How To Switch Banks: A Step-by-Step Guide
Switching banks doesn’t have to be a difficult process, and it can benefit your financial health. For instance, one reason you might make a change is to earn a more favorable interest rate or pay lower (or no fees). Or you might get a sign-up bonus at a new financial institution. There might be other reasons to switch banks, such as finding one with branches or ATMs that are more convenient to your daily life or one that offers other financial services you are seeking.
While changing banks isn’t usually an instantaneous process, here are the simple steps to follow to make the switch as quickly and easily as possible.
Key Points
• Switching banks can involve six steps and can improve financial health with better interest rates, lower fees, or sign-up bonuses.
• An important first step is to research and select a new bank, considering interest rates, fees, and convenience.
• To open a new account, you typically need a valid ID, contact information, and possibly an opening deposit.
• Allow time to transfer funds and update automatic payments to ensure all transactions are redirected.
• It’s wise to close the old account after confirming all transactions are complete and obtaining written closure confirmation.
How to Switch Banks in 6 Steps
If you think changing banks is the right path for you, here are the six steps that can make it happen.
Step 1. Research and Find a New Bank
Identify the key benefits you want but currently don’t have and do an online search to compare options. Here are some points to consider as you evaluate options:
• Interest rates earned on money on deposit. For instance, you might want to look for a high-yield savings account to help your money grow. These can offer several times the interest rate of standard savings accounts. Also, some checking accounts may pay interest, though most do not.
• Minimum deposit and balance requirements. Certain accounts require you to open the account with a particular sum of money and/or keep an amount on deposit to earn a specific interest rate and/or avoid fees.
• Fees assessed for accounts. There can be various fees that can eat away at your money, such as monthly maintenance fees, overdraft and NSF (non-sufficient funds) fees, out-of-network-fees, and more.
• Convenience. If you want a traditional vs. online bank, make sure the branches are near your home and work. Also, if you use ATMs often, check to make sure in-network machines are easily accessible. If you travel frequently, look at the reach of the financial institution’s network.
• Customer service. Read reputable online reviews and check availability (24/7? Only on weekdays?) for customer support.
•
Step 2: Open a New Account
Found a new home for your cash? Go and open that checking account to get started. You can typically fill out the information needed online, in the bank’s app, or (with traditional banks) in person. Here’s what you will usually need:
• Valid ID. This typically means government-issued photo identification, such as your state driver’s license or a passport. Other forms of ID may be accepted. When opening an account online, you may be asked for such details as your name, Social Security number, and birthdate, with an image of your ID needing to be uploaded on the spot or in the future. (Worth noting: You usually must be at least age 18 to open your own bank account.)
• Contact information. This means your address, phone number, and email address will likely need to be provided.
• An opening deposit. Some banks will allow you to open an account with no money at first (say, you might sign up to have your paychecks direct-deposited going forward) or others will require you to make a deposit of anywhere from $1, $25, $100, or more to start your bank account. If you are signing up for a premium checking account or high-yield account, there may be higher minimums involved.
Now that you know what’s needed to open a bank account, don’t overlook this important point: Don’t whisk every last cent out of your old account into the new account, though you may be tempted to do so to feel as if you are making progress. You may have pending transactions and autopays coming up that will take time to sort out.
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Step 3: Make a List of Automatic Payments and Direct Deposits
Here’s a closer look at those pending money movements. If you’re like most of us, you rely on autopay to simplify your banking; the pros of automatic payments are hard to ignore. This means that each month your various bills and subscriptions are seamlessly deducted from your primary account on their due date.
To avoid falling behind on bills or accidentally getting your streaming service suspended, you need to turn off or redirect every automatic payment that currently comes out of the account you wish to close. As you plan to make the switch, here are items you should keep track of:
• Automatic payments: Take a careful look at which payments are made automatically from your bank account, such as mortgage, utilities, student loans, and more.
• Recurring payments: Consider what subscription payments you have automatically coming out of your checking account, such as yoga studio memberships or streaming services
• Recurring outgoing transfers: Look for payments that move to external accounts, such as funds being funneled into a retirement account or a health savings account.
• Automatic deposits: This might include the direct deposit of paychecks, alimony, Social Security benefits, a tax refund, and other sources of income (such as payouts via P2P transfers, such as PayPal or Venmo for a side hustle).
