Answer: 3%
Questions:
- If you could make an extra $100 in extra interest by switching banks would you do it? How about $20 in extra interest?
- Would the amount of time required to open a new bank account impact your willingness to switch banks? Explain.
- Why do you think so few savers were ready to switch banks despite a potential benefit of $150 in the first year?
Behind the numbers (from the Economist; sub. required):
The authors conducted a randomised trial with 124,000 British savers with savings accounts at five institutions. These are simple products and the main salient feature is the interest rate.
Savers were given information about rival accounts that offered higher rates. On average switching would have taken around 15 minutes and made them £123 ($153) in the first year. But only around 3% were prepared to switch. The academics experimented with ways of displaying the information to make the benefits clearer. Enhanced disclosure made switching a bit more common, but not much.
The most successful approach increased the share of customers switching to just 12%. Neither a saver’s age nor the balance in the account made a difference. The authors concluded that savers doubted the benefits of shopping around and were put off by the perceived inconvenience. “Caveat emptor”, it seems, may apply in principle but not in practice.
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