There is a slew of reasons why a person may be interested in how to switch banks. Maybe they don’t feel like they are being treated well, don’t like their current account’s fee structures, or simply want a bank that has a branch closer to their work or home. At times, they may have seen an interesting incentive for making a switch, like a monetary bonus for new customers or higher interest rates. In any case, it’s essential to understand what comes with making a change. If you’re interested in how to switch banks, here’s what you need to know.
Before You Switch Banks, Read This
First and foremost, it’s important to acknowledge that switching banks is a pain. While the difficulties are manageable, they aren’t worth going through if your reason for making a change is faulty.
For example, if you think that changing banks will let you escape an overdrawn balance, you’re wrong. While the overdraft amount won’t stop you from making a change, and won’t necessarily follow you to your new bank, it doesn’t disappear just because you are sending your direct deposit to a different account or cashing checks elsewhere.
Being overdrawn means you are technically in debt, and the bank can send you to collections to recoup the costs. Fees and penalties could also cause what you owe to grow, and the collections effort could end up on your credit report.
Sometimes, switching banks just to snag a signup bonus is a bad move. While being able to add a few hundred bucks to your account (or take home a fancy new home appliance) might seem like it makes the effort worthwhile, you have to look deeper.
Are the new interest rates better (or, at least, the same) as you have now? What about the fees you’ll pay? If that signup reward means higher fees, lower interest rates, or similar financial penalties, switching to that bank might not be the smartest choice.
There are other situations that could play out similarly. Before you make a move, you need to look at the big picture. Can you accomplish what you’re trying to achieve by switching? Will you come out financially ahead, based on the big picture? Answer those questions first and, if you the end result is positive, then going forward with the move could be the way to go.
How to Switch Banks
Switching banks is a multi-step process. Often, it can take a surprising amount of time to pull it off, and it’s easy to accidentally overlook something critical. To help you avoid a misstep, here’s an overview of what you’ll need to do to switch banks.
Find the Right Bank
The first thing you need to do is find the right bank based on your existing needs. You don’t want to close or alter your existing account until you know where you’ll be heading, even if your current experience is poor.
Research your available options, including who has convenient branches and ATMs, what interest rates are available, what the fee structures look like, if there are minimum balance requirements, and other aspects of the services you want to use. Compare different institutions on those points, as well as their customer service reputations. That way, you can determine who can meet your needs and will treat you well while doing it.
Open the New Account
Once you have selected a new bank, you’ll need to open your first account. Typically, you want to start with a checking account, as it is the more versatile option. That way, you can shift your direct deposit and handle bill payments or spending from it.
Set Up Your New Direct Deposit
After opening the account, you need to make sure your direct deposit will head there. You’ll need to give the account details to your employer, ensuring they can update their payment process to direct your money to its new destination.
How long it takes for your employer to make the change can vary, though it typically shouldn’t take any more than the second pay cycle from when you supply the information. During this time, leave all of your automatic payments and existing accounts intact.
Update Automatic Payments
Once you know when your first direct deposit land in your new account, you can start updating your automatic payments. However, you want to be cautious, ensuring you update the right ones at the right time.
For example, let’s work with a scenario. Imagine today is July 20, and that your first direct deposit will land in your new account August 1. You have bills due on July 25, August 2, and August 5, all that you handle with automatic payments.
Unless you manually deposited cash into your new account to cover it, you don’t want to update the bill you pay on July 25 with your new account information yet. If you did make the switch, but the money wasn’t there, you’d miss that payment.
But you can potentially update your August 2 and August 5 bills now. You may need to check with those creditors to make sure the changes you put through today will go through in time. As long as they will, then update those immediately, as your direct deposit will arrive before the bills have to be paid.
This can be a multiday process, as you may have to wait to complete some of the updates. However, it shouldn’t take more than a couple of sessions over a few weeks.
Close Your Old Account
Once all of the automatic payments and any other outstanding activity associated with your old account is complete, you can close it. You may have to handle this in-person or by following a set process online, depending on the institution.
Review the closing procedures in advance. That way, you can grab any identification or other documents you may need to handle it. Additionally, you can see if there are any fees associated with closing the account. While that’s rare, it does happen, so it’s best to be prepared.
Also, understand that some banks may try to entice you to stay. If you left for a valid reason, what they offer shouldn’t typically matter. This is especially true since you’ve put forth a lot of effort to get this far, and found a new bank that can legitimately meet your needs.
Ultimately, the process of switching banks can be a bit arduous. But if it allows you to escape high fees, get a better interest rate, or receive improved customer service, it can be worth it.
Have you ever switched banks? If so, did you find the process difficult or easy? If you haven’t, is the only reason you haven’t switched banks because of the inconvenience? Share your thoughts in the comments below.
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