Take a look at your monthly account statement and make a list of every automatic deduction. Also scan for those irregular automatic deductions (perhaps a quarterly insurance premium payment?). Once you’ve made your list, log in to each of your service provider accounts and change your payment information.
Step 4: Transfer Funds and Update Automatic Payments
You may have already made an opening deposit to your new account, but if not, now it’s time to transfer some funds from your old one to the new one.
It’s often possible to do this online; check with both banks involved to find the best way to transfer the funds. (Keep in mind, you’ll need to leave a bit of cash in your soon-to-be former account, to cover any pending transactions and miscellaneous charges or fees.)
You’ll also want to update any automatic payments you typically receive. This can involve contacting your job’s HR team about changing your direct deposit details or contacting Social Security about how to redirect your benefits.
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Step 5: Monitor Pending Transactions
After you’ve canceled or rerouted all the automatic payments that deduct from the account you want to close, you will need to wait for any pending transactions to clear. These pending transactions are usually for bills or subscriptions that have one remaining payment left before the company can change your payment information. Or it could require an extra pay cycle for your salary to go into your account by direct deposit.
Waiting for all pending transactions to clear ensures that your bills will be paid and your subscriptions will continue without facing any overdraft fees. Make sure there is enough money in the account you wish to close to cover any pending payments. Wait two weeks to one month for any automatic payments to be deducted. Otherwise, you risk incurring fees for overdrafting.
Step 6: Close Your Old Bank Account
Once you have transferred all automatic payments and possible deposits and waited a cycle for those to update, you’re done. It’s time to close your old account.
• Depending on where it’s held, you may be able to finalize this online or by phone. In other cases (usually at smaller local banks or credit unions), you may have to send a written request or turn up in person.
• Be sure to transfer out any remaining funds or get a check for the amount left in the account.
• Whether you close your account online or in person, make sure to request written confirmation that the account has been closed, says the Consumer Financial Protection Bureau. This is a safety-net move to protect you if some issue were to arise. When you receive the letter confirming your bank account is closed, make sure to save it somewhere safe for future reference.
You’re done! You’ve completed the process and switched banks.
Challenges and Considerations When Switching Banks
There are many good reasons to switch banks, but there are times when changing banks may not be worthwhile. So before diving in, think about the following:
• If you are switching banks to get a sign-up bonus or short-lived perk, is it worth the trouble? Make sure that the amount of money you will gain is worth the effort, and that you won’t be hit with fees that negate the extra money you bring in. (You might look at what online banks offer; they often have lower or no fees.)
• Check if the new account will require a hard credit inquiry to gain approval. Typically, financial institutions only do a soft pull, but if you are focused on maintaining or building your credit score, you should make sure.
• Take extra care in tracking your automatic payments and deposits. It’s not uncommon to have more of these electronic financial transactions than you expect, and some can be infrequent or irregular, such as annual payment of a subscription or insurance premium. Forgetting to redirect payments or direct deposits can create a hassle down the road.
The Takeaway
As the personal banking market becomes ever more competitive, you may find yourself thinking about changing banks for the sake of better services, greater convenience, lower fees, higher interest rates, or other features. If you do find a new home for your money, it takes just six steps to make the switch. Yes, it’s a bit of effort, but the payoff can be well worth it.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
Are there downsides to switching banks?
If you’re wondering about cons or how hard it is to switch banks, know that changing banks requires just a bit of effort and patience. You will need to complete some forms and move any automatic payments or deposits to your new account, as well as wait a cycle while these update. But changing financial institutions should not involve a charge or impact your credit score.
Is it difficult to switch banks?
To switch banks, you’ll need to identify a new financial institution and fund your new account. Then, you will need to transfer automatic payments, deposits (say, via direct deposit or PayPal), and wait for them to update. Once that happens, you are ready to transfer any remaining funds and officially close your old account.
What is the easiest way to switch banks?
The easiest way to switch banks can be to identify a new financial institution, complete your application, monitor and redirect automatic deposits and payments, wait a billing cycle, and then transfer any remaining funds and close your old account.
How long does it take to switch banks?
While it can take just a few minutes to open a new bank account, it usually is wise to wait a full billing cycle or two so that automatic payments and deposits can be transferred to your new account. Once that happens, you can feel confident in closing your old account.
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