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How to switch to a new bank or credit union

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If you find yourself in need of a new bank or credit union, you may be wondering what steps to take. Many consumers find themselves in a similar position.

“Switching financial institutions may be prompted by any number of reasons, such as a move, a change in your financial needs or banking habits, a desire for better technology, service, or rates and fees,” says Greg McBride, CFA, Bankrate chief financial analyst.

Regardless of your motive, there’s legwork involved in breaking up with a bank. Here’s a guide on how to switch banks, broken down into five steps, for a smooth transition.

Steps for moving a bank account:

  1. Choose your next account
  2. Keep track of automatic transactions and direct deposits
  3. Open your new account
  4. Redirect your payments and direct deposits
  5. Close your old account

1. Choose your next account

Pinpoint your motive for changing bank accounts, since you’ll want to find an account that matches your needs. Many financial institutions offer several types of deposit accounts, each with their own fees, features and opening requirements. Bankrate’s banking reviews are a good starting point to help you research the difference among offerings at a variety of banks.

You may want to devise a list of account features that are most important to you. Some factors to consider include:

  • Lower fees
  • Higher interest rates for savers
  • Minimum balance requirements
  • Quality of mobile app
  • Budgeting tools
  • Access to local branches
  • Large fee-free ATM network
  • Safe-deposit box
  • Customer service hours
  • Bank reputation

“Consider your banking personality and regular financial habits,” McBride says. “If you need a safe-deposit box, then an online or neobank won’t work. If you’re looking for lower fees or better rates and do all of your banking digitally, then you’re not limited to what is in your local area.”

Once you’ve narrowed the list of options, disclosures posted on bank and credit union websites can help in making a final decision, by providing important details about account fees, rates and requirements.

2. Keep track of automatic transactions and direct deposits

You may have your paycheck, dividends and other sources of income automatically deposited into your checking account. Additionally, there may be automated payments on a monthly basis for cellphone charges, utilities, subscription services, charitable contributions, and other goods and services. To avoid complications, make a list of these incoming and outgoing transactions from the past 12 months — you’ll need to transfer them to your new account once it’s set up.

Some automated transactions may occur quarterly, semiannually or annually, so be sure to track those as well. Also note any linked accounts, such as funds transferred each month to an individual retirement account or a health savings account.

Getting all your automated payments sorted may take a while, depending on how much you rely on services like online bill pay. But ensuring you’ve accounted for all your regular transactions is worth the effort, to avoid bounced checks or refused payments that may result in fees.

3. Open your new account

After your research is done, opening an account at the bank you’ve selected is the easy part — and doesn’t even require stepping foot in a bank, and many consumers  According to the latest FICO Consumer Digital Banking survey.

nearly half (41 percent) of North American consumers are more likely to open an account online than they were the previous year.

The steps are similar whether you open an account online or at a branch: You provide information such as your Social Security number, date of birth and current address. You may also need to submit or show documents like a valid driver’s license or passport to affirm your identity.

After your application is submitted, the institution may check your banking history by running your information through ChexSystems, a credit-reporting agency, to get a gauge on your banking history. Once approved, you’ll have to fund the account. Some banks require a minimum deposit just to open an account, but it may not be sufficient to avoid fees. Depositing the amount to avoid fees — and maintaining it — is a smart move. You can fund the account in the form of a check or electronic payment. You may also be able to wire funds into the account, depending on the bank. If you’re depositing money into your account by transferring it from another account, be sure to gather the other bank account number and nine-digit routing number.

Some other considerations that come with opening a new account include ordering checks, a debit card and downloading the institution’s mobile app.

4. Redirect your payments and direct deposits

Once you’ve accounted for all the automatic transactions from your previous account, it’s time to transfer them to the new account, including both payments and deposits. Changing your payroll deposit information can typically be done online at payroll provider’s website, but human resources can also help you to switch direct deposits to the new account.

Also bear in mind one-time or recurring payments between bank or credit union accounts, such as transfers from checking to a savings account or retirement account. You’ll need to link the two accounts that you make transfers between, which may be able to be done on the institution’s mobile app or website.

5. Close your old account

The last step in cutting ties to your old bank or credit union is closing the account, but it’s best not to rush to close it.

“Plan to leave the old account open for an additional statement cycle or two once your new account is up and running,” McBride says. “Too often, it is that one-off bill payment that is automatically drafted from your checking account that gets forgotten, so this gives you a bit more time to make sure nothing was overlooked.”

Once you’re sure that all direct deposits are coming in and all automatic payments are going out of your new account, transfer any remaining funds from the old account into the new one. Transferring the funds electronically is probably fastest, but you may also use a personal check or wire transfer.

Once that last transfer clears, you’re free to close the old account for good. Be sure to get written confirmation from the bank that the account was closed to protect yourself from being victimized by a “zombie account” — one that has been reopened by the bank when funds were unwittingly directed to the account that you thought was closed.

Finally, be sure to shred the checks and cut up the debit cards from your old account to protect yourself from identity theft.

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Written by
René Bennett
Banking writer
René Bennett is a writer for Bankrate, reporting on banking products and personal finance.
Edited by
Wealth editor