For one reason or the other, you might decide to switch banks. However, the banks do not want to lose their old customers, so they make the bank account closing process complicated. But do not let that scare you from switching your bank.
Before you switch to another financial institution, first identify your needs and research for the bank that meets them. The process shouldn’t be that difficult.
In fact, a Consumer Reports survey found one in five customers opted out of switching banks because of the effort—not to mention possible fees. But sometimes it has to be done. And it’s easier than you think, and we will show you how.
- How to Switch Banks Smoothly Without Missing a Single Payment
- Does Switching Banks Hurt your Credit?
- Is it bad to Switch Banks?
- Why Might Consider Switching Banks?
- Should you Switch Banks?
How to Switch Banks Smoothly Without Missing a Single Payment
Does your current bank no longer meet your needs? Whether it’s high fees, lack of ATMs, or poor customer service, make a list of the reasons you want to switch.
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This will help you decide on your top priorities when looking to change banks. To ensure your next bank works for you, take the time to do research and find one that satisfies your wish list. Follow the easy steps below to switch your bank smoothly.
1. Find a new bank
Choosing a new bank can take time. Consider what’s important to you in a financial institution.
For example, finding a place that has branches and ATMs near you may be at the top of your list. Other important considerations include competitive interest rates for a savings or checking account, account fees, minimum deposits and balances, and so on.
Before switching banks, make sure your new one has the services that are at the top of your wish list. Read all of the fine print and look at all account options within a bank. Most banks offer multiple savings and checking account products. Compare everything a bank has to offer to ensure you find the right fit for your situation.
Research account fees and interest rates based on your average account balances. Look up the closest ATMs to both your home and work addresses, since you’ll likely need both. Check what complaints have been filed against the banks you are considering using the Consumer Financial Protection Bureau’s consumer complaint database.
2. Switch bank accounts online
If you prefer online banking, you’ll need to open a bank account online.
Once you find the right bank, open your new account and fund it with the minimum balance. Make sure you read all the fine print and meet all requirements.
Many financial institutions offer the option of doing the entire process online. If you can fund your new bank account with enough to cover rent and bills for the month, this will make the process of switching banks much easier.
It can take a couple of days for the money to show up in your new bank account. Wait until your account is fully funded before making the move. Activate your debit card and make note of your new bank account number.
3. List your automatic deposits and payments
Being methodical about the process of switching banks will simplify it. The first step is to pull a year’s worth of statements from your account and review them closely. You can usually find the statements online when you log into your bank account.
Pouring over that many financial transactions can be tedious, but it will ensure you don’t miss any quarterly or yearly bills such as insurance payments. Once you have a year’s worth of financial data to review, make a list of recurring expenses. Without looking at a year’s worth of transactions, it can be easy to miss or forget certain expenses.
Make note of direct deposits, bills, automatic transfers, recurring payments, subscriptions, linked accounts, and so on. Also list out any bank services you currently use such as paper checks, a safe deposit box, mobile banking app, etc.
This will serve as your to-do checklist of what you need to switch over to your new account when you begin changing banks.
4. Change bank accounts
Now that you have your list of recurring deposits and payments, you’re ready to switch bank accounts.
Start by updating all deposit sources with your new bank information. This could include your paycheck, dividend and investment earnings, social security payments, pension and annuity income, etc.
Keep in mind that it can take a couple of pay cycles before the information is updated. Stay on top of both your new account and current account so you know when everything has moved over.
Update all banking information for any recurring deposits and payments such as utility bills, cell phone payments, and insurance premiums. Don’t forget to change out your banking information for any online payment services you use.
Before switching banks entirely, balance your checkbook. This is your chance to review your current account and ensure there are no outstanding checks, scheduled automatic payments, or overlooked electronic payments in your old account.
It may take a few weeks before the last check you wrote clears your account, so keep enough funds in your old account to cover any late payments.
Review both accounts over the next month to ensure that all recurring payments have been changed over. Make sure you don’t get charged twice for a bill during the process of switching bank accounts. Also, stay on top of account balance minimums for both banks to avoid paying unnecessary fees.
5. Close the old account for good
Read up on your bank’s procedures for closing an account first. Some banks will let you close an account by mail, online, or over the phone; some require you to show up in person.
This list collects info on how consumers successfully closed accounts at multiple American banks. But since procedures may change, your best bet is to ask the bank directly how it’s done.
We recommend closing the account in person if time and convenience allows. A bank visit makes it easier for you to get the transaction in writing. “Zombie accounts” sometimes come back from the dead—a closed account might get reactivated if you forgot to reroute an automatic payment or if there’s a billing error.
To minimize the risk of a zombie account haunting you, ask for a letter from the bank stating you closed the account.
Even if you have no funds in the account, you still need to formally close it. You may be able to close an empty account online by following the instructions on the bank’s website.
