Switching banks is a lot like moving, except less exciting.
You’ve probably automated much of your banking activities — bill payments, incoming deposits, and money transfers. Banking automation is great because you don’t have to think about your financial obligations day in and day out.
Until you switch banks. Then, it’s all too easy for bill payments and recurring transfers to slip through the cracks.
Follow these steps for a smoother transition to your new financial institution.
How to Switch Banks: Step by Step
In a complex financial move like changing banks, it helps to have a checklist so you don’t forget anything. Make sure yours covers each of these key steps.
1. Choose a New Bank
You may already have a new bank in mind. But before you commit to it, take 10 minutes to review your other options to see if you can find a better fit. Those few minutes of thoughtfulness could save you lots of time and money in the years to come.
Start by checking out new bank account promotions, which can pay out a pretty penny. But don’t just look at the one-time promotions. Look at fees and pricing for checking accounts and interest rates on savings accounts as well.
I personally believe that checking accounts should be totally free. Fortunately, plenty of banks agree. Unless you have a compelling reason to do otherwise, limit your search to accounts with no monthly maintenance charges or other hidden fees. Check out this list of free checking accounts available on the market.
Many people like to keep their savings account at the same bank as their checking account. It feels intuitive and keeps your banking simple. However, there are two reasons to think twice about doing this.
First, your ideal checking account might come from a bank that doesn’t offer a high-yield savings account. If you plan to keep substantial cash in savings, you might earn a higher APY at another bank.
Less obviously, keeping your savings at another financial institution makes it less tempting to raid for that new jacket you’ve been eyeing. That way, you don’t see your savings account balance every time you log into your online banking. You can’t transfer it with a single click of the mouse to your checking account.
The added layer of friction could be just enough to leave your savings untouched as an emergency fund.
2. List Your Automatic Payments & Deposits
Next, catalog the automated payments and direct deposits that flow into and out of your current bank account.
Start with the easy ones, such as recurring monthly bills and your paycheck. Automatic monthly payments could include utility bills, monthly subscriptions, your mortgage payment, car payment, and automated credit card payments.
But not all automatic payments hit you every month like clockwork. Some, like insurance premiums, might come annually or semiannually. Others might bill you whenever your held balance with them drops below a certain level. For example, I use a private mailbox service, which debits my account balance each time they open and scan mail on my behalf. When my balance falls below $20, they charge me $100 to refill my account balance.
Likewise, some depositors might also credit your account irregularly. For example, the IRS might have your bank account on file for direct depositing your tax refund.
Look back over your bank statements from the last year and note every automated payment and deposit you can find. Review your debit card transaction history as well. Make a list of them in a spreadsheet with a column that notes whether you’ve updated your payment information to the new bank account.
3. List Outstanding Checks
I personally no longer write paper checks except when unavoidable because balancing a checkbook feels like a 20th century headache. But even in today’s world of digital wallets, ACH payments, and automatic transactions, some folks refuse to accept anything but paper checks.
Accordingly, if you have any checks written and delivered but not yet cashed, you need to leave enough money in your old bank account to cover them.
4. Open a New Bank Account
Now that you know which bills and payers you need to update and how much you need to leave in your account to cover outstanding checks, it’s time to open your new account.
Confirm any available new sign-up bonuses available and the minimum opening deposit or transaction requirement to earn them. If the new account requires a minimum opening deposit, note that amount as well.
Then go ahead and open an account with the new bank or credit union. In most cases, you can do this in just a few minutes online. Your new bank should let you transfer the opening deposit electronically from your old checking account.
5. Activate Your New Account’s Features
You can now enroll in your new account’s features. Take some time to explore the online banking portal and look for useful tools.
For example, set up notifications when your account balance dips below a certain amount. You may be able to receive notifications by text or social media, not just email.
Consider turning off paper statements, and receiving them by email instead. Beyond the environmental impact, sometimes bank accounts waive the monthly fee if you opt out of paper statements.
Look into your new bank’s bill pay feature, and consider setting up automatic bill payments through it.
You may also decide to open a linked savings account alongside your new checking account.
6. Keep the Old Account Open for One to Two Months
If you have any outstanding checks, you need to wait for them to clear. The same goes for sent ACH payments or e-checks.
