How to Switch Banks

While most people stay with a financial institution because the idea of switching bank accounts is too daunting, there are a lot of good reasons to change your financial institution. Here’s when to switch banks:

• Your bank is charging fees that other financial institutions don’t

• Another financial institution offers better interest rates

• You’ve moved and want a financial institution that is closer to your home or work

• Another financial institution offers services yours doesn’t

• You need a financial institution with a larger network of ATMs

• The customer service at your current financial institution is poor

• You want to reduce the number of banking accounts you have to manage

One of the hardest parts of switching financial institutions is figuring out how to find a new bank. You’ll want to research your options thoroughly, otherwise you’ll get through the process only to discover the new financial institution suits you even less than your old one.

• Look for a financial institution with a convenient branch location by your home or work, as well as one that offers virtual appointments. You should be able to meet with a representative without having to drive across town.

• Find out what fees any potential financial institution charges. One of the best ways to do this is by going through your most recent bank statements and seeing what fees you’ve had to pay, including monthly fees, overdraft fees and ATM fees. You shouldn’t have to pay any of these fees on a regular basis.

• See what transaction limits a new financial institution has. While some transaction limits are mandated by the government, in general you should try to avoid them.

• Make sure a financial institution hasn’t been involved in any security breaches or other scandals involving their customers. If they have, make sure to ask what steps they’ve taken to make sure customers are safe.

• Ask what services any financial institution you’re interested in offers. In addition to offering a selection of checking, saving and lending options, they should also have a decent ATM network, as well as online banking and a robust mobile app.

• Make sure a financial institution can accept direct deposits, as well as digital check deposits and online transactions, such as PayPal or Venmo if you use it.

• Discover what types of accounts a financial institution offers. Don’t settle for a financial institution that just offers one checking and one savings account if you also want a money market account, club account, certificate of deposit or IRA.

• Find out if a prospective financial institution has good customer service. You should be able to enjoy doing business with them.

One of the biggest reasons people hesitate to switch financial institutions is fear—fear that their paycheck direct deposit won’t get transferred, fear that they’ll forget to set up automatic bill payment for an important expense or even fear that they might make mistakes when switching banks that will lead to a call from a collections company. Fortunately, you can eliminate a lot of that worry by taking a few simple steps before you switch banks.

Download or export any important transactions or banking statements. Since you will be closing your old accounts, you will lose the history in that account. If you ever need to provide proof of purchase, dispute charges, or even document assets for a loan or insurance – you will want to have a copy of your old account history. 

If you use any electronic bill payment services, document the list of bills you pay, how much they are on average, and when you pay them. This will help you make note of any bills that will need covered during your switching process. 

Review the last several months of account statements for any accounts that you're closing and identify all automatic payments and automatic deposits. This will help you identify any recurring costs that will need to be covered during your switch and will identify merchants that you will need to update bank information for. Make sure you go back far enough to catch any payments (insurance, tax returns, even some utilities) that can occur on a non-monthly basis.

You can use a switch kit, like the free downloadable switch kit First Alliance Credit Union has in our resource center, to help with this process.

Now that you’ve selected a new credit union or bank and taken the time to get organized, you’re finally ready to transfer accounts.

Open an account at your new financial institution

To open up a new bank account, you’ll need to provide some personal information, including your name, address, social security number and a government-issued identification, like a driver’s license or a passport.   If you’re opening up an account at a credit union, make sure to provide proof of membership eligibility.

Usually, you can switch banks online but you’ll also want to stop by in-person to get to know the local branch of your financial institution. Depending on the financial institution, you can either pick up your new debit card in-branch or have it mailed to you.  Take some time to familiarize yourself with your new financial institution, including its online banking platform and its mobile app.

