Updated March 7, 2024

How to Switch Banks

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Switching banks or credit unions isn't complicated. But, there are several things you have to do first. Read to find out.

Does your current bank no longer spark joy?

Whether it's an unpleasant experience or a tempting offer from another financial institution, perhaps it's time for a change.

Learn the simple steps to switching banks/credit unions and how to make sure you don't regret it.

How quickly can you switch banks?
Opening a new bank account usually only takes a day. However, the process of transferring recurring deposits and transactions to your new account can take at least a month or 1 billing cycle.

Why People Decide to Switch Banks
Below is a table showing different reasons for switching banks/credit unions.

%Reason
35%Wants a change[1]
31%Current bank's charges are too high[2]
15%Events indirectly related to their finances[1]
15%Prioritizes good rates[1]
13%Wants better online access[1]
11%Attractive signup bonus[1]
9%Wants better customer support[1]

How to Switch to a New Bank?

Switching banks/credit unions can be a straightforward process. If you plan it carefully and strategically, you can avoid dreaded scenarios of missed payments, overdraft fees, and lost deposits.

What do you find most daunting about the process of switching banks?

Below are 6 steps to take if you decide to transfer your account to another bank.

Pick A New Bank/Credit union

The goal is not just to find a bank but a better one.

Look for a bank that offers services, fees, and features aligning with your financial needs and goals. You should also compare interest rates, account options, online banking capabilities, and branch locations (if planning to move to a brick-and-mortar bank).

Monthly Fee Savings Calculator

If you like writing paper checks, you might want to skip on an online bank. It usually provides only debit cards in its checking account option.

For better earnings, don't limit yourself to traditional bank types and account options. Consider opening high-interest savings accounts, CDs, money market accounts, or cash management accounts in fintech companies and mobile investing platforms.

Remember, you don't have to open them all in one bank. Having multiple financial institutions can spread out your risk and increase your FDIC coverage.

Many banks have a switch kit, which is a set of tools and resources to help you smoothly transition from one bank to another. Check if your prospective bank has one since it may provide a more seamless and tailored process.

List Recurring/Automatic Transactions

Thinking about the recurring payments for bills and subscriptions you have to transfer from your current bank can be stressful.

Take a proactive approach and make a list of all your recurring transactions (as shown below), noting their due dates, and relevant contact info of their service providers.

  • Automatic bill payments: electricity, water, internet, water
  • Automatic direct deposits: paycheck, pension, tax refunds
  • Recurring transfers and payments: transfers to linked accounts i.e. savings and investment accounts, child-support payments

Check your statements in the last 12 months to ensure that you won't miss any during your transition to a new bank.

Additionally, if your current bank account has rewards, use them up so you don't forfeit them when you eventually close your account.

Can you switch banks during a divorce?
Yes, you can switch banks even when you are going through a divorce. Assuming you have a joint savings account, it is better to close it first (which your spouse must agree to) and open an individual account in your chosen bank thereafter. In any case, consult a legal professional to help you navigate the complexities and protect your financial interests.

Open Your New Account

Most banks/credit unions will allow you to open a bank account online or in person. To ensure a smooth process, come prepared with necessary requirements and information.

They usually ask for the following:

  • Personal information (e.g., name, date of birth)
  • Contact information (e.g., email, phone number, residential address)
  • Social Security Number (SSN) or Employer Identification Number (EIN)
  • Government ID (e.g., driver's license or state ID card)

You can also set up online and mobile banking right away. Do test transactions to see if everything works and activate alerts according to your preference.

How hard is it to switch banks?
Switching banks is typically not so complicated, especially since some banks allow you to do everything online. However, it can require some legwork on your part if you have a lot of transactions that rely on your account.

Redirect Your Direct Deposits and Automatic Transactions

Advise your employer, billers, and payors to update your banking information with your new account details for future transactions. However, do this first — review which subscriptions you want to keep and the ones that you can cut off.

There are online budgeting tools that can identify subscriptions you may have forgotten about and cancel those that are unused.

Once you've listed all your recurring transactions, here's how to go about them.

For subscriptions

  • Go to your account page on your biller/provider website.
  • Check for option to change your payment method.
  • Replace account info with new one and Save/Submit.
  • Go to your payment method again to double check if your details are updated.
  • Call your biller's customer hotline in case you are unable to update it online.

For paychecks

  • Contact your HR.
  • Submit a request by filling out a form online or in person.
  • Provide your new bank details.

Check the timing of your update request. While it's possible for the change to take effect before your next payday, ask your HR/employer when they will start redirecting your paycheck to your new account so you can plan accordingly.

For Social Security benefits

Sort out any postdated checks you have issued as well by providing alternative payments to those involved. This may entail ordering new checks or opening a safety deposit box with your new bank. Doing these will help avoid penalties arising from delays in receiving or making payments.

Aside from recurring transactions, you must also update other online portals like payment apps and shopping sites with your new bank or debit card information.

Transfer Remaining Funds From Your Previous Account

You can empty out your old account by doing any of the following:

  • Withdraw cash at a branch or ATM
  • Transfer electronically to your new account
  • Request a check from your bank/credit union

Transfer remaining funds only after all automatic transactions have been switched to your new account. This could take a month or two based on the timing of your change.

