Tired of paying fees for using your debit card or withdrawing money from the ATM? I am, and I switched my checking account. In the process of switching, I learned few valuable lessons that might help you.
If you intend to switch, start the process soon. You should not be paying any fee to your bank – by keeping the money in the bank, you are entitling it to loan your money and earn interest. A bank should not ask customers to pay for basic services. There are various banks that offer interest on your checking account balance.
Changing your longtime checking account is by no means a small deal or a 15-minute job, as various other people suggest (including one of my blogging idols). If you are dissatisfied with your bank and want to switch, you might want to follow the steps below.
1. Start by choosing the right account for you. When I started, I looked for fee-free (as much as possible) accounts with very low minimum balance requirements. Many checking accounts do not have minimum balance criteria. Try opening with a very low initial balance, no more than a couple of dollars, if possible. This will give you a chance to see the features and terms of your account which you may never know about otherwise. Usually within two weeks of opening the
the account you’ll receive your debit card, checkbook, and online account access.
Play around with your online account. Check to see if they offer bill pay. Can you send money to any other person by online check, or they have to have an account with the same bank? The features of bill pay, direct deposit, and a large ATM network reduces a lot of the hassles of banking.
2. Once you are satisfied with this new bank, you need to start transferring money from the old account. My advice is not to go for an all-out fund transfer. How much money you’ll transfer to the new account depends on the automatic payments set up on your old account.
Scrutinize last month’s bank statement to watch for automatic payments. If you have a $500 auto payment on your old account, make sure you keep $1000 (double of money required) there. You can also set up monthly ACH transfer between the two banks.
3. Once your new account has a sufficient balance for covering one month of bills, change your existing autopay settings. Login to your utility accounts (internet, electricity, cable) and recurring billing accounts such as credit cards, movie rental etc. to change the paying bank account. Make sure to revisit your bill pay dates to adjust to any recent changes introduced by your billers.
Learn from mistake>I had auto pay set up on my Chase credit card on the 5th of every month and forgot to change the bill pay date even after I changed monthly billing cycle with Chase. Resulted in late payment. Always pay your bills on time.
4. Change direct deposits. Make a list of all income that is directly deposited into your old checking account. Direct deposit from your employer, child support, or other direct deposit transactions. Call your payroll office and change the direct deposit information likewise, do for all other income. Once you are comfortable with the new bank, let all your money come to the new account.
5. Change automatic savings settings. If you have set up an automatic savings plan through your checking account, take the time to cancel/change the payment settings.
Typically this step is less risky and you’ll probably never have to pay a penalty for not buying more mutual funds or missing a contribution to your IRA. But you will miss on the “paying yourself first” opportunity toward wealth creation.
6. Consider online (web) banks. A quick search on the best interest checking accounts on Google revealed that 5 internet-only banks ranked in the top 10. They don’t have to pay for real estate expenses and related staff.
Also small is better. Local credit unions do offer the best interest rates on account balances. Don’t just go for a fee-free checking account offering a signup bonus. Have a look into my justification of switching to a Capital One checking account.
7. Keep your eyes and ears open. Remember, there is no rule that banks can’t impose new fees. The latest law only requires them to disclose any change to bank fees and penalties in advance. More than 50% of us do not read those advance notices; admit it and change the habit of ignoring mail from financial institutions.
You might get a better deal (better interest rate) at some other bank next year, don’t miss any opportunity to earn more.
8. Keep some money in the old account for at least a month or two to cover any uncleared or forgotten debts.
9. Close the old account. After you have done everything else, don’t forget to close out your old account, especially if there is a fee associated with a low balance. You can leave other accounts with your old bank intact, like brokerage, credit cards, or IRA accounts.
Learn From Mistake>It took a long time for me to realize I still had Paypal associated with my old checking account. I seldom use Paypal and it rarely appears on my bank statements. I had to forfeit my prize catch on eBay.
Opening a couple of bank accounts is good for your finances, but don’t open too many. Chances are, you already have various other financial accounts for stocks, savings brokerages, CDs etc. Too many bank accounts increase hassle and don’t serve a practical purpose.
Lastly, to remove your biggest mental barrier against switching, if your account balance is less than $250,000 (FDIC insurance limit) it doesn’t really matter what bank you choose. Money in your local credit union is as safe as the money at a big national bank. Also, even a fraction of percentage point increase in interest can earn you huge money from the deposit over a long term. Hey, we grow One Cent at a Time, right?
Are you planning to move your money? Let us know by commenting here.