If you have funds in the account you’re closing, the bank will usually write you a check for the amount of the balance, or just transfer funds to your new account.
Your bank may require a formal written request (such as a notarized letter) to close an account with an open balance. You may also have to go to the bank in person to pick up the check. Give the money one to two business days to transfer. A wire transfer’s faster, but it costs more.
If you owe money on the account you’re closing, you won’t be able to shut it down until you pay the balance and any fees. The bank might close an account with a negative balance after a month or so, but don’t wait for this to happen—it will negatively impact your credit. You want a neat, clean closure.
Does Switching Banks Hurt your Credit?
The good news is that closing a bank account doesn’t affect your credit score. As long as there are no issues with your account, you can switch to a new bank without worrying about damaging your credit score.
While banks may check your credit when you apply to open an account, under normal circumstances your bank activity isn’t factored into your credit score at all. That means your bank deposits, withdrawals, and daily transactions don’t help or hurt your credit score.
Even overdrafts don’t affect your credit score, assuming you pay the overdraft fee and clear up any outstanding negative balance before the bank takes action.
Credit scores are based on borrowing activities, like credit cards and loans, serious delinquencies, and public records. You can check for free to see the types of accounts on your credit report by visiting AnnualCreditReport.com.
You can also use a free service like Credit Karma, Credit Sesame, or WalletHub to keep tabs on changes to your credit information.
But are there cases whereby closing your bank account might affect your credit?
There is a situation where closing a bank account could affect your credit score, in a bad way. If your account is over drafted and has a negative balance when you close it (or when the bank closes it because you haven’t caught up), the negative balance may be sent to a collection agency for further action. Third-party collection agencies collect debts on behalf of other businesses.
Once a collection agency takes over your account, they will likely report the account to the credit bureaus. At that point, it will go on your credit report and be factored into your credit score. Unfortunately, collections remain on your credit report for seven years from the first date of negative activity, even after payment is made.
Is it bad to Switch Banks?
In as much as switching banks might the a good option for you, does that mean it is the best option? Are there reasons why you shouldn’t switch banks? Check you the points below.
1. Interest rates elsewhere won’t be much higher
Very few people are satisfied with the interest rates they receive on their bank accounts. And why should they be? It’s exceedingly rare for a checking account to offer any interest at all; when one does, it’s almost a miracle if the figure reaches 1%. Savings accounts — designed for people to keep money in, for Pete’s sake — aren’t much more generous.
You can probably get a higher interest rate for nearly any banking product you care to name, particularly if you switch to one of a number of online-only lenders, which tend to lead the rate pack. But if it’s a reputable company you’re dealing with, said rate isn’t going to be sufficiently high enough to go through the time and trouble of switching.
2. Staying put might get you a break on fees
It’s an open secret that negotiating with your financial institution on the cost of a product can save you money. Most of the industry’s products, after all, are offered by countless different companies, and are therefore near-commodity goods. What you’ll get from Bank A is usually not so different from what’s being offered by Bank B.
There are many anecdotes from bank consumers about how the hint or threat of defection scored them a better interest rate, lower fees… or even both. Banks need customers for their deposit bases, which are the foundations of their business. They don’t want to lose clientele.
If you feel like your bank isn’t paying you as much as it could for the product(s) you own, don’t be shy about letting them know. And, keeping things respectful and polite, hint that you’re thinking of pulling out your money.
It’s very possible they’ll accommodate you — particularly if you’re a long-time customer, have a large balance in your account(s), or both.
3. Uprooting automated payments can be painful
Two bank account activities that rarely generate fees for users these days are direct deposit and automated bill pay. For many of us it’s convenient to have an employer’s paycheck dropped directly into our account. It’s also nice to have what’s essentially an automated clearing house disbursing funds to settle our bills.
If you switch bank accounts and you are using one or both features, it’ll take some time and effort to untangle them. Your counterparties will have to be alerted that the bank account they’ve been paying to, or being paid from, is no longer valid. Then the new account will have to be connected to those entities.
Although there are more difficult tasks in the world, this untangling and re-tangling requires time and effort. It probably isn’t worth it unless your current bank is so insufferably bad in some way. If that’s not the case, you likely shouldn’t bother switching.
4. Account numbers aren’t portable
If you switch your cell phone provider, you have the right to move your existing phone number from the old provider to the new provider. This is called “portability.” For phone numbers it makes 100% sense, not least because those who contact you at least semi-regularly have that number on speed dial.
This dynamic is somewhat similar with banks (see previous section for situations that benefit from you providing this detail). Life would certainly be easier if we could simply port an account number from one bank to another. That way, we could apply the existing account number to direct deposit/bill pay arrangements with the new bank.
But that’s not the case. As a new customer, your bank will assign a fresh number without any input from you. So add a new account number adjustment to the list of potential headaches generated by switching financial institutions.
