How to Switch Banks in 5 Steps


Whatever motivates the change - whether it's fees, a move or wanting to take advantage of a promotion - choosing to switch banks can sound like a lot of work.

There are a lot of reasons to switch banks, whether your current bank is providing lackluster customer service, doesn't have enough ATMs for your banking habits or has high fees. But before you tangle your finances up even further by trying to open a new bank account, be sure to follow these 5 easy steps on how to switch banks - and hopefully save yourself a lot of stress and money.

How to Switch Banks in 5 Steps

Switching bank can seem like a pain, but following these simple steps can take a lot of the stress out of the process.

Step 1: Research a New Bank or Credit Union

The first thing to do when switching banks is to research a new bank or credit union. Depending on your needs, a bank or a credit union might be the better choice for you, so be sure to settle on which institution best fits your needs before going forward. In general, banks are better for convenience and a wide network of ATMs and locations, while credit unions generally have better customer service.

When doing your search, be sure to look out for any banks or credit unions that have lower fees or a good annual percentage yield (APY).  

Some experts suggest looking beyond a traditional, brick-and-mortar bank. Online banks have lower overhead, so can offer accounts with lower fees and higher interest rates. 

In addition, do some research on your new bank or credit union's policies about how to transfer funds in, monthly fees and what minimum balance requirements it has. 

It's also important to take inventory of all of your different accounts and plan to switch them to a new account. You can switch direct deposits, bills and other automatic expenses later once you've opened your new account. 

Step 2: Open a New Account

The next step in switching bank accounts is to open a new account at the bank or credit union of your choice.

In order to open a new account, according to Bankrate, you need to provide the following: 

1. Name, address and date of birth.

2. An official form of identification and photo, such as a driver's license, passport or state ID. However, if you do not have photo identification available, some banks require bringing two other forms of identification like Social Security and a birth certificate. 

3. Your Social Security number. 

4. A deposit of cash, a check or information like an account number to open your new account with. 

In addition to opening your new account, be sure to review your monthly expenses. It is generally recommended to review at least three months worth of expenses - like bills, checks and subscriptions. However, also be aware of larger withdrawals and automatic transfers for annual things like insurance payments. For this reason, it is generally recommended to look over the past 12 months to ensure you don't miss anything.

Once you've opened your new account, be sure to set up all of your new bank's services and products, like a credit or debit card and mobile banking app. In addition, make sure to link your bank accounts to make transferring funds even easier. This can typically be done online or through your bank's mobile app. 

Step 3: Redirect and Automatically Transfer Funds

Before you switch all your cash over to your new account, make sure you have enough of a balance in your old account to cover any outstanding checks or bills that might be automatically linked to your old bank. 

Once you've put aside enough to cover any final expenses in your old account, you can begin transferring funds over to your new one. While using electronic payments and certified checks will be the cheapest option, it may take several days for the funds to process over. If you're in a rush, you can do a wire transfer, although this could set you back as much as $45. 

Still, once you've transferred over most of your funds, experts suggest keeping both bank accounts running for a least one month.

Make sure you understand the minimum balance requirements for your old bank and new one to ensure you don't incur any extra fees. Additionally, if possible, keep enough funds in your old account to cover any additional bills you may have missed or any checks that might be clearing late. 

Step 4: Switch Direct Deposits and Expenses

One major thing to make sure to do is switch all of your direct deposits, electronic or recurring transfers and bills to your new bank account.

Take some time to review all your monthly expenses, bills and subscriptions and make sure to switch your payments from your old account to the new one. 

Things like mortgage payments, electricity or utilities bills, credit card and debit cards and even subscriptions to Netflix (NFLX - Get Report) or Amazon (AMZN - Get Report) you might have should all be switched to your new account or accounts. 

Ensure that your direct deposits (for things like payroll) are switched over to your new account, but be aware that it may take a month or two to fully transition. You will generally have to fill out a form with your employer to switch bank accounts for your payment. Try to give your employer enough time to switch over to your new account before you close your old one. 

Also ensure that accounts with mobile payment services like PayPal (PYPL - Get Report) are switched over to your new account. If you're using a bank account to invest online or through an app like Robinhood or Acorns, be sure to switch those services to your new bank account as well. 

Before you close your old account, make sure that you have redirected all of your funds, direct deposits, bills and any other payments associated with your bank account number. Going through a full list of your expenses and direct deposit income can save you a lot of stress later on if you miss a payment or get a deposit in the wrong account. 

Step 5: Close Old Account

Lastly, once you have opened a new account at your new bank or credit union, transferred your funds over and redirected any existing payments or direct deposits, you should close your old bank account. To ensure your account isn't reactivated to pay any lingering bills, empty your old account fully once you've transferred everything over. 

You can contact your bank to ask that your account be permanently closed. You may be required to send a letter to close a bank account, although you can find templates online for reference. 

Once your old bank account is officially closed, you are free to move on to using your new account full time.

The Bottom Line 

While it may seem like a daunting (or downright stressful) task, switching banks is actually fairly straightforward. There are plenty of resources at banks available to help guide you through the process as well. Just ensure you double check all your outstanding checks or cards, direct deposits or automatic payments before closing your old account - and then be free to enjoy the new bank of your choice. 

Introducing TheStreet Courses: Financial titans Jim Cramer and Robert Powell are bringing their market savvy and investing strategies to you. Learn how to create tax-efficient income, avoid mistakes, reduce risk and more. With our courses, you will have the tools and knowledge needed to achieve your financial goals. Learn more about TheStreet Courses on investing and personal finance here.

It's never too late - or too early - to plan and invest for the retirement you deserve. Get more information and a free trial subscription to TheStreet's Retirement Daily to learn more about saving for and living in retirement. Got questions about money, retirement and/or investments? We've got answers.