Overcoming the Problems of Changing Banks
Over the past year, consumer outrage over bank fees has been widespread. Despite the anger, most people have not changed banks because moving one’s money is complicated and frustrating.
Consumers Union recently released a study describing the difficulties of changing banks as well as the time and money that it takes to move your accounts.
Having a checking account is like being caught in a spider’s web–once you are in, it is sometimes easier to stay put. Banks encourage relationship banking where a customer uses all of the bank’s services. This may waive fees or result in lower rates, but it also makes it much harder to change banks. If you are shopping around for a new bank, it is important to do your homework and make an informed decision.
The Consumers Union study cited a number of difficulties consumers may face in switching banks:
- Changing automatic deposits and payments from the old account to a new account is complicated and involves third parties. These conveniences make banking easier but uprooting and processing each of these payments can take several weeks. This can increase the risk of a bounced check, missed payment or late payment, which can all result in steep fees.
- It may be advisable to keep the old and new account open with a cash cushion during the transition to make sure that all bills are paid, but this can be expensive. Keeping money in two accounts for several months may be difficult on a household with a tight budget. Some bank accounts require a minimum balance to avoid a monthly fee.
- There can be fees for closing accounts or for transferring balances.
- The bank may reserve the right to reopen a closed account if a transaction occurs.
- Banks sometime provide inadequate information about closing bank accounts. The study found that bank disclosures usually don’t include the basic information consumers need to close an account.
Government regulations and the crisis started by loose lending policies helped create this problem for consumers. The lending market collapsed under risky loans and the government reacted with regulations that sliced revenue for banks. It is the consumer who is paying the price with higher rates and fees for everything from credit cards to bank accounts. Last fall, Bank of America and other banks attempted to charge fees for debit card usage and this stirred unified consumer outrage. Banks backed down from that fee but they increased fees in other areas like account minimums and annual fees.
Here are some tips for consumers looking to switch bank accounts:
* Shop around to find the bank with the lowest fees for the way you will use the account. Compare credit unions, community banks, and online banks as well as the larger banks.
* Open the new account with a small deposit and maintain the minimum balance. Do not switch over all of your funds when you open the account. Switching payments and other transactions can take two or three months, and you need money in your old account to make sure everything is covered. You want to avoid overdraft fees for insufficient funds or a bounced check.
* Find out what date your direct deposit will be changed to the new account; then set up payment changes after this.
* Make a list of all automatic deposits and payments. Analyze several months of bank statements to make sure you don’t overlook anything. Some payments, like insurance premiums, may be made on a bi-monthly, quarterly, or annual basis. It is up to you, not the bank, to contact these companies and give them your new account number. If you have direct deposit, make sure this is re-routed to your new account.
* After all payments and transactions have been transferred correctly, you can transfer the remaining funds from your old account.
* Get written confirmation from your bank that your account is closed.
The study recommended regulations be adopted to allow consumers the ability to keep their bank account numbers, the same portability that consumers now have with mobile phone numbers when they switch carriers. Maintaining the account number would keep automatic deposit and payments running smoothly during the transition and eliminate the notification of third parties regarding new account numbers.