Even if none of those apply, you may have missed an automatic payment or two when you created your list. Leave the account open with some money in it for a month or two and keep an eye out for transactions you may have forgotten.
7. Update Your Automatic Payments & Deposits
Next, go through your list of automatic deposits and deposits and update the payment details for each of them in turn.
That could mean linking your new checking account. Or it might mean setting up automated payments with another payment method — like a travel rewards credit card that earns points or miles on every dollar you spend.
If you do take the opportunity to switch your automated payments to a rewards credit card, make sure you pay off the balance in full each month. For best results, add the new bank account as a payment method on the card and schedule automatic monthly payments.
Finally, be sure you notify your employer and any other depositors of your new account information. You don’t want to miss a paycheck due to a simple oversight.
8. Verify Outstanding Checks Have Cleared
Before you close your old checking account, make sure every last check or outgoing ACH payment has cleared. Otherwise, prepare for late fees, angry letters from the payee, and perhaps even calls from debt collectors.
9. Close the Old Bank Account
Once you’re certain no one else will cash a check from your old account or otherwise try to debit it, you can close the account.
Beware that some banks make it far easier to open accounts than to close them. You may need to contact the bank by phone rather than simply deleting your account through your online banking portal.
Before closing the account for good, transfer any remaining balance to your new account or ask your old bank to send you a check. Then raise a glass to the end of an era.
Bank Switching FAQs
If you have questions about switching bank accounts, you certainly aren’t alone. The process often feels daunting and tedious.
Why Should You Switch Banks?
People switch financial institutions for many reasons. You might switch banks for lower fees, which can quickly add up at some banks. Or perhaps you’re looking for higher interest rates on savings accounts or certificates of deposit (CDs).
Alternatively, you might switch banks because it’s convenient — perhaps you want a bank with a branch closer to your home or office. Convenience also comes in digital forms: more advanced online banking, a better mobile app, or more seamless integration with your investment brokerage account.
What Information Do You Need to Switch Banks?
To open a new bank account, expect to provide the following information:
- At least one form of government-issued photo ID, such as a driver’s license or passport
- Your Social Security number
- Full contact information, including your name, address, phone number, and email address
- Proof of address, such as a utility bill
- An opening deposit, which you should be able to transfer electronically from your old bank
If you’re opening a student checking account or other age-restricted account, such as a senior checking account, you’ll need to prove that you’re eligible. This might mean providing a letter of admission to a qualifying school or providing a document that shows your age.
Don’t forget to have that list of all automated payments and deposits handy. There’s no time like the present to switch them over to your new account.
When Is the Best Time to Switch Banks?
There’s no right or wrong time to switch banks. You can do it at any time to save money, earn more interest, or improve your experience or convenience.
That said, major life changes often make for good times to switch banks. If you’re moving to a new city, state, or country, opening a new bank account often makes sense, especially if your old bank doesn’t have branches in your new location.
Are There Fees for Switching Banks?
Most banks don’t charge fees to close accounts, but double-check with your bank to be sure.
Similarly, most banks don’t charge fees to open new accounts. They want your business, after all. In fact, many offer new account promotions. But you should still double-check before pulling the trigger.
Does Switching Banks Hurt Your Credit Score?
Opening or closing bank accounts does not hurt your credit score.
However, if you miss bill payments because they got lost in the transition, that could hurt your credit. Also, if you apply for a credit card at your new bank, the inquiry could temporarily lower your credit score.
How Easy Is It to Switch Banks?
In today’s world, switching banks is extremely easy. You usually don’t need to visit a branch in person or even pick up the phone.
The greatest risk — and labor — lies in listing out all of your automatic payments and deposits, then making sure you switch them over to your new account. A single missed item can cause headaches ranging from modest late fees to serious credit damage.
Final Word
Many people still think of banks as granite-laden buildings with towering columns and marble floors.
But in the 21st century, you don’t necessarily need to visit a physical branch. Ever.
A new breed of online banks has arisen, and its members are quick to pass along their savings on real estate and overhead. Many offer free ATM withdrawals at partner bank networks, low account fees and interest rates, and online features like mobile check deposit.
Considering that I have no interest standing in line at a physical bank ever again, it’s a tradeoff I’d make any day.
