, how much you save and how much you pay on your loans.
Risk 3: The bank can take pre-emptive action to protect themselves
What happens if something goes wrong? Let’s say you lose your job. You decide not to pay off your credit card balance in full this month, like you usually do. Instead you pay the bare minimum so you can save your pennies until you find another job.
Unfortunately, you have difficulty finding another job, so for a period of several months there is no regular income going into your savings account as expected.
How much power does the bank have now?
It can see that your savings account is drying up and that you’re making lower payments on your bills. The clauses in your mortgage contract protect the bank in this regard, so that if it feels a little nervous about your financial position and you miss or default on a payment, no matter how small, it may decide to call you in on one or all of your loans.
In short, because the bank is aware of your entire financial situation, you are totally exposed – and they have all the power.
I know of a builder who wanted to subdivide his home and build two units in his backyard. He obtained approval for a development application (DA) for the units and decided to construct them himself as an owner-builder. He had ample existing equity and cash, as he had other good investments.
As an owner-builder, he needed to stop working to focus on this new project. All of his accounts were with the one bank. He explained to the bank what his intentions were, but unfortunately for him, the bank became nervous and decided to issue him with a 30-day notice to pay up all his loans. It resulted in the project falling over, and him and his family being kicked out of their home.
The best way to avoid this situation is to spread your risk by not putting all your eggs in the one basket. Have your credit cards with one bank, your savings and every day accounts with another bank, and your investment loans and PPOR mortgage with several different financiers.
With a personal financial risk mitigation strategy you can take some power back from the banks, as it makes it a little more difficult for any one bank to have a complete financial history of how you manage your financial affairs.
Helen Collier-Kogtevs
Property Educator and Best Selling Author
Real Wealth Australia
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