Transfer money into your new accounts

Your best bet is having cash on hand or a physical check to deposit into your new account, but you can also electronically transfer the funds from your old account.  Make sure the amount you transfer into your new account is enough to meet the minimum balance requirement

After you’ve made your first deposit, set up a link between your old financial institution and your new one to make transferring money easier

Transfer your direct deposit and automatic payments

Contact each company that direct deposits money into your account and instruct them to transfer money to your new account. You’ll need to supply the routing number and account number of your new financial institution.

Ask each company how long it will take to switch direct deposit accounts in order to make sure you’ll have money in your account to cover any automatic bills.  You can use the Direct Deposit letter in the First Alliance Credit Union switch kit to make this process easier.  If you use apps like PayPal or Venmo, you’ll need to update your account information in the app.

Transition online bill payments to your new account

Go through your list of all companies to whom you make automatic payments and update your bank account information for all of them.  If you need to, reschedule your automatic payments to make sure you have enough money in your account when the bill is due.

Make sure you have enough money in your old account to pay at least one month in bills in order to avoid missing any payments.  If an institution requires you to send them written authorization, you can use the Automatic Payment Transfer letter in the First Alliance Credit Union free downloadable switch kit to make the process easier.  Reserve at least a day to finish the process—rushing this step could mean missing some companies.

How long does switching accounts take? While you can complete the process in a day or two, you’ll want to run your accounts in tandem for a couple months to make sure your automatic bill payments have transferred over to your new account. Once you’re sure your payments and direct deposits are set up properly, you can finally say goodbye to your old bank accounts. Figuring out how to close a bank account isn’t difficult, but you will want to handle the process carefully to make sure you don’t miss anything.

Confirm all pending withdrawals have cleared your old account(s) and confirm all automatic payments have been transferred to your new account(s). Triple-check that everything is working correctly and that you’re not going to miss any payments. Complete an Account Closure Request Letter and send it to your former financial institution. Some financial institutions may require you to fill out additional forms and some may require you to call or come in person. If your account is an interest-bearing account, request to have your accrued interest be paid prior to closing.

If you're closing your account because you're moving, make sure your old bank has your new contact information in case there are any issues when closing your account. Verify that your account is closed. Call your old financial institution to check or just try to log into your old account to ensure that it is closed. Sometimes instructions get lost or communication is dropped in the process. If you’re not aware of an issue with closing your account, you risk being charged for low balances or inactivity. 

Destroy any unused checks, ATM/debit and credit cards, and deposit slips associated with your old account(s).  Make sure you've switched any old account information stored with a service provider — your credit card issuers, utility companies, cell phone carrier, etc. Some may notify you if a payment fails but others might not, causing bills to become late and pile up, which can affect your credit.  When you receive your new debit card, make sure you update your card information on any websites or apps you regularly purchase from, such as Uber or Amazon.

Look at whether your new financial institution offers a bank account switch kit. Some financial institutions provide this resource to help you transfer your money, open your accounts, set-up any automated deposits, and close accounts with your old bank. It’s makes the whole process easier, and it’s worth pointing out that you can download the First Alliance Credit Union switch kit for free at our resource center.

You don’t have to close your old account. While you should keep your old bank account open for at least a month to make sure all your direct deposits and automatic bill payments are running smoothly, you don’t have to close it if you don’t want to. Many people wonder how many bank accounts they should have, and the answer is “as many as you need.” If your old bank account has a benefit your new one doesn’t, you should keep it open—just make sure you don’t have to pay any unnecessary fees to keep your old account active.

Prioritize your transactions. If you have bills that are coming up while you're switching, it may be easiest to switch those after they debit from your existing account. You can use this as an opportunity to make sure your accounts are all correctly set up at your new credit union or bank. Use the list you created to get organized in the first step to prioritize which accounts are being transferred and when.

Switching financial institutions won’t affect your credit score. One of the biggest questions people have when switching credit unions is “Does switching bank accounts affect my credit score?” and the answer is “No.” The only reason your credit score might decrease while switching financial institutions is if you overlook a bill that goes into collections, and you can easily avoid that by planning ahead and keeping both old and new accounts running concurrently.