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financial coaching Oct 23, 2021

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Recently, I've had to switch banks for one of my business accounts. Sometimes, financial institutions may not fit your needs anymore, or better options are out there. A new bank may be what you need to take your finances to the next level. Luckily, switching banks is not too hard, but you have to make sure that you have all of your ducks in a row and compare all of the options available to you to switch banks. In this article, I'll go over my best tips for switching banks and some things to remember when you do so. Let's begin!

Why Switch Banks?

First, it's important to understand why you are switching banks. Every financial institution offers different products and services. You have to figure out what is best for your needs. You do not want to end up in a worse situation than what you were leaving.

In my situation, my husband and I needed a bank with a more community and local focus. We found a local community bank recommended to us by someone in the industry that we admire. They pointed out that it's better to be a big fish in a small pond than a little fish in a big pond. This made complete sense! We came from one of the big banks where we were just the number to a smaller bank that gave us more personal experience. Customer service is a huge reason why people may decide to switch banks.

Another reason you may want to switch banks is because of the fees. When considering how to switch banks or why to switch banks, fees are usually a big reason. Credit unions are typically cheaper for fees, but the trade-off is that you usually have fewer services available to you. You have to weigh was more important to you. Some banks have astronomical fees, and it doesn't really make sense to stay in a situation like that when there are so many other options out there. I will link to a good resource to shop around for a bank that is very transparent about fees.

Yet another reason you may want to switch banks is availability. You may be thinking, well, what do you mean by that? Some banks are only available in your local community or regional, or nationwide. So, you have to evaluate when making your decision to switch banks your needs. If you travel frequently, You may need a national bank to have access to your funds. If not, maybe a local or regional bank would be better.

Interest rates are important too! I switched from local brick-and-mortar banks to online banks because they offered higher interest rates when considering my emergency fund savings account. Think about what you are trying to accomplish with the money in your research because that also affects who you may decide to go with. Personally, I feel online banks are best for savings because out of sight, out of mind! An interest rate may not be as important if the reason you are switching is to move a checking account.

Where should I open an account?

Now that we understand why you may want to switch banks let's get into the how because that's why you're here! The very first step is to do your research! I cannot stress this enough. Make sure that you have looked into the banks' fees, services, availability, locations, reviews, and any other relevant information you may need to make a decision. Often, we will blindly go into a situation without understanding all the details, which is how we commit financial suicide.

I also suggest researching the other products or services the institution offers outside of why you are switching. Do they offer personal finance education, mortgage servicing, retirement accounts, student loans (original or refinance), a deposit box, automatic payments or bill pay, direct deposit, a mobile app, access to your credit score, credit cards, or online access? These are all important things to consider in your evaluation.

Does the institution require a minimum balance every month? If so, think about if that aligns with your goals for the account. Some banks and credit unions require the minimum balance to avoid a monthly fee. You don't want to have to pay additional money because of a simple oversight, so include that in your research as well.

What paperwork do I need?

When you have done all your research and are ready to switch banks, ensure that you have all the paperwork needed to open the account. Typically, this includes your driver's license (or photo ID) and your Social Security number or tax ID number if it's a business. Compare Business Checking Accounts here. Also, if it's for a business, you may need your original "doing business as" (DBA) or LLC filing paperwork to prove that you are an owner of the business. Unfortunately, as a business owner, if you do not provide this information, you will not be able to open the account for good reason.

How do I start the process?

First, you will want to either make an appointment at the bank or walk in. If you walk in, you want to make sure that you talk to an account specialist. You can ask the teller for assistance with opening an account, or most banks have a separate section for talking to account managers. Don't be nervous once you are in the office of the person you need to meet with. Tell them you are there to open an account.

You should have already done your research at this point, so you should know exactly what kind of account you want. Be sure to allow them to explain any other account offerings, and make sure you have some questions to ask them. They will ask you for all of your relevant paperwork, which I explained earlier in the article, and they may ask additional questions to ensure they have a full profile for you. The federal government regulates banks and requires them to collect certain information from you depending on the type of account.

Do I need any money?

Depending on the bank and the account, you may need to bring money for the opening deposit. This can range from $0 to $100. It just depends on the bank. This is why your research ahead of time is so important. You don't want to get to the bank, and you don't have the money for the opening deposit because then your process will stop then and there, and they will tell you to come back when you are ready. Research helps you save time and effort.

It typically takes no time to open your new account!

Photo by Jonathan Cooper on Unsplash 

Making The Switch From Your Old Account...

Once your new bank account is open, you will have to wait for your new debit card to come in the mail. Typically, it takes about a week or so, but your representative can give you a timeframe. DO NOT CLOSE YOUR OLD ACCOUNT YET. You want to make sure that you have access to the new account first. Be sure that your welcome packet of information includes important account information like your new account number and the bank's routing number. This will be important to update bill payments and direct deposits you may have from the old bank. Speaking of bill pay and direct deposit, take a little bit to make a list of everything flowing in and out. Also, list out any recurring transfers you have between accounts if you have automatic savings set up.

Now can I close the account?

The reality is that you may have to have both your old bank account and your new bank account open simultaneously. Before closing the old bank account, start moving your subscriptions, automatic transactions, direct deposits, and bill payments to your new account. This is why having the list is so important. You want to make sure you always have enough money in both accounts until you can move everything over.

Direct deposit payments to your new account should be the first thing you should update. Sometimes, this process of changing your direct deposit information could be a little longer, depending on who is responsible for doing it. I have heard everything from 1 week to 2 pay periods depending on the employer. Also, you will need money in the new account to move over any automatic transactions that withdraw funds from the account. Once that completes, start moving over all of your automatic bill payments. The old bank account should need less and less money to operate, making the transition smoother.

How about now?

Once your account is empty or you feel everything has been moved over, you can close the old account. If there is a positive balance on the account, many banks will give you the cash back. If there was a negative balance on the old account, many banks might expect payment before they allow you to close it. Be prepared for this scenario if you have a negative balance. They could potentially report an unsettled account to credit agencies, therefore, affecting your credit score. Nobody wants that!

What else should I know? (FAQS)

If one person has a question, there is a huge chance someone else may have the same question. Below you will find some questions I've received by helping people switch banks.

What is the difference between a bank and a credit union?

I have a whole article dedicated to this topic linked here. There are many important differences.

When do I know it's time to make the switch to a new account?

This would be up to how satisfied you are with your current bank and what you found in your research of their competitors. If the pros outweigh the cons, that is a clear indication that it's time to make the switch. Another prime time to evaluate your options is when you get a notice that the bank's fees are increasing.

What if my new bank account is not what I thought it would be?

Well, just as easy as it was to switch to the new bank, you can switch back to the old bank or a different bank. I wouldn't keep switching bank accounts frequently because it may cause an issue with the federal government. Remember, they collect all of your personal information for a reason!

I realized I have a lot of automatic bill payments. What do I do?

I suggest using this opportunity to evaluate how many automatic transactions you have going out. If you see any payments from your bank accounts that you feel are unnecessary during this process, let them go! There's no point in carrying over this energy from the old account to the new account. LET IT GO!

What if I have further questions?

I would suggest contacting the representative at the financial institution, doing more research on your own, or booking a call with me. Good luck!

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