Switching banks might seem like a daunting task. It means creating new accounts, updating automatic payments, and getting accustomed to your new bank’s policies and features. Even so, switching banks is sometimes necessary — and it could help you save money.
How? Perhaps other banks have lower fees or pay higher interest rates on their accounts. For instance, according to the Federal Reserve, the average national deposit rate on savings accounts was just 0.47% as of March 18, 2024. However, some high-yield savings accounts pay over 5% APY.
Whether you’re looking to switch due to better rates, lower fees, or some other reason, this guide will cover all the steps you need to take.
How to switch banks
The process of switching banks isn’t difficult if you follow the right steps. Here’s how to make the switch.
Step 1: Research financial institutions
If you’re thinking about switching banks, you probably already have one or two in mind. However, you should clearly understand why you plan to switch. Are you switching due to higher interest rates, lower fees, or better security? This will help guide your research so you can target banks with the right features.
Once you know why you want to switch, look into local banks, credit unions, and online banks. During your search, target financial institutions with features that motivate you to switch. Some banks may offer new customer promotions that offer a small reward for opening an account.
Step 2: Open your new account
Once you are ready to open your new account, gather the documentation you need to apply. This might include your driver’s license or passport for identity verification, proof of address, and Social Security number.
Based on your needs, decide which type of account you will open, such as a checking or savings account. Most banks and credit unions let you apply online, but you might also decide to open an account in person.
Fill out the form with all necessary information and submit it. Barring any issues, your new account will be open right away.
Step 3: Transition automatic payments and deposits
An important step we don’t always consider is transferring your automatic payments and deposits to your new account. If any of these transactions fail, you could accidentally overdraft or delay an important payment.
First, make a list of all your automatic payments and transfers. These might include rent or mortgage payments, utilities, streaming services, and direct deposits from your employer. Don’t forget about automatic transfers that happen less often, like quarterly insurance premiums or annual dues.
Then, update your automatic transfers by visiting the provider’s website or app and updating your account with the new bank account information. The change may sometimes take one or two billing cycles to take effect.
Step 4: Transfer your money
Next, transfer your money from the old bank account to the new one. You might consider keeping a small buffer of money in the old account for a time. This can help ensure any lingering transactions go through successfully while you transition to the new account.
You can initiate the transfer once you decide how much money to move. Most banks let you do this online but may also let you move money via check or wire transfer. Some banks have services to help with this process.
Step 5: Keep your old account open temporarily
Keeping your old account open for a month or two is often a good idea. This helps ensure all pending transactions clear successfully. If you have left some money in your account, keeping it open will allow any lingering automatic payments to be processed.
Once enough time has passed, or you are certain all transactions have been processed, you are ready to close your old account.
Step 6: Close your old account
Once you’ve double-checked that all automatic payments and direct deposits have been moved to your new account, you are ready to close the account.
Similar to other steps in this process, you can often close your old account online. However, you can also call the bank. Some may even require you to visit in person or send a letter. The exact process can vary, so follow your old bank’s closure instructions to ensure everything goes smoothly.
Once you have completed all the necessary steps, ask the bank for written communication that the account has been closed. This could be an email or a paper letter you receive in the mail.
Step 7. Set up online banking
Finally, you are ready to start setting up your new account. Create a username and password for your bank’s online banking portal. If you use mobile banking, download your new bank’s mobile app. Most modern banks have both Android and iPhone apps. Otherwise, you can set up your new account on a desktop computer or at a bank branch.
As an optional step, you can set up notifications for transactions, low-balance alerts, or other banking alerts you may want to receive. This helps ensure you are aware of anything with your new account that may need your attention.
Bottom line
Switching to a new bank account can seem like a big task, and you may put it off. However, all the steps mentioned in this guide can be completed in 30 minutes or less if you do everything online. Of course, they will take longer if you visit your old and new banks in person.
Still, the process is relatively quick in most cases. And if you take the proper steps to avoid any hiccups with automatic transactions, the process should be relatively painless, too. Instead of putting it off, start the switch today so you can take advantage of better banking features.