Why Might Consider Switching Banks?
How do you know when to switch bank? Are there any indicators or factors that show you the right time to switch to a new bank? Well, the points below will let you know when the ideal time to switch banks is.
You’re Paying Fees
Bank accounts don’t need to be expensive. Especially when interest rates are low, monthly fees and other charges can drain your account. You rarely get your money’s worth when paying high fees.
Monthly fees
Free checking still exists, and it’s easy to find. Here are three ways to stop paying for a checking account.
- Check local banks and credit unions for fee-free checking accounts. Small institutions may have free accounts available, even if you don’t have a high balance.
- Learn about waivers at national banks. Banks that charge monthly fees often waive those fees if you meet specific criteria. For example, you might be able to dodge maintenance charges if you set up a direct deposit into your account or keep your account balance above a minimum level.
- Go online for free checking. Several online banks offer free checking along with free online bill payment, mobile check deposit, and more.
It never feels good to pay steep fees to get your own money or check your account balance. If you’re a frequent ATM user, you can save a substantial amount of money by eliminating ATM-related fees. Some banks reimburse ATM charges—or a portion of those charges—helping you keep more of your money in your account.
Alternatively, open an account at an institution with an ATM network that’s convenient to where you live, work, and travel. If you belong to a credit union, you might already have access to thousands of locations nationwide through shared branching.
You Want Higher Savings Account Interest Rates
If you’re earning near-zero rates in your savings account, it’s worth evaluating alternatives. But low rates alone might not be cause for switching banks. Moving your account only makes sense if you can earn significantly more elsewhere, so run some numbers and decide if it makes sense to take action.
Example: You are mostly satisfied with your bank, but the interest rate seems low. A competing bank pays a rate that’s 0.5% higher than your current bank’s rate. Does it make sense to switch?
- If your savings account balance usually hovers around $1,000, that difference of 0.5% results in an extra $5 of interest annually. Switching accounts might not be worth the trouble.
- If you typically keep $3,000 in savings, the new bank will return an extra $15 per year.
- With $10,000 in savings, switching banks could yield an additional $50 per year.
You Want Modern Features
Technology makes it easier than ever to manage your finances, but some banks refuse to evolve.
Personal financial management (PFM) tools help you track your spending, predict account activity, and work toward your goals. Banks can provide those tools in-house, or they can make your account data accessible to third-party tools (like Mint, Tiller, and others).
Some banks and credit unions prevent you from using third-party tools. If you crave information about your finances, but your bank leaves you wanting, it may be time to switch.
You Want to Simplify
Switching banks can be an opportunity to organize your finances. If you’ve accumulated numerous accounts over the years, or are merging finances with a partner, a new bank account can help. Plus, having everything in one place makes it easy to move money quickly, understand your financial position, and minimize usernames and passwords.
If you find a bank you like, you might decide to use that institution for all of your deposit needs. Look for a bank or credit union with low fees and a competitive lineup of interest-bearing accounts:
- Checking and savings accounts
- Money market accounts
- Certificates of deposit (CDs)
You Want a Bank You Can Be Proud Of
Whether you keep cash in a savings account or spend with a credit card (and pay it off every month), you create revenue for banks. So why not provide earnings for an organization that’s aligned with your values?
You might feel uneasy about working with a bank that repeatedly misbehaves or has a corporate culture with which you disagree.
Plus, you have to wonder how a bank with questionable ethics might be taking advantage of you—perhaps you don’t know about the problem yet. If you’re concerned about your bank, you might do yourself and the world a favor by moving your business elsewhere.
Even when banks treat customers, employees, and other stakeholders fairly, you might prefer small financial institutions over multinational banks. Local banks and credit unions play an important part in your regional economy, helping businesses and property owners while providing services to individuals.
Should you Switch Banks?
To help you answer that question if you should switch banks correctly, there are 7 questions you need to answer first before making your decision.
1. How large a balance is needed to avoid fees?
A checking account that requires the customer to maintain a minimum balance to avoid monthly service fees doesn’t work for everyone. Let’s say you have a minimum balance requirement of $1,500. That’s pretty steep, especially if you’re paying bills and making everyday purchases from your checking account.
In addition to the monthly service fees, ask about other fees before you change banks. How much does the bank charge if you bounce a check? Is there a fee to close the account? What’s the charge to stop payment on a check? What’s the fee if you deposit a check from someone else that bounces?
“Be aware not only of the upfront price of opening an account but of continuing requirements,” Freedman says. “Some accounts require a direct deposit or a recurring payment through their site to avoid monthly service fees.”
2. How high are the fees for out-of-network ATMs?
“Most banks and credit unions participate in a network of ATMs, but if you rely often on an ATM for withdrawals, you should check on the fee for using an out-of-network machine,” says Susan Weinstock, an expert in consumer financial protections and former director of a consumer banking project at The Pew Charitable Trusts.
