How to Switch Banks: A Guide to Higher Rates, Free Accounts
January 10, 2017
Changing banks is a chore most people would rather not face, but there are times when it is absolutely necessary. The wrong banking relationship can cost you time, money, and aggravation. As a banking consumer, you have plenty of choices - after all, there are over 6,000 FDIC-insured institutions. With so many to choose from, why stay with the wrong one?
This guide will walk you through some of the things that can trigger changing banks, what to look for in choosing a new bank, and how to make a smooth transition between banks.
Why Switch Banks: 5 Reasons Consumers Ditch Old Accounts
Sometimes a bank gives you an obvious reason for making a change, but sometimes the signs are more subtle.
Here are five examples of common triggers for changing banks:
1. You start building savings
When young people start banking, the focus is often on their checking accounts. In the long run though, savings accounts and certificates of deposit should become a more significant part of your banking relationships. Once you start accumulating savings, you need to make sure your bank has the right mix of products to help you build those savings.
2. You need to establish credit
Some banks are more accommodating than others about extending credit to customers with limited payment histories, and if you are just starting out, you should look for a bank that actively courts younger customers.
3. Your bank closes your local branch
People often originally chose their bank because of the convenience of its branches, but with the number of branches on the decline, that convenience could go away in a hurry.
4. Your bank raises or introduces fees
New and rising fees are a fact of life in the banking industry, but that doesn't mean you have to sit back and accept them. Any time you are notified of a new fee, start looking for cheaper options.
Types of bank fees
- Monthly maintenance fees
- Overdraft fees
- Statement fees
- ATM fees (out-of-network charges, etc.)
- Currency exchange charges
- Foreign transaction fees
5. Bank rates are not competitive
If you are earning interest based on savings or CD rates, have you checked to see how competitive they are with other banking options? If your banks rates are no longer competitive, find ones that are.
What to Look for in a New Bank
To a large extent, you can think of what to look for in a new bank as finding a solution for the problem that prompted you to leave your current bank.
Here are five examples:
Even if you have given up on branch-based banking in favor of online banking, you may still need to use an ATM. You can incur extra fees by using an ATM that is not in your bank's network, so choose a bank with machines where you need them.
2. Tech features
Consumer preferences range from very old-school, branch-and-paper-statement banking to those who need apps compatible with a variety of devices. Decide what kind of technology user you are, and look for a bank that is a good match.
Online banking and mobile features banks may offer
- Banking apps
- Remote/mobile check deposit
- Account management/statement review
- Online bill pay
- Transfer money on the go
- Account/fraud alerts
3. Account minimums
If you keep a low balance in your accounts, look for a bank with low minimums so you don't incur extra fees. Conversely, if you typically keep higher balances, a bank with relatively high minimums might provide more premium services to customers who can meet those minimums.
Minimums to watch out for
- Minimum opening balance requirements
- Minimum balance requirements for fee waiver eligibility
4. Competitive bank rates
Interest rates on savings accounts and CDs vary greatly, and you can easily compare them online. Look for competitive rates, and don't get sucked in by short-lived teaser rates.
5. FDIC insurance coverage
Ensure your new financial institution has FDIC insurance coverage to protect your deposits in case your bank fails. FDIC insurance limits are up to $250,000 per depositor, per covered institution. If you plan on depositing more than this amount, consider spreading out your money among several banks with FDIC insurance to maximize coverage.
6. Free checking or low fee accounts
Free checking is in decline, but is not completely gone. Make it a priority to look for free checking accounts or those with fee waivers you can qualify for by maintaining a certain balance or using direct deposit.
Where to find free bank accounts: Online accounts and more
While free accounts are becoming less common, consumers have plenty of options for no-fee checking and savings accounts, especially if they bank online. According to the latest MoneyRates.com Bank Fees Survey, the majority of online bank accounts offer free checking compared to just 1 in 4 traditional bank accounts. In addition to online banking, you can also look into switching to a small bank, which is more likely to provide accounts that do not have maintenance fees.
How to Make a Smooth Transition from Old Bank to New
Changing checking accounts is typically more difficult than switching savings accounts, simply because checking accounts usually involve more transactions in and out. The best way to keep track of these transactions without overdrawing an account or leaving money behind is to arrange for an overlap period. Get your new account up and running before closing your old one. Immediately switch any automated deposits or withdrawals to the new account, and start using the new one for manual transactions as well.
Then, monitor your old account till any transactions you are aware of clear. Get a fully up-to-date statement before closing it, rather than relying on the most recent monthly statement. Once all the transactions are settled, request a transfer or withdrawal of the remaining balance.
Changing banks might take a few phone calls or visits, but when you compare that to the ongoing aggravation of staying with a bank that is not meeting your needs, the time will soon seem well spent.
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