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…
4 Steps to Switching to a Better Bank
Too many Americans have their money at one of the nation’s four largest banks — Bank of America, Chase, Citi and Wells Fargo.
But these big banks are well-known for paying puny interest rates on savings, offering a lousy customer experience and charging high fees on just about everything they do.
No wonder, then, that money expert Clark Howard is no fan of them. He’s long advised people to move their money away from the big banks and to credit unions or small local community banks, among other places.
“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
Switching banks all starts with choosing a new bank that you’re going to move your assets over to. 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 the credit union has to make a profit for — 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.
As an alternative, you can go to MyCreditUnion.gov, which is an official U.S. government website. There you can use the CU Locator tool to comparison shop different credit unions.
Consider an Online Bank
Online banks can offer better deals than traditional brick-and-mortar banks because they have no overhead with 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, Clark has more recently been telling people about a new breed of fintech players that offer high rates of interest on your savings.
For example, robo-advisors Wealthfront and Betterment are usually in the business of managing your investments using algorithms and artificial intelligence. But both fintech companies offer savers the chance to earn more than five times more interest on their money than the average bank. And they both have no fees and expanded FDIC insurance on deposits of up to $1 million.
Switching your account to a new bank will not impact your credit score. Unlike a line of credit, a bank account is not reported to the three main credit bureaus. Therefore, it’s unlikely to have an impact on your credit score when you close one account and open another one.
The only minimal impact you may see is if you apply for overdraft checking protection or some other line of credit with your new account. But even that should only be a few points and a temporary hit to your credit score.
2. Make a Note of All Incoming and Outgoing Transactions
Clark says the key to successfully switching banks is to make a checklist of all account 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 back over the last three months (one quarter) of bank statements at a minimum.
If you don’t get physical statements in the mail, you almost certainly can log into your existing account and see the past 90 days of account activity. Here’s what to look for:
- Automatic payments
- Direct deposits
- Any other external linked accounts
The first category — automatic payments — includes any monthlies you routinely 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.
Meanwhile, the second category will typically be limited to your paycheck from work and/or any money you get from the Social Security Administration.
Finally, the third category can include things like PayPal, brokerage accounts and more.
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 another institution of your choice.
Take your list from the previous step and go right down the line setting up your automatic payments, direct deposits, etc. That way, you can be sure nothing in your financial life is left overlooked.
You will need to provide your new bank account information — account number and bank routing number — to any businesses that auto bill you each month.
And don’t forget to let your employer’s human resources department know about the change so you can keep getting paid in your new account 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. Meanwhile, you can also 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, according to Clark.
If you’re wondering how to switch banks, it’s not really the process that’s tricky; it’s the work behind the process that can be the most 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.