“Usually there’s no fee for using one in your bank’s network, but your bank or credit union should disclose the fee it charges for using another network,” she says. “There’s also a fee from the ATM owner, and that will be disclosed on the ATM itself.”
Freedman says consumers who travel often may want to open an account with a national bank that offers ATMs around the country.
“ATM fees may be less important to people who don’t use them a lot or who choose a bank or credit union with an ATM convenient to their work or home,” he says.
3. What are the overdraft protection options?
You hope you never have to rely on overdraft protection, but be sure you understand your options and their cost before you switch banks.
Weinstock says many consumers don’t understand that not signing up for overdraft protection can be a good thing. Your debit card will be declined or your check will bounce without it, but there’s no fee if you opt out of overdraft protection.
Overdraft fees for non-sufficient funds, or NSF, are big revenue for banks. People who overdraft regularly pay about $450 a year in overdraft fees, according to the Consumer Financial Protection Bureau.
“If you opt in for protection, the cheapest way to do it is usually to have funds transferred from a savings account, a line of credit or a credit card,” Weinstock says.
Consumers should compare the transfer fee, overdraft penalty fee, maximum number of times an overdraft penalty fee is applied per day, minimum amount required to trigger an overdraft fee and extended overdraft penalty fee charged for each day the account is overdrawn.
“Overdraft protection is a double-edged sword,” Freedman says. “It can be terrific and enable you to lower your risk of a bounced check, but you could end up paying a high transaction fee and a hefty interest rate if you sign up for a line of credit.”
4. How soon are deposit funds available?
Some banks put a hold on certain types of deposits, but some deposits are credited instantly.
Federal Reserve regulations require that the first $200 of a non-“next-day” check be available the next business day after it’s deposited, but banks vary in how soon the rest of the deposit is available.
“Fund availability is extremely important, especially for people living paycheck to paycheck,” says Weinstock, who notes that some banks’ business day ends at 2 p.m. “… You need to check that information in their disclosure boxes.”
Ask about the bank’s process for handling deposits and withdrawals. Most banks process a deposit first and then the withdrawals from the same day, but others credit the deposit last.
“Some banks handle the largest withdrawals before smaller ones that come in on the same day, which can make it more likely that you’ll overdraw multiple times,” Weinstock says.
5. How much interest is paid on deposit accounts?
Interest rates on deposit accounts are low, so some consumers may be tempted to skip this question. But Weinstock says you should find out whether your account pays interest.
“The problem is the interest rate changes often,” Weinstock says.
You can ask how often interest rates are changed and whether there are minimum balance or other requirements to earn interest before you switch banks.
Banks that try to attract more deposits will offer special, high-interest accounts to customers who meet certain usage requirements such as multiple debit card transactions and direct deposit.
“Credit unions have been proliferating in recent years and often have lower fees and higher interest rates for deposits,” Freedman says.
6. Are mobile banking and online bill pay offered?
While most banks offer online bill-paying services, not all offer mobile banking options. You need to determine how you use your bank to decide which features matter most to you. Some customers need a bank with longer branch hours because they need in-person services. Others want the option of doing everything online, Freedman says.
“While technology has made banking convenient, there’s also a higher risk of identity theft,” Freedman says. “Part of being a wise shopper should be to ask about what protection is in place against fraud.
Some financial institutions will alert you to unusual activity, but with others, you may not know anything is wrong until you receive your bank statement.”
You may want to compare the mobile apps from one financial institution to another to see which ones are the most functional for your needs before you switch banks.
7. Are rewards programs offered?
Once you’ve asked about some of the basics such as bank fees, overdraft protection options and ATM fees, you may want to compare rewards programs available on some checking accounts and savings accounts. Some banks offer rewards only on their credit cards, while others offer rewards to debit card users also.
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“You need to be honest with yourself as to what’s important to you and how you use your bank accounts,” Weinstock says. “Do you keep a cushion in your account or take it down to the last penny? Do you regularly have direct deposits made? These things will impact the type of account you choose and the financial institution you choose.”
If you do qualify for a rewards program, Freedman recommends shopping for one that matches your interests before you switch banks.
“My wife loves cash-back rewards, but I am a fiend when it comes to accumulating airline miles,” Freedman says.
Final Words
Don’t be afraid to switch banks if your current bank is not meeting your needs. Your banking needs will evolve over time, so pick a financial institution that aligns with your current goals. Find a bank that supports your goals and works with you to ensure you have a good experience.
Changing bank accounts doesn’t need to be stressful. It can be a good step in the right direction toward getting your finances in order.
Take the time to do your research and find a bank that offers the services and options that will help you meet your financial goals. Once you make your money a priority, you can focus on building good financial habits.
