When to switch checking accounts, and how to do it right
When you're shopping for a bank account, interest rates are paramount. The interest your money earns is possibly the most important feature of your checking or savings account.
Interest rates can fluctuate over time, so you'll want to periodically shop around for the best interest rates on your accounts. What happens if you find a significantly better interest rate at another bank? You'll have to switch banks.
Changing banks isn't hard, but it can get you in a sticky situation if you're not careful and thorough, particularly if you use your checking account for any kind of automated bill paying and the like. It's worth it though, especially if your current account is paying you little or no interest at all - or worse, charging a monthly maintenance fee that actually costs you money each month.
Getting ready to switch
OK, so 0.1 percent APY doesn't cut it any more. Or your bank is making noises about reintroducing ATM fees. The first step is finding your new bank. Look at rewards checking accounts, especially at online banks. Rewards checking accounts often pay quite good interest rates; even better than high-yield savings accounts. They have a variety of hoops you need to jump through to earn those interest rates though. These typically include things like using direct deposit, maintaining a minimum balance and having a certain number of transactions per month.
Once you've found a high-interest rewards checking account you want to switch to, you'll need to gather some information. Make a list of all the automated payments that use your current checking account.
- Monthly expenses. These could include loan payments, utility bills, and anything you've set up on an automated bill pay system.
- Irregular expenses such as online e-commerce accounts that are linked to your checking account - think PayPal or Amazon. This is a category where it's easy to forget things you don't use every month. (We'll come back to what to do in case you forget, but for now, just do your best to list all accounts you have linked to your checking account.)
- Annual expenses. Finally, list any annual or semi-annual expenses that are linked to this account, like insurance premiums and museum memberships.
Making the change
Once you've made your list, you're ready to switch. You'll start by opening a new, high-interest rewards checking account at the bank of your choice. Next, you want to go through your list and convert each account to your new checking account number. This can be tedious, but it's absolutely necessary.
To protect yourself from overdraft fees and bounced payments, you want to keep both accounts open at the same time for at least a month, with enough money in each to cover any payments that come in. That way if something posts to the wrong account, your bills still get paid that month. And you'll easily spot any regular accounts you missed.
Once every account you own has successfully made a payment from your new checking account, it will be safe to go ahead and close the old one.
The overlap between the two accounts should give you some protection from forgotten accounts. Unless you've been very diligent about keeping a record of every membership, bill payment and online shopping account you have, though, you may still run into trouble months down the line with a payment attempting to post to the wrong account.
Clearly the right answer here is to be very diligent. Now that you have a list of all your accounts, you can keep it up to date going forward and never have to worry about forgetting one again. If you haven't been doing that all along though, brace yourself for the possibility of getting slapped with a bank fee or a notice of cancellation from a subscription you'd forgotten about. Hopefully you've done your homework well and that won't happen. If it does, you'll have learned a valuable lesson: keep good records.
When to switch
Changing checking accounts can be time consuming, tedious, and - if you do it wrong - expensive. It's not something to be undertaken lightly.
So when should you switch? When you get a better offer - a much better offer. You don't want to be jumping around to a new checking account every month or two. It simply wouldn't be worth the effort. But at least once a year, you should check out the interest rates being offered on checking accounts and make certain yours is still competitive.
Interest rates can vary widely from bank to bank, and it's not unusual for a bank that once offered the best interest rates to fall far behind their peers. To avoid getting sucked down into low-interest-rate doldrums, keep your bank account fresh. It's worth it to change banks when a much better interest rate is on the table.