Switch banks? Some account holders would rather gnaw off a limb than sever the ties that bind them to their financial institutions.

Today, we are bound to our banks like never before, thanks to direct deposit and automatic bill pay, sweep accounts and CDs, credit and debit cards, and expanded brokerage and insurance products, not to mention online banking.

All things considered, even staying with a bad bank sounds better than the unthinkable hassle of moving on, right?

Maybe not.

In a curious twist, the same banks that are fighting tooth and nail to retain every breathing customer have actually made it easier for depositors to jump ship, thanks to the recent introduction of “switch kits.”

What’s a switch kit? It’s a marketing packet that many banks now use in addition to toasters and iPods to entice you to come onboard.

“It’s streamlining a process by having everything you need in one place.”

Switch kits help you collect the data for all of your recurring electronic deposits and withdrawals — direct deposits, auto payments, life insurance and mortgage payments, savings plans, etc. — on one form so your new bank can seamlessly continue those transactions for you.

Some kits even include form letters to send to the appropriate parties to switch your direct deposit, redirect your auto payments and close your previous accounts. Switch kits often are available online as well as at bank branches and through the mail.

Switching strategies

Historically, banks have been reluctant to make transparent — much less streamline — this backroom process for obvious reasons: They don’t want you to leave — at least not until a branch manager has had a shot at talking you out of it.

But that old-school thinking went out the window with the turn of the new century, when bank consolidation spawned hundreds of upstarts called “de novo banks,” which are state banks in existence for five years or less.

The switch kit was one weapon the de novo Davids found particularly effective in challenging the new Goliaths.

“You’ll most often find these in extremely competitive markets,” says John Hall, spokesman for the American Bankers Association, or ABA. “It might be a new bank coming into a community and trying to gain market share or it might be a merger or acquisition where there could be some (customer) fallout they want to catch.”

ABA spokeswoman Carol Kaplan views the sudden ubiquity of switch kits as a win-win for consumers and financial institutions alike. “Banks didn’t used to have it all tied up in one neat little package; you would have had a separate form for every different kind of account and have to ask for every form separately,” she says. “It’s streamlining a process by having everything you need in one place. In a way, it’s sort of strange that it took this long for us to figure this out.”

Switching and ‘stickiness’

Chase spokesman Tom Kelly says established brands like his quickly recognized that the same switch kits that the de novos used to poach their customers could easily be turned into a defensive retention tool.

“If somebody is moving to another state, we say look, we have branches in … other states. You don’t have to go to all the trouble of closing an account and opening one, you can just shift your account and we can order you some checks for your new city,” he says.

Kelly says the operative word is “stickiness.”

“You do have to get a new doctor and a new dentist probably when you move, but you may not have to get a new bank,” he says. “What we want is to have the chance to save a customer.”

Switch kits come in particularly handy when one bank takes over another.

“In a takeover, depositors usually have a couple options: Come and get your money out or open up a new account with the bank that’s taking over,” says Kaplan. “Fortunately that doesn’t happen too often, but when it does, a switch kit would certainly make that easier.”

Although switch kits may seem tailored to young, mobile depositors already comfortable with online banking, Kaplan says the real target may be the older, wealthier demographic.

“Those people who have been with a bank for 50 years often have a lot of assets,” she says. “Those are the people for whom switching banks can be most difficult because they have so many different accounts and automatic payments and direct deposits.

“I think the older you are, the more likely it is that you have more complicated finances, greater assets, and all of that makes switching banks more cumbersome. Having these kits makes that easier.”

Switch kits can help you change banks with less fuss. However, they don’t ensure a smooth transition on their own.

Here are some switching steps to take in addition to filling out the switch kit.

Steps to switching banks:
  • Analyze your reasons for switching banks, then contact your current bank. It may be able to accommodate your requests so you won’t have to move on.
  • Open an account at your new bank before closing your old account(s). This enables you to write checks, use the ATM and make deposits and withdrawals during the transition.
  • Keep open your old direct deposit and auto bill-paying account(s) until those recurring transactions have been successfully redirected and appear on your new account statement.
  • Be sure to leave sufficient funds in your old account to cover automatic payments in case the changeover takes more than one billing cycle.
  • Don’t close your checking account until all outstanding checks have cleared.
  • Be prepared to provide account and bank routing numbers for your old and new accounts when canceling, establishing or redirecting direct deposits and auto payments.
  • Have your old bank verify in writing that all accounts, including debit and credit cards if applicable, have been closed at your request with no balance outstanding
  • Keep all closing statements for your records.
  • Don’t forget to empty your safe-deposit box, turn in the key and collect your deposit, if any.

Jay MacDonald is a contributing editor based in Texas.

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