Saturday, 24 October 2020

How to Switch Banks in 5 Simple Steps

How to Switch Banks in 5 Simple Steps
22 Feb
8:19
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Throughout the years, banks have evolved, grown, and changed. Before there was easy access to the internet, smartphones and their different mobile apps, people had to visit a brick-and-mortar bank to make any financial transactions. It was crucial to choose a bank that was within close proximity to your home or work, and build strong relationships with the teller and bankers. However, as online banking emerged onto the scene, it revolutionized the traditional banking system and now gives consumers so many additional options when it comes to choosing a bank.

It may seem like all banks are the same at the core — they are a safe and secure place to store your money. However, not all financial institutions are created equal. While brick-and-mortar banks still exist, online banks are becoming more competitive, offering better rates and lower fees.

If you’re considering switching banks but don’t how to start the process, this article will walk you through all the things you need to do in order to change banks.

Why switch banks?

To get a break on fees. People switch banks for a variety of reasons. Depending on your bank, you may be paying unnecessary fees for their banking services.

“If your current bank is hitting you with various feesmonthly maintenance fees, minimum balances or ATM feesit could be a motivating factor to switch to a bank with fewer fees,” said Ken Tumin the founder of DepositAccounts.com, which like MagnifyMoney is owned by LendingTree.

To earn a higher yield. Another reason to change banks is to get a higher interest rate on your checking or savings account.

“If you keep an average of $1,000 or less in your checking account, interest rates aren’t going to impact you too much,” said Tumin. “But, if your checking account balance is $20,000, for example, the higher interest rate should be much more of a consideration.”

No matter your reason for switching banks, you can do it fairly easily. We’ll look at how to find a better bank toward the end of this article, but first, let’s go through how to change banks, step by step.

How to switch banks in 5 steps

#1 Shop and compare banks to find the best fit

Sites like MagnifyMoney make it super easy to compare and contrast different banks and weigh their pros and cons. Here are the key features of any bank you should consider before making the switch.

Look for no monthly fee. Many banks offer free checking accounts with no monthly maintenance fee. While some banks offer easy ways to waive the monthly fee, free checking is preferred.

“Big banks make it easy to waive the fee by having direct deposit or by maintaining a minimum balance, but if you lose/switch jobs and don’t have direct deposit or your balance dips, it can be hard to maintain and that’s not a time to worry about monthly fees,” Tumin said. “You’d be better off with free checking and so you don’t have to worry about a monthly fee.”

Then check out their other fees. Banks can charge a variety of monthly or annual fees. These can include monthly maintenance fees, minimum balance fees, foreign transaction fees or ATM fees, just to name a few. While fees may be unavoidable, choose a bank that offers the most benefits and has the least amount of fees.

High rates on checking, savings and CDs bode well.  If you’re looking to deposit a significant amount of money into your checking and savings account or you want access to high yield CDs, you’ll want to choose a bank that offers high rates.  Currently, good rates for a checking account range from 0.40% to 2.02%, depending on the minimum balance. Good rates for a savings account range from 2.10% to 2.45% on average.

Convenience. Larger banks are likely to have more ATM and branch locations. When choosing a new bank, look at your location and make sure you’re picking a bank that is accessible to you based on your location. If you don’t care for a brick-and-mortar location, there are many online banks to consider. While online banks don’t have a physical branch to visit, they have a wide network of ATMs which are easily accessible and convenient for their customers. Some online banks may even reimburse ATM fees.

Check out the bank’s technology: In today’s fast-paced world, mobile and online accessibility is important to many people. When you’re considering switching to a new bank, check out the tech capabilities of your new bank, and see if they have a mobile app for easy use and access to your account.

FDIC or NCUA insurance. It may seem like a no-brainer, but you’ll want to guarantee that your new bank is either insured by the Federal Deposit Insurance Corporation (FDIC), or by the National Credit Union Administration (NCUA). These institutions ensure that your money is protected.

Because your money and finances are so important, it’s essential to be happy with your bank. If you’re unhappy and have been considering changing banks, feel confident that can find a new bank and make the change in a few easy steps.

#2 Find out your current bank’s account closure process

Before you leave your current bank, you’ll want to inquire about the process to close an existing account. Each bank does things differently, so you’ll want to make sure you’re following the right procedure to close your account properly. Also, you’ll want to do some research on the bank you’re considering switching to so you know you’re making the right decision, (more to come on that note).

#3 Make a list of bills and accounts linked to your current bank account

Give yourself some time before switching banks to make a list of all payments, deposits, and services currently connected to your account. This could include:

  • Direct deposits
  • Monthly bills
  • Monthly transfers
  • Services like PayPal, Venmo, or Apple Pay
  • Checks

Take a look at your bank statements for the last year and highlight all recurring charges. From there, you’ll know exactly which services you’ll need to transfer to your new bank moving forward. Redirecting all your payments and transfers may take some time and coordination, so make sure you give yourself plenty of time.

“Open a new account, slowly migrate over and eventually close the original account,” Tumin advises. “The only reason to rush is if you’re trying to avoid fees.”

#4 Open your new account

Once you’ve found the new financial institution you’d like to bank with, you can start the paperwork and open your new checking or savings account. When choosing between a checking and savings account or money market, assess your short-term and long-term needs.

Checking accounts are best suited for liquid funds, or money you need access to quickly and easily. Nowadays, you can get fairly competitive rates on your checking accounts and earn a little bit of money on your checking account. Check out MagnifyMoney’s 2019 roundup of the best high yield checking accounts.

Savings accounts are a good place to store your rainy day money and your emergency savings. You can access them frequently without fees, but they often offer higher rates compared to checking accounts. You can compare options here.

After you’ve decided whether you’ll open a checking or savings account, or both, you’ll want to transfer money into the new account, wait for it to clear, then start setting up your recurring payments, deposits and transfers with the new bank.

Because mistakes and oversights can happen, it’s smart to keep your old account open for a period of time to ensure everything transferred smoothly.

“It’s important to realize you don’t have to have just one bank account. You can open a new account and keep your current one. There is no rush to close a current account if you don’t have a monthly fee,” Tumin said.

Taking your time can help you avoid mistakes and make the transition smoother.

#5 Close that old account

Once you’ve finalized everything with the transfer, automatic payments have been set up, and bills have cleared using the new account, it’s time to close your old account. Work with your bank to ensure the account is officially closed and all the paperwork is finalized.

You may want to monitor your old account for a few months, even up to a year to ensure your old account doesn’t return from the dead and become a zombie account. A zombie account is an old account that is reopened by the bank and the account holder may not be aware of it.

This can happen if you forgot about a one-time or recurring payment and didn’t re-route it to your new account when changing banks. If that payment goes through your old account, the bank will reopen your dead account, which can result in overdraft fees or other unnecessary charges you’d likely wish to avoid. To avoid an unintentional zombie account, monitor activity on your old account for months after transferring to ensure everything was squared away during the transition.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Sage Evans
Sage Evans |

Sage Evans is a writer at MagnifyMoney. You can email Sage here

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Source: https://www.magnifymoney.com/blog/banking/how-to-switch-banks/

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