Tips for switching banks

Thursday, February 23, 2017

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Fed up with your big bank's monthly fees chewing away at your modest savings? Sick of seeing just four cents of interest every month? Or are you maybe offended by how your bank finances morally dubious businesses that harm people or damage the environment? Our list of bank-switching tips will help you take your money to a better financial institution as quickly and as painlessly as possible.

Consider your options:

• Find out which credit unions are near you through aSmarterChoice.org. For lesser-known banks and credit unions, websites like DepositAccounts.com and Doctor of Credit highlight many excellent community banks and credit unions.
• Do you anticipate visiting a physical branch of your new bank often? If so, choose a bank or credit union with branches near your home or work.
• Do you use ATMs frequently? Many credit unions and small banks will rebate out-of-network ATM fees back to you. Big banks won’t.
• Did you know that the larger the financial institution, the more likely an account agreement will take away your legal right to sue and require mandatory binding arbitration? If you ever have a dispute with your financial institution, banks are twenty times more likely to force you into arbitration than credit unions are.

What is arbitration?

Arbitration is a "Kangaroo Court" that rubber stamps decisions in favor of businesses, keeps its rulings secret from the public, and, in most cases, does not require arbitrators to even have a law degree. Mandatory arbitration is a scheme by big business to deprive you of your 7th Amendment rights under the Constitution, and you should avoid it if at all possible. (Consumer Action has worked for many years on efforts to prohibit mandatory arbitration in consumer contracts.)

Will my money be just as safe if I put it in a credit union or community bank?

Yes. The FDIC (Federal Deposit Insurance Corporation) insures bank deposits up to $250,000 per depositor, for each account ownership category. For credit unions, the NCUA (National Credit Union Association) offers the exact same protection.

What to know:

• If you are looking for better customer service, you’ll usually find that it is greatly superior at credit unions and community banks.
• If you enjoy the convenience of mobile check deposit, make sure that your new bank or credit union offers this. While many community banks and credit unions now offer mobile (or “remote”) check deposit through your phone, this is one service that large banks have been better at providing.
• Credit unions generally pay savers higher interest rates, and charge borrowers the lowest interest rates for car loans.
• For significantly higher interest rates for your cash savings, consider a "reward checking account" (sometimes called "Kasasa" accounts), which can pay you over 3% interest if you do things like use your debit card, direct deposit and online banking.

When you set up your account:

• Choose a "free checking" account that won't charge you monthly maintenance fees.
• Be sure to decline the optional "overdraft protection" plan for debit card transactions. Declining overdraft protection on your debit card means that an ATM withdrawal or point of sale transaction that would cause your account to be overdrawn will be declined rather than approved and assessed an overdraft fee—potentially saving you an extra $35 for a pack of gum!
• Set up electronic transfers between your old account and your new one. This will allow you to move money between the accounts as needed to cover payments, debits and checks during the transition. Typically, the process will require you to choose to "add an external account" through your new bank's website and that bank will send two small trial deposits to the old account. Once you verify the deposits, you can transfer money electronically between the accounts.
• Set up online banking and online bill pay. Visit your new bank or credit union’s website and follow the instructions for setting up online banking. From there, you can add the names, account numbers and addresses for everyone you pay using online bill pay. If you will use mobile banking, download the app to your phone.
• Switch any existing automated payments, such as those for your phone, insurance, energy bill or TV service, to your new account.
• Fill out a new direct deposit form to receive payments from your employer, pension, Social Security, etc. Many banks and credit unions will pre-print these forms for you, including your new account number and the bank's routing number.

Before long, your money will be in a better place, and you will be earning more interest and paying fewer fees to keep it there.