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.
Paul @ The Frugal Toad says
I knew it was a pain to move accounts, but 9 steps? Ouch! There is legislation being proposed that would make it much easier for consumers to switch accounts to other financial institutions. Lets hope it passes!
yes 9 steps to reduce pain, for simplicity just combined 3 steps in to one and you have 3 steps to switch 🙂 Switch banks but don’t pay a dime for banking privilege.
Eric J. Nisall says
Changing banks can be a real pain, especially if you are one of those rate chasers and decide to change your primary institution. If you are organized and prepared, I don’t think it’s really that difficult, but more of an arduous and time-consuming task more than anything and the biggest pain is actually finding a bank that offers everything you are looking for.
what if that perfect bank start charging new fees? Would you stick and pay?
Yes. Wells Fargo had been perfect for me the past decade, but since that new law passed they have been hammering away at my account. I swear they are trying to get rid of me on purpose.
No, because I do not use my debit card and I have a premium account. My account does not have any miniums or fees.
Great to hear that. In BOFA a balance of 20k or more will put your account in premium status.
Marie at FamilyMoneyValues says
I think financial institutions count on the hassle of switching to keep customers – even when a raw deal for the customer takes place. We have multiple accounts and two of them started charging a $3.00 ‘statement fee’ every month in spite of being promising to be fee free forever when we signed up!
Good advice on slowly and gradually moving things over.
Yes a gradual switch doesn’t hurt. What you did for the statement fee? Have you gone paperless billing way?
[email protected] says
This is very timely with so many people wanting to switch their banks. Since credit unions often have no charges for a checking account, there is a movement on Facebook to switch to credit unions. Thanks for the very good tips!
I don’t have a decent credit union in my area so I had to stick to a big national bank and an online bank paying interest on balance. thanks for liking my post.
Shaun @ Smart Family Finance says
Happily. I’ve banked with a credit union for years and won’t need to switch anytime soon. However, this is why I stay away from automatic bill pay. It’s too much of a liability when you are trying to switch accounts.
Shaun its too much liability for one time. Rest you are worry free and don’t have to remember paying your bills every month.
Financial Success for Young Adults says
I think this is one of the main reasons why many people hesitate to switch, there are a lot of steps involved, especially if you have auto bill pay and deposits. Thanks for laying out the reminder list though, this is great.
Yes probably a couple of hours to save thousand of bucks in fees or earn thousand of bucks in interest.
Doctor Stock says
I imagine there are a lot of people moving in that direction these days… with all the new fees, etc. I’m so glad I live in Canada where we have the most secure financial banking system… not to say we don’t get nickelled and dimed.
Canada is perhaps the number one destination for businesses at the moment. And along with Switzerland you have one of the strongest banking system.
[email protected] Financial says
We are looking at our options currently, but the thought of changing all our bill pay recipients over is causing me to drag my feet. Thanks for the tips! Hopefully I’ll be able to get it down to about 3 or 4 steps 😉
You’re welcome Sher!
Christopher Morris says
This article is awesome and helpful. My credit union band just put together a short song going over the steps to switch to a credit union from a big bank (no, really).
Enjoy and please share!
great stuff Chris! Thanks for your comment
Hi, this is a great post! Thanks..
Brick By Brick Investing | Marvin says
We bank with USAA they are pretty great. Recently with the Cyprus stuff going on there’s no way I’m going to be putting more than the insured amount in a bank account ever.