How To Break Up With Your Bank

By Amy Fontinelle AAA

There are many options for banking these days. You can choose a traditional brick-and-mortar institution and do your banking in person or online. Or you can choose an internet bank, which generally requires you to do almost everything online or through the mail. Some brokerage firms also offer traditional checking accounts and savings accounts, and credit unions expand your options even further.

With so many choices, there's no reason to stick with a bank you don't like. This article will discuss some reasons why you might want to switch banks, difficulties you might encounter along the way and how to complete the process.

Reasons to Switch Banks

  • Moving - If you like to visit the bank in person or simply don't want to pay ATM fees, you may need to switch banks if you move to a different city. Sometimes, branches of a bank that are popular in one city are scarce or nonexistent in another.
  • Opening a new joint account - If you get married or form a domestic partnership, you may want to get a joint account with your spouse. If the two of you use different banks, at least one of you will need to switch. The same holds true in any situation where two people decide to combine finances into a joint account. (The Benefits and Pitfalls of Joint Tenancy explains why, in some cases, opening a joint account may not be a great idea.)
  • High fees - Some banks charge higher fees than others, especially if you don't maintain a high balance. There's generally no reason to tolerate monthly maintenance fees or low balance fees because you can usually find a bank that doesn't impose these charges.
  • Poor customer service - A repeated pattern of negative interactions with customer service can be frustrating, especially if you prefer a human touch on your cold-hard finances. Again, there's no reason to put up with this when you can easily go elsewhere.
  • Higher interest rates - It used to be that checking accounts didn't pay interest and savings accounts only paid minuscule rates, such as 0.2%. Now, if you get the right account, even your checking account can pay interest. If you're not getting paid to lend the bank your money (which is what you're doing whenever you deposit money in your account), you might want to move your funds.

Possible Bank-Switching Difficulties
Before making the switch, consider that there may be some negative implications of moving your account and make sure you are prepared to deal with them. Ask yourself the following questions before proceeding:

  • How likely are you to forget to switch an automatic payment? How much will that cost you? Is that risk worth it? The longer you've had your current account, the more accounts and automatic payments might be linked to it and the more trouble it will be to switch.
  • Will opening a new account result in a hard credit pull? If you're in the middle of trying to get a mortgage or an auto loan, you shouldn't risk this ding to your credit score.
  • Is the increased interest rate worth the trouble? If you're moving your account to chase a higher interest rate, keep in mind that you'll lose interest in the few days it takes your money to transfer from the old account to the new one. Use an online interest rate chaser calculator to determine whether the new interest rate is high enough to be worth your trouble.

How to Switch to a New Bank
If you've determined that switching banks is right for your situation and worth the work, take the following steps to move your account.

  • Research banks and choose the right one for your needs. Are you comfortable with an online-only bank? Many issue ATM cards and reimburse ATM fees. Or, perhaps you would be more comfortable using a bank with ATMs all over the country because you travel frequently. (For related reading, see What are the advantages and disadvantages to dealing with internet-only banks? and The Ins And Outs Of Bank Fees.)
  • Open and fund the account. You can do this online if you want. You'll need your social security number and driver's license number.
  • Switch direct deposits and automatic payments, and write any checks from the new account. This begins the process of turning your new account into your primary one.
  • Update your checking account information for any linked online accounts, such as credit cards or money transfer accounts (like Paypal).
  • Wait for checks and other payments to clear at your old bank. Don't rush to close your old account or move all your money out. You don't want any checks or automatic payments to bounce. It might be a good idea to leave some money in the old account and wait an extra month after you think you've switched everything over before you close it just to make sure you didn't forget anything and to make sure other financial institutions changed over their account info on time.
  • Empty your safe deposit box at the old bank, if you have one.
  • When all outstanding checks and scheduled payments have cleared and your safe deposit box is empty, it is safe to close your account. Simply contact the bank by email, phone, mail or in person and let them know you'd like to close your account. The bank will cut you a check for your remaining balance, or you can link your old checking account to your new one and transfer the funds out electronically. If your old account has a minimum account balance requirement, it may be safer to let the bank cut you a check so you don't risk incurring any fees.

Switch Kits
Some banks offer what they call "switch kits in an attempt to overcome consumers' reluctance to switch banks because they're not sure how or are afraid of making a mistake. These kits consist of a few pages of fill-in-the-blank letters that you can send to various places instructing them to change your automatic account withdrawals to the new bank, a set of fill-in-the-blank instructions to give to your employer to switch your direct deposit, and another to send to your old bank to close your account. There's no reason why anyone with basic common sense really needs these kits, but if you're the type who likes to be walked through things, a switch kit is probably the next best thing to having a bank employee help you (and depending on the employee, it may actually be better!).

Conclusion
Switching banks takes some work, but almost all of that work can be done online these days. You usually won't have to wait on hold on the phone or visit the bank in person. The most challenging steps in the process are choosing your new bank and simply remembering to switch all your linked accounts. It's an inconvenience to be sure, but it can improve your financial situation, and if you're moving, it's often a necessary evil. No matter what your reason for switching, changing banks gives you the opportunity to secure lower fees, higher interest rates and better customer service.

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