Switching Banks Can Be a Big Pain. Here’s How to Make It Easier

Life is full of tedious tasks, from changing your oil to updating your address after a move. Also on this list? Change your bank.

There are many reasons why switching banks can make sense: a better interest rate, more user-friendly online or mobile app options, or simply consolidating your accounts in one place.

However, the process itself requires some planning and close attention to your personal finances. You may need to review previous bank statements, update your monthly subscriptions, and contact your employer to update your direct deposit information.

Here’s everything you need to know:

How to switch banks

If you’re looking to switch to a new bank or credit union, follow these steps to simplify and streamline the process:

Choose your new bank

Every new account you open should help you get closer to your financial goals. When choosing a new bank, look for features that make banking easier for you. This can be as simple as a robust mobile app, access to toll-free ATMs or nearby bank branches.

A common reason to open a new bank account today is to get a better interest rate on your savings. Online-only banks typically offer the best interest rates for high-yield savings accounts, as well as robust mobile banking platforms. These can be a useful addition to your existing checking account or traditional savings accounts.

Another reason you may choose to open a second bank account is to support your community with local banks, including Black-owned banks or Black-run banks. Smaller community banks may not have the same features or technologically advanced features as online or large national banks, but opening an account can be a way of showing your support with your dollars.

No matter what type of bank you choose, make sure it’s FDIC or NCUA insured, says Trent Porter, a board-certified financial planner for Priority Financial Planners, a financial planning firm in Colorado. “I’ve heard scam stories where someone posted online that they are a bank and have great interest rates and then people give them all their financial information. And it wasn’t a legitimate bank, it ends up being a scam.”

Open the new bank account

Opening a new bank account can only take a few minutes. You will need your contact information, including your name and address, government-issued ID, and your social security number. Some banks may require proof of your address or multiple forms of ID.

When opening the new account, you may also need to make an initial deposit to fund your account. This often requires an ACH transfer from an existing account using the other bank’s account number and sort code.

Set up your new bank account

After opening your account, there are a few steps you need to take to ensure that you can make purchases and withdrawals smoothly. Here are a few quick reminders about banking features to keep in mind:

• Set your online username and password for online banking
• Download the mobile app
• Order a debit card
• Transfer recurring transactions, any money and incoming deposits from your old bank

Update your automated payments

This is one of the most important steps in opening a new bank account.

Automated payments are one of the greatest conveniences in banking and can help you keep track of monthly payments. However, if you’re switching bank accounts, it’s important to update your bank account information for any recurring payments that may be affected — from credit card payments to gym memberships to your direct deposit at work and more.

“The biggest and most difficult thing is making sure everything has changed [over]says Ashley Coake, board-certified financial planner at Cultivate Financial Planning in Radford, VA.

Check previous bank statements carefully to find any automated transactions that came directly from your account. In fact, it’s best to review your bank statements for at least a year to account for transactions that may only happen once a year, says Coake.

What to do with your old bank account?

Once you’ve updated your bank details for automated payments and monthly or yearly services, as well as your direct deposits, consider what to do with your old bank account.

Depending on why you opened the new account, you may choose to keep both accounts open. For example, if you opened a new high-yield savings account to earn interest, you’ll still need your existing checking account.

However, be sure to pay attention to any fees that you may incur due to your changed banking situation. If the old account requires a minimum balance to avoid fees, you may be charged fees once you withdraw money from it to fund your new account. These fees can be as little as a few dollars each month, but can quickly add up over time.

If you no longer wish to use the account or manage the account minimums or fees, it is best to close it. You can request the account closure through a bank representative. You may also want to dispose of old bank statements and cards linked to the account to reduce the risk of identity theft. Finally, get written confirmation from your bank that the account is closed.

Should I switch banks for better interest rates?

A better interest rate is a good reason to switch banks. Interest rates on savings accounts are rising steadily these days, so if you’re not already earning a competitive interest rate, it’s a good time to consider a high-yield savings account with an online bank.

In general, you can open a high-yield savings account online and set up automatic transfers from your existing checking account, or schedule your direct deposit to deposit a portion of your savings each month. Before you decide on an account, compare the options that work best for you and look for a bank with no monthly fees and low or no minimum balance requirements.

Will switching banks affect my credit score?

Switching banks shouldn’t affect your credit score if you’re just moving your savings or checking balances into a new account.

“Unlike closing a credit card, closing a bank account doesn’t affect your credit score unless you close the account with a negative balance,” says Coake.

However, many other factors affect your credit score, such as: B. Paying off your credit card and loan balances in full and making payments on time. To maintain good credit, keep your credit utilization low and avoid spending more than you can afford to pay off.

How long does it take to switch banks?

You can open a new bank account online in minutes, but switching your payment information from different accounts and direct deposit providers can take longer.

“It’s worse than updating your address in some ways,” says Coake, because it can be a lot of work — especially if you have multiple automated payments or link your bank account to a lot of regular transactions.

To make the process as seamless as possible, prepare your documents before switching banks and stay organized throughout the process, especially if you’re switching to automatic payments. And if you want your paycheck deposited straight into your new account, check with your place of work to find out what the process is and how long it may take for the change to take effect.

Also, be careful not to close your old account before you’ve safely transitioned these automated payments and direct deposits.

How many bank accounts is too many?

The right number of bank accounts for you depends on how you manage your money and your financial goals.

Sometimes you may get more value from different types of institutions – for example, an online bank for high-yield savings and a large national bank for convenience checks. If you plan on running multiple accounts, make sure you can manage the fees and automatic payments that come with each account.

“It’s all down to personal preference and staying on top of things,” says Porter. Opening multiple accounts means you need to be organized enough to manage minimum balances, fees, and account information for each account. “Is it really worth it?” Porter asks. “And is it worth the risk of complicating your financial situation?”

The final result

Switching banks can be a smooth process if you are organized and keep track of all the ins and outs of each account. If you decide to close your account with your previous bank, make sure you have updated all of your recurring transactions, payments, and deposits with your new account information before closing the old account. And to prevent transactions from slipping through the cracks, consider leaving some money in your old account for a few months to cover any transactions you may have forgotten.

“Make a plan, write it all down, and it’ll make your life much easier when you’re transferring,” says Porter.