There is a certain kind of comfort among familiar people and things. It is easy to handle familiar things as we are aware of the various nuances and features of that particular thing. In case of a familiar person, we know how they are and how they are going to react at certain things. We are comfortable with them. It is easier to go out with them instead of making new friends.
Our financial life is not different at all. When it comes to financial products, we always tend to lean towards products that we are familiar with. Actually, we don’t lean. We cling to them. This is called familiarity bias. It is the bias of choosing something familiar than an unknown option. Many-a-times it is seen that, people select the familiar option even after knowing the benefits of unfamiliar things.
We don’t have to go far and look at their investing process to figure out the bias. Familiarity bias is also prevalent when it comes to selecting a bank account. However, there are many adverse impacts of familiarity bias. These may result in higher costs on account of requirement of minimum average balance, transaction costs and other services. You may lose out on higher interest rate and offers that are offered by different banks. Other banks may also come with excellent customer service and modern technological advances which may be missing from the bank that you are familiar with. These are some effects of going for a bank that you are familiar instead of going through the different features and benefits of different savings account before taking a call. In this competitive age, where every bank wants to be the best bank, it is wise to open a savings account only after considering the different bank accounts.
Think of scouting for the best savings account similar to the way you would hunt for the best prices on an online shopping site. When you can spend so much time looking for the best bargains, and then why not spend 10 minutes going through the features of the different bank account. After all, a bank account is going to stay with you for a long time.
So we all know that familiarity bias is rampant. In order to address a bias, it is important to understand its root causes. But how does it actually turn into a bias.
When we have to open a new savings account, we go to the bank where our parents and their parents have banked with. Many times, it is not because that the bank gives high interest rate or has excellent customer service but it is mainly because we are familiar with that bank. We have heard our parents talk about that bank and many of us must have accompanied our mom or dad to the bank. Although, we may have never done a banking transaction, but due to the feeling of familiarity, we are inclined to open a savings bank account with that bank.
Another reason that breeds this familiarity bias is the presence of relatives working in a bank. We feel comfortable knowing that our relatives work in XYZ bank and we quickly open a savings account with that bank. We like to believe that they will be able to help us in times of need. However, we forget that they may not work in the same bank for their entire working life and may switch a couple of companies after you made that bank account. Also, nowadays, many banks are prompt in their customer service area and quickly respond to the customer’s queries. Customers can also take the help of the bank’s chatbots and IVR to quickly get answers for their queries.
To summarise, knowing that you are biased when it comes to choosing a savings bank account is the first step in overcoming the bias. If you don’t want to be a victim of familiarity bias, compare the different features and benefits of savings account objectively before taking a call.
Tags: familiarity bias, savings bank account, bank account, bias