Diana Clement: It pays to switch banks and the good news is it's easy

Are you too loyal to your bank? Photo / Getty Images

We're way too loyal with our banks and financial institutions. Sometimes it's worth shopping around.

Believe it or not you might be paying a "loyalty tax" in return for being a long-term customer. That's due to the fact that banks advertise juicy offers for new customers and pay for them by dropping loyal customers onto less competitive rates. Usually, it's by stealth and you don't notice.

It's the same for utilities providers and sometimes insurance policies. But I'm focusing on your significant other bank and KiwiSaver providers.

The good news is it's quick and easy to switch banks and KiwiSaver providers these days.

The New Zealand Bankers Association says for banking talk to your new bank, which will provide you with a Switching Bank Request Form. Once you've completed and returned that form your bank will identify and transfer over all your recurring payments, taking most of the pain away. Nice.

You will still need to time your switch, especially if you have fixed-interest-rate loans or a term deposit that incurs break fees.

If you are transferring credit card debt from one bank to another, check the terms and conditions carefully, says Banking Ombudsman Nicola Sladden. If the new bank approves your application, it will pay off your card debt debit at your old bank and create a new debt.

For KiwiSaver switches, contact the provider you want to move to, and it will arrange the transfer.

Sometimes it's the decision to switch that is hardest. You need to first work out what's important for you.

For me it's still having access to a branch. In the past two or three years, ASB, ANZ, BNZ and Westpac have all shut up shop where I live. Kiwibank survives by the skin of its teeth until the Post Office closes. Some areas ill-served by banks do have credit unions.

The wholesale disappearance of my branch has been a nightmare, and I'm not elderly, disabled or too cash-strapped to pay for the transport to get to the nearest branch. I'm just too time poor to drive 20 minutes each way.

The banks are trialling banking hubs in five small towns for people in my situation, albeit I'm in Auckland. The hubs have cash machines for each bank and have a single member of staff to assist with simple transactions, which enables locals to do most of their banking.

Not everyone needs a branch. Some do, such as businesses that need to deposit the day's takings. I have power of attorney for an older relative with complex banking needs. A hub wouldn't cut it.

Don't think "stuff you" and switch banks, KiwiSaver or insurance on a whim. Make sure you understand fully your reason for switching.

While it's the branch for me, for others who have significant borrowing it might well be interest rates, bank fees or the honour and dishonour charges.

Sladden says figure out what you want from your bank and check the rates and terms and conditions of all accounts you plan to switch.

You are not obliged to transfer all your banking. Maybe just your credit card, especially if there is an introductory low-interest offer.

Do always ask your existing bank or other provider before switching. It is easier to stay put if your provider has more suitable products than you're currently signed up for.

Do be wary of switching insurers or policies where your health is concerned. That's because people often find they're not covered at the new insurer for illnesses they've suffered, or developed symptoms/precursors for since they last took a policy out. Or you may face a lengthy stand down period. Sometimes it's safer to stay put no matter what juicy offers are put in front of you by eager salespeople and advisors who make their money from commissions.

The ombudsman's website at Bankomb.org.nz has several guides to help you through the process of switching.