Can I switch banks if I have a loan?
You can switch banks even if you have an existing loan with the bank (unless your loan agreement prohibits you from doing so). That said, some loans may have been granted under the condition of keeping your deposit account with the same bank.

Close Your Old Account

Make sure to close your account immediately after you've transferred all the remaining money in it. Otherwise, your bank will charge you a monthly fee if your balance falls below their minimum requirement.

On the other hand, keep your old bank account open if it does not have a minimum balance. This will enable you to check if your direct deposits and recurring transactions are no longer coming through.

Additionally, check with the bank for any closing or early account closure fees, and settle them accordingly. Safely dispose of your debit card and remaining paper checks to prevent fraudulent transactions.

Bank Switching Cost Calculator

Ask your old bank for a confirmation letter to verify the closure of your account. In your closure request, specify that all future transactions should be canceled to avoid potential monthly fees and identity theft risks associated with a dormant account.

When Should You Switch Banks?

Generally, you may move from one bank to another when your current bank is unable to meet your financial needs and goals. Here are some of them:

  • Better Interest Rates
    If you are coming from a traditional bank, you might be tempted by the higher APYs of online banks. This may be worth considering if you tend to keep high balances that grow at a snail's pace in your current bank.

  • Less Fees
    Many banks/credit unions have free checking options, which can be helpful if you want to save on fees. Others either waive incidental charges or have lower fees on excess withdrawals, overdrafts, out-of-network ATM use, etc.

  • Attractive Perks
    Banks may offer sign-up bonuses from time to time, which can be anywhere from $100 to $500 for regular checking accounts. This extra cash may boost your funds, pay toward minor debts, or cover small expenses.

  • Relocation
    If your account is with a regional bank, it may not be available in your new location. Thus, you'll have to find a new bank with a nearby branch or explore online banks if you haven't.

  • Unsatisfactory Service
    Frequent runaround treatment, like poor online banking service or security issues, can be a dealbreaker, pushing account holders to seek better options.

Although your current bank may have fallen short of your expectations, don't be too rash in your decision without reading the next section.

Will switching banks affect your credit?
Generally, switching banks won't really affect your credit. As long as you don't leave unpaid balances on credit products, like loans and credit cards, then you should be fine.

However, do note that activity involving bank accounts or deposit products is tracked by the ChexSystems instead. Your bank prospect may run your ChexSystems report to determine if they will approve your account opening or not.

What is your primary reason for considering switching banks?

Tips To Land the Right Bank

Since you are set to move your account to another bank, you don't want to regret that decision. These tips may help you get it right:

  1. Consider a better account option first.
    Perhaps your current bank has other accounts that could work better for you. For example, if you are annoyed by fees, they might have a free checking option that could save you $10 to $20 each month.

    Discuss your options with your bank's relationship manager before considering a switch.

  2. Do your research.
    Bank reviews and input from family or friends who use the bank you're considering are valuable. If many customers share a concerning issue, continue searching for other banks.

  3. Look at other bank types.
    If you're unsatisfied with major banks, consider smaller banks or credit unions. These types of financial institutions may offer more personalized services, avoiding another big bank switch. Non-banks like fintechs and mobile trading apps are great alternatives if you prioritize better rates.

  4. Call your potential bank.
    Banks may make an extra effort to impress potential clients. Test their customer support by assessing response time, efficiency, and available options. Visit their physical branch, if available, for a more in-depth experience.

  5. Make sure it's covered by insurance.
    Although most financial institutions are insured either by the FDIC or NCUA, always check if the bank you're moving to is. Note, however, that these insurance agencies only cover up to $250,000 of your deposit balance if the bank were to go under.[4][5]

What feature is most important to you when choosing a new bank?

FAQs

Can you switch banks without closing an account?
If you don't plan to use the old account anymore, you must close it since the bank may not automatically do so. They may even continue to charge monthly fees. However, you can keep your old and new accounts as long as you can manage having both.

Which banks give you money for switching?
Several banks, like Bank of America and Chase, entice you to switch to them by offering attractive sign-up bonuses. However, their promotions are often limited-time offers. So if you see one that matches your banking needs, grab it before it's gone.

Do you get all your money when closing a bank account?
You can withdraw all your remaining funds before you close your account. But even after closure, the bank is legally required to return any money left in your account after deducting any applicable fees. They usually send it back by mailing a check.

What the Experts Say

CreditDonkey asked a panel of industry experts to answer readers' most pressing questions. Here's what they said:

Bottom Line

Switching banks/credit unions is a big financial move that can help you improve how you manage your finances. It can even bring you better banking opportunities in the long run.

But, remember to think this through before making the move. Look at the benefits of your potential bank, such as lower fees, better customer support, or higher interest, so it becomes a good decision.

May this endeavor take you to greater financial success and peace of mind!

References

  1. ^ Yahoo Finance. Here's Why 1 in 5 Americans Are Considering Switching Banks, Retrieved 12/04/2023
  2. ^ GlobeNewswire. Nearly a Quarter of Consumers Are Likely to Switch Banks.., Retrieved 12/04/2023
  3. ^ Social Security Administration. Update Direct Deposit, Retrieved 2/19/2024
  4. ^ FDIC. Your Insured Deposits, Retrieved 11/06/2023
  5. ^ NCUA. How Your Accounts are Federally Insured, Retrieved 11/06/2023

Write to Penelope Besana at feedback@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

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