If, like many Americans, you’re fed up with big bank fees and poor customer service, you might be considering other options when it comes to banking. Three of the most popular alternatives are online banks, credit unions, and small local banks.
While switching financial institutions is a good idea in the long run, the initial choice can be intimidating and overwhelming. People worry that they are sacrificing the security of a larger bank, along with the convenience of having a branch on every corner. Closing an account and making large transfers is time consuming and inconvenient. Top all of this off with the fear that you will bounce an important check or payment in the transition, and you’ve got some major deterrents from making the big switch.
Can you move your money and have the peace of mind that you won’t bounce a check, miss a direct deposit paycheck, or mess up your Paypal account? Absolutely! Don’t let fear stop you from taking the steps to insure you’re with a financial institution that meets your needs.
Use the following checklist to cover your bases and reduce your stress level when changing banks.
How to Change Banks
1. Stop All Activity with Your Existing Bank
This means you should stop using the account as your primary source for cash and payments. Here’s how:
- Spending Money. Take out enough cash that you can live on for a few days, plus $50 to $100 dollars that you’ll need to open a new account.
- Minimum Balance. Pay attention to any fees you might get charged for dropping below a certain minimum balance, and stay above that minimum.
- Use Cash. Stop writing checks, don’t use your debit card, and cancel any automatic payments that get withdrawn from your account.
- Keep an Eye on Your Account. Track your account to make sure all payments have cleared (this should only take about three days).
For the time being, leave your direct deposit, Paypal account, and other online payment systems tied to your bank account.
2. Find a New Bank or Credit Union
To make the process of moving your money go smoothly, do this before closing your existing account. In other words, don’t get upset about the poor customer service at your current Big Bank, pull your money in a fit of anger, and then wonder what you’re going to do with the wad of cash in your hand. (Because, you know, the big bank didn’t even give you an envelope when you made your withdrawal).
Do your homework and select a bank that has the features that are most important to you. Moving to a smaller bank may require some sacrifices, like the lack of a branch on every corner, an ATM in every city, or 10 different rewards credit cards to choose from. But you’ll also discover that online banks and credit unions have many benefits including:
- Lower fees
- Higher interest rates (for savings)
- Lower loan rates
- Convenient, no fee ATM network that provides service in as many locations as a big bank
Rest assured that every bank, regardless of size, is FDIC insured. Credit unions have the same backing, up to the same amounts, through the NCUA (National Credit Union Association).
3. Find Out What the New Bank Requires
Once you find a new bank or credit union, make sure you look into their account requirements and deposit preferences. Two of the most important things you need to know are:
- How to Make Deposits. This is especially applicable with online banks, which may permit you to transfer money through Paypal, a check, a wire transfer, or directly from your existing bank account.
- Minimum Balances and Monthly Fees. These are things you’ll want to be aware of from the get go. You don’t want to be hit with any surprise fees after doing all of this work!
4. Open Your New Account
Now that you know the types of deposits preferred by your new institution, you can begin the process of opening your account. Either transfer the funds or make a cash deposit, leaving just enough in your old account to keep it open until the new one is set up.
5. Set Up Automatic Payments and Direct Deposit
Getting this taken care of will be a huge monkey off your back. Make sure you dot all your i’s and cross your t’s with this part of the process.
- Direct Deposit. Your employer should have an easy form you can fill out to change your direct deposit information. This usually can be done by the next pay cycle, but make sure to ask how long it will take to process.
- Automatic Payments. Things can get a little tricky here. Make a list of all of your payments that are automatically debited from your account. Then figure out which ones were set up through the company you’re paying, and which were set up through the Bill Pay system at your old bank. Be sure to set up the proper online payments through your new bank, and change the account information for payments automatically debited by companies.
- Paypal. Last, but not least, switch your banking information in any online payment systems you have set up.
6. Close Your Old Account
Now, it’s time to take one last look and make sure everything in your old bank account has cleared. If you have no outstanding payments or credits, make a trip to the bank and close your account. Call the bank ahead of time to find out what forms of ID you should bring. Keep in mind that there may be a fee to close your account – which is just one more reason you’re leaving your bank!
7. Be Wary of Enticing Offers
Your old bank will probably make a last ditch effort to convince you to stay. Stick to your guns! After all, your accounts are already transferred and your automatic bill pay is set up. Nothing your bank offers you can be better than the great deal you’ve shopped around to find!
Credit Score Concerns
You might be concerned that closing a bank account might end up hurting your credit score. Don’t be! It’s not like a credit card. The only way your credit score will take a hit from all this money-moving activity is if you apply for overdraft checking.
That being said, if your new bank runs a credit check, your credit score might get dinged by 5 points for about 6 months. Therefore, it’s a good idea not to open five accounts with overdraft checking all in the same week.
Bank account information is not reported to the credit bureaus, so you don’t gain points for having a long-standing bank account, or lose points for closing one.
If you’re not satisfied with the services you’re receiving at your current bank, don’t be afraid to make a change. Your finances are among the most important, private, and sensitive aspects of your life. You need to be happy with the bank you’re dealing with.
Have you made the decision to change financial institutions? Why did you choose to do so? Was the process smooth or rocky? Share your experiences in the comments below.