Being with the wrong bank can make your financial life miserable. High fees and poor customer service are some of the hallmarks of bad banks.
Wondering how to switch banks and become a happier customer with a new bank? Read on!
Four Steps To Switching to a Better Bank
Too many Americans have their money at one of the nation’s largest banks.
But these big banks are well-known for paying puny interest rates on savings, offering a lousy customer experience and charging high fees.
“Many big banks seem to pride themselves on what I call ‘customer no service.’ It’s not a question of if — but when — you’ll get ripped off by your big bank,” Clark says.
Of course, here at Clark.com, we don’t want you to get ripped off. That’s why we’ll take a step-by-step look at the process of how to switch banks in this article.
Table of Contents
1. Find a New Bank
As a general rule, when you’re looking for a new bank, you’re looking for a few criteria:
- Fee-free checking
- Low or no fees
- No required minimum balance
- No annual fees
- A high savings rate
Consider a Credit Union
One of Clark’s favorite places to find a combination of all the factors listed above is at a credit union.
Because credit unions are co-ops, they’re owned by the customers who do their banking there. That means there aren’t any outside shareholders for whom the credit union has to make a profit (unlike at a bank).
You can easily find out which credit unions you’re eligible to join at YourMoneyFurther.com, which is sponsored by a trade group called the Credit Union National Association.
Or you can go to MyCreditUnion.gov, which is an official U.S. government website. There you can use the CU Locator tool to compare different credit unions.
Consider an Online Bank
Online banks can offer better deals than traditional brick-and-mortar banks because they don’t have the overhead costs of maintaining physical branches. You can expect lower fees and higher interest rates.
Some of the top online banks you may want to check out include:
In addition to online-only banks, there’s Clark a new breed of fintech players that offer high rates of interest on your savings.
For example, robo-advisors Wealthfront and Betterment manage your investments using algorithms and artificial intelligence. But both companies offer savers the chance to earn a lot more interest on their money than the average bank. And they both charge no fees and carry expanded Federal Deposit Insurance Corporation (FDIC) insurance on deposits of up to $1 million.
Switching your account to a new financial institution will not impact your credit score. Unlike a line of credit, a bank account is not reported to credit bureaus.
The only impact you might see is if you apply for overdraft checking protection (something Clark doesn’t recommend) or some other line of credit with your new account. But even that should be only a small, temporary hit to your credit score.
2. Make a Note of All Incoming and Outgoing Transactions
Clark says the key to switching banks successfully is to make a checklist of all activity in your existing bank account. This is a step you simply cannot skip because it’s very important.
To accomplish this, it’s best to look over at least the last three months of bank statements.
If you don’t get physical statements in the mail, go to your bank’s website and log in to see past account activity. Here’s what to look for:
- Automatic payments
- Direct deposits
- Any other external linked accounts
The first category, automatic payments, includes any recurring charges you have billed to your bank account. This could be utilities, streaming services, wireless/internet services or even a gym membership.
Be sure you write out a list of all companies that have auto-payments hitting your account. It’s fine to do this either in a spreadsheet or in a notebook (whatever works to get the job done) because you’re going to need this list later.
The second category will typically be limited to your paycheck from work and/or any money you get from the Social Security Administration.
The third category can include things such as PayPal or brokerage accounts.
3. Open Your New Account
Now that you know all of the activity on your account, it’s time to move to the next step: opening your new account at a new institution.
Once it’s open, take your list from the previous step and tie all those accounts to your new bank account. You might be able to do some of this on your new bank’s website, or you might have to go to the vendor’s website.
You will need to provide your new bank account information (account number and bank routing number) to any businesses that bill you automatically each month.
And don’t forget to let your employer’s human resources department know about the change so you can keep getting your paycheck via direct deposit without interruption.
It’s entirely fine to have separate accounts for different purposes at a variety of banks, credit unions or online banks. For example, you might want to keep a rainy day fund at a local credit union where you’ll get a decent interest rate and have immediate access to the money in case of an emergency. At the same time, you can have an online bank account to earn a higher rate of interest on longer-term savings.
4. Close Your Old Account
Once your new account is open, it’s time to close your old account. You’ll likely want to do this as soon as possible especially if you’re paying monthly fees to your old bank.
Just be sure you’ve successfully established all account activity in your new account before you pull the trigger and close the old one. That’s why the checklist you make in the second step is so important.
The process of switching banks isn’t really so tricky; it’s the work behind the process that can be daunting.
But by keeping a checklist of all incoming and outgoing transactions that you need to set up in your new account, you lessen the likelihood of something falling through the cracks.
Meanwhile, if you’re thinking about switching to an online bank, be sure to check out our guide to the best online banks.