Higher savings rates, lower fees, and better customer service: For every reason you might want to switch banks for a checking or savings account, there’s an opposite reason to avoid the hassle.
However, changing banks does not happen often. Only 4% of customers changed banks in a year, according to JD Power’s 2019 US Retail Banking Satisfaction Study.
“Change is hard, especially change around money,” says Dale Shafer II, a certified financial planner and founder of Life Moves Wealth Management in Scottsdale, Arizona.
Here are five obstacles to switching banks and how to tackle them.
1. You have only known one bank
Banking at the same institution your parents owned can feel cozy and familiar, whether you’re young or decades old. Or maybe you started a banking relationship later in life. Either way, when you’re ready to move on, leaving as a long-time customer can be a big deal.
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When “you grow up with that establishment, it can be hard” to leave, says Shafer. His eldest son “was almost afraid to do it” because he mistakenly believed he could damage his parents’ relationship with his bank.
Advice: Remember that you have power as a customer. Research the fees and services at other banks to see how they compare to yours and if they would be more beneficial to you. Choose a new bank It means knowing your essentials.
2. You have set up many automatic payments
If you have recurring transfers and automatic bill payments through your checking account, you’ll need to manually switch them to a new bank. And don’t forget about direct deposits.
Ask yourself, “How many different services are connected to this bank account or that credit or debit card? It’s your Spotify, your gym, whatever you’ve signed up for,” says Shafer. “It’s a time commitment.”
Advice: List all subscriptions, memberships, and other recurring payments linked to your checking account as part of the steps to change banks. Check bank statements for at least the last 12 months for monthly and annual fees.
3. Your bank requires a phone call or paperwork to close
Banks make it easier to open an account than to close it. Almost all of the 20 largest banks in the US with personal checking or savings allow you to apply online. Still, few of its websites mention the ability to close accounts online, according to an analysis by NerdWallet. Generally, you must end a banking relationship by calling, visiting a branch, or sending a request in the mail.
“If you have to submit any paperwork, that tends to slow things down,” says Marianne Nolte, a certified financial planner and founder of Imagine Financial Services in Fallbrook, California.
Advice: When visiting “traditional banks, due to COVID, it would be wise to make an appointment,” Nolte says. At least one of the largest US banks has temporarily closed some branches, which may mean longer wait times elsewhere.
4. You don’t have enough savings
Switching banks usually means keeping old accounts while you open new ones. You want to give yourself time to transfer money and adjust payments. Therefore, you must maintain the funds in two banks to satisfy the billing and minimum balance requirements.
“If the bank has a minimum to open and a minimum to avoid commissions, someone [who’s] Strapped for cash…they can be hit by fees within a month,” says Saundra Davis, founder and CEO of Sage Financial Solutions, a San Francisco Bay Area-based nonprofit organization that provides training for financial advisors.
Advice: Only jump if you are ready and able. Otherwise, focus on building a savings reserve, such as a emergency fund. Davis recommends making sure he can get through a transition period of a month, if not longer.
5. Your reason for switching doesn’t seem good enough.
You need time and money to change institutions, and a healthy mindset. Coming to terms with your bank may prevent you from finding a better one.
For example, online banks and credit unions offer high-yield savings accounts with rates greater than 1% APR, which is at least 12 times the national average interest rate for savings accounts. And they typically have no monthly fees or ongoing minimum balance requirements. In a time of high inflation, finding a way to save more money can be tempting.
Your bank may fall short for other reasons, such as long delays in contacting customer service or failing to provide certain accounts or services.
“For a long time, my credit union wouldn’t let me have a business account,” says Davis, who decided to open one elsewhere.
Advice: Focus on the benefits of your new bank, like more savings or peace of mind.
If your new account has a better savings rate, “there’s a light at the end of the tunnel: the prize,” says Nolte. If she’s consolidating accounts, remember that “next month things are going to be a lot easier to manage,” she says. “You just have to put in the effort and do it.”