Making the Switch
So now you’ve decided to transfer your money to a smaller bank or credit union. Congratulations! The actual process of switching can be tricky, however. Here are some things to keep in mind.
Open your new account. This may be harder than it sounds, especially if you choose a bank that exists entirely online. According to Schwanhausser’s research, 60 percent of people who try to start a new banking relationship entirely from scratch using the Internet fail. Some are rejected because of poor credit histories or other financial issues, but many simply find the online process too complicated.
“There can be lots of frustrations” when opening accounts online, Schwanhausser says.
Reduce those frustrations by doing research beforehand to figure out what documents you’ll need. Don’t just find a bank that looks good and click “Apply.” Read about their application process to find out what documents you’ll need, including your drivers license, existing bank statements, credit card statements, etc. Maybe you discover that you’ll need a document notarized, which requires going offline.
“Before you open the application, have the paperwork ready,” says Schwanhausser.
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Order new checks and a new debit card immediately. It sometimes takes banks more than a week to send out checks and ATM cards to new customers, so apply for them as soon as possible.
Switch your automatic deposit. Once you have a new account open, ask your employer to switch your paycheck to your new account.
Switch over your automatic bill pays. This may be more difficult than it seems, especially if you have some bills that withdraw on a quarterly basis. Comb through your bank statements from the last six months, looking for anything that might be paid automatically. Then go online and switch them over to your new bank, usually by entering your new account number and bank routing number.
This step is critically important to do right, because missing even a small bill could cost you lots of money down the road.
“Some of these payments may be presented after you close the account, which can result in fees and could affect your credit score,” Sherry says. “I tell people to look back over all their payments for the entire half a year.”
Cover it. If an automatic withdrawal or a check is coming out of your old bank account soon, make sure to keep enough money in the account to cover it.
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Move the rest. Once all your bills and checks have been paid, go online and switch the remaining money from your old account to your new one. “You have to do this yourself, and not rely on the bank to do it,” Sherry says.
Print a record. Before closing out the old account, go online or to a branch and request a report that shows all the account activity for the last six months. This gives you proof of which bills have been paid, and a cheat sheet for setting up new automatic withdrawals form your new bank.
Close the old account. Usually you can do this online, too, but some banks still make you do it over the phone with a teller.
Phew! Now you’re done! Whether it was a political act or a simple financial decision to avoid fees, you’ve completed something that big banks work to avoid: Switching to new, smaller bank.
“Believe me, banks are trying very hard to remain competitive,” says ABA’s Kaplan. “We don’t want people going someplace else.”
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