Switching Banks Can Be A Big Pain. Here’s How to Make It Easy | Techy Kings

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Life is full of tedious tasks, from changing your oil to updating your address after moving. Also on that list? Change your bank.

There are many reasons why switching banks can be useful: better interest rates, more user-friendly online or mobile app options, or simply to consolidate your accounts in one place.

But the process itself requires some planning and careful attention to your personal finances. You may need to review past bank statements, update your monthly subscription and contact your employer to update your direct deposit information.

Here’s everything you need to know:

How to Switch Banks

If you want to switch to a new bank or credit union, take these steps to simplify and streamline the process:

Choose your new bank

Any new account you open will help you get closer to your financial goals. When you choose a new bank, look for features that will make banking easier for you. That could be as simple as a robust mobile app, access to a fee-free ATM or a nearby bank branch.

A common reason to open a new bank account today is to get a better interest rate on your savings. Online-only banks typically offer the best rates on high-yield savings accounts, as well as robust mobile banking platforms. This can make a useful addition to your existing checking or traditional savings account.

Another reason you may choose to open a second bank account is to support your community through local banks, including Black-owned or Black-led banks. Smaller community banks may not have the same features or technologically advanced features as online or large national banks, but opening an account can be a way to show your support with your money.

No matter what type of bank you choose, make sure it’s FDIC or NCUA insured, says Trent Porter, a certified financial planner for Priority Financial Planners, a financial planning firm in Colorado. “I’ve heard stories of scams where someone posts online that they’re a bank and they have great rates, and then people give them all their financial information. And it’s not a legitimate bank, it ends up being a scam.”

Open a New Bank Account

Opening a new bank account can take a few minutes. You will need your contact information including your name and address, government ID and your Social Security number. Some banks may ask for proof of your address or various forms of identification.

When opening a new account, you may also be required to make an initial deposit to fund your account. This often requires and ACH transfer from an existing account, using another bank’s account number and routing number.

Set Up Your New Bank Account

After you open your account, take a few steps to make sure you can make purchases and withdrawals smoothly. Here are some quick reminders of banking features to consider:

  • Set your online username and password for online banking
  • Download the mobile app
  • Order a debit card
  • Transfer recurring transactions, any money and incoming deposits from your old bank

Update Your Automatic Payments

This is one of the most important steps to opening a new bank account.

Automatic payments are one of the biggest conveniences of banking, and can help you stay on top of your monthly payments. But when you switch bank accounts, it’s important to make sure you update your bank account information for any common payments that might be affected — from credit card payments to gym memberships to direct deposits at your workplace and more.

“The biggest and hardest thing is making sure everything has changed [over],” says Ashley Coake, certified financial planner at Cultivate Financial Planning in Radford, VA.

Check past bank statements carefully to find any automatic transactions that came directly from your account. In fact, it’s a good idea to review at least one year of your bank statements to account for transactions that may only occur once a year, says Coake.

Pro tip

When applicable, it is wise to pay for monthly subscriptions, and any online purchases, using a credit card. Credit cards provide strong protection against fraud, and may even offer rewards and benefits on your purchases, which you won’t get from linking your bank account directly.

What to Do With Your Old Bank Account

Once you’ve updated your banking information for automatic payments and monthly or annual services — as well as your direct deposit — consider what to do with your old bank account.

Depending on why you’re opening a new account, you can choose to keep both accounts open. If you open a new high-yield savings account to earn interest, for example, you’ll still need your existing checking account.

But be sure to look at any fees you may incur due to your changed banking situation. If the old account required a minimum balance to avoid fees, you may be charged as soon as you withdraw money from it to fund your new account. These fees may only be a few dollars each month but can add up quickly over time.

If you don’t plan to use the account or don’t want to manage account minimums or fees anymore, it’s best to close the account. You can request to close the account through a bank representative. You may also want to dispose of old bank statements and cards associated with the account to reduce the risk of identity theft. Finally, get written confirmation from your bank that the account has been closed.

Should I Switch Banks for Better Interest Rates?

Scoring a better interest rate is a great reason to switch banks. Savings account rates are on the rise now, making it a great time to consider a high-yield savings account from an online bank if you haven’t already secured a competitive rate.

Generally, you can open a high-yield savings account online and set up automatic transfers from your existing checking account, or set up your direct deposit to deposit a portion of your savings each month. Before you decide on an account, be sure to compare the options that might be best for you, and look for banks with no monthly fees and low or no minimum balance requirements.

Will Switching Banks Affect My Credit Score?

Switching banks shouldn’t affect your credit score if you’re just transferring your savings or checking balance to a new account.

“Unlike closing a credit card, closing a bank account won’t affect your credit score unless you close the account with a negative balance,” says Coake.

However, many other factors affect your credit, such as paying off your credit card and loan balances in full and making payments on time. To maintain good credit, keep your credit utilization low and avoid spending more than you can afford.

How long does it take to switch banks?

You can open a new bank account in minutes online, but changing your payment information from different accounts and direct deposit providers can take longer.

“It’s worse than updating your address in some cases,” says Coake, because it can be a lot of work — especially if you have multiple automatic payments or link your bank account to a lot of common transactions.

To make the process as smooth as possible, prepare your documents before switching banks and stay organized throughout the process, especially when you switch through automatic payments. And if you want your paycheck deposited directly into your new account, check with your workplace to see the process and how long it will take for the change to take effect.

Be careful, too, not to close your old account before you safely switch to these automatic payments and direct deposits.

How Many Bank Accounts Are Too Many?

The right number of bank accounts for you will vary depending on how you manage your money and your financial goals.

Sometimes, you might get more value from different types of institutions — online banks for high-interest savings and large national banks for easy checking, for example. If you plan to keep multiple accounts open, make sure you can manage the fees and automatic payments that come with each account.

“It all comes down to personal preference and just being able to track it,” says Porter. Opening multiple accounts means you must be organized enough to manage minimum balances, fees and account information for each account. “Is it really worth it?” Porter asked. “And is it worth your risk of complicating your financial situation?”

Bottom line

Switching banks can be a smooth process if you are organized and keep track of everything that goes in and out of each account. If you plan to close your account at your former bank, make sure you’ve updated all your recurring transactions, payments and deposits with your new account information before closing the old account. And to prevent transactions from slipping, consider leaving some money in your old account for a few months to cover any transactions you might forget.

“Make a plan, write it all down, and that will make your life easier to transition,” says Porter.

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