Should you change banks? - WBOC-TV 16, Delmarvas News Leader, FOX 21 -

Should you change banks?

Updated: Aug 18, 2014 10:29 AM
© iStockphoto.com / Karen Harrison © iStockphoto.com / Karen Harrison

By Andrew Housser

Nearly 20 percent of consumers have considered switching their checking accounts to a different financial institution, a 2012 Consumer Reports survey found. Bank patrons cited rising fees, poor customer service and better finance terms as the top reasons for wanting a change.

Despite these complaints, the hassle of closing a bank account and transferring automatic deposits and payments to a new place stops most people from taking action. Depending on your banking needs and your bank's current services, switching financial institutions may or may not be a good move. Follow these steps to help decide if a change is in order, and if so, how to make the transition as smooth as possible.

1.      Assess your current bank. If one or both of the following applies to your current financial institution, consider switching to a place that helps your money grow instead of shrink.

a.       You pay a monthly checking fee. Some banks charge monthly fees for maintaining a checking account. Or they charge you if you fail to keep a minimum balance in your checking account each month. The average fee in 2013 was $12.54 per month. This adds up to more than $150 per year. If you switch to free checking and use that fee to pay off debt, it can make a big difference. Suppose you owe $3,000 on a credit card at 18 percent annual interest, with a minimum payment of 4 percent of the balance. Paying the monthly minimum, it would take 114 months (9.5 years) to repay the debt. On this plan, interest would total nearly $1,700. If you added the $12.54 bank fee you were saving to that payment, you would repay the debt in 28 months (2 years and 4 months). Better yet, interest payments would total about $700 – $1,000 less than minimum-only payments.

b.      You overpay on ATM fees. Using an ATM outside of your bank's network can result in two fees: one from your bank and another from the bank that owns the ATM. On average, you can expect to pay about $5 in fees to access your money. This is especially problematic if your bank has a limited number of ATMs or you frequently travel out of the area.

2.      Choose your best banking option. Before committing to a new institution, be sure you understand its fees, rates and services. It may help to create a checklist to see which financial institution most closely meets your needs. Community banks are smaller and offer more personalized services. They are known for lower fees and greater lending flexibility. National banks offer thousands of branches and ATMs, but may charge higher fees; only about a quarter of them offer free checking. Credit unions are member-owned nonprofit organizations. Membership is usually based on a common link such as employment or geographic location. Credit unions tend to offer lower interest rates on loans, higher interest rates on savings, and charge no monthly checking fees. However, some have a limited network of physical branches and ATMs.

3.      Know the credit facts. If you decide it is worthwhile to change banks, be aware that some financial institutions will check your credit. (You can ask before you apply for the account whether the institution does a credit check.) Closing a bank checking or savings account does not affect your credit score. Neither does opening a new bank account, or transactions on that account. However, opening and closing many bank accounts, or bouncing many checks, could earn a black mark on your ChexSystems report. Individuals with poor ChexSystems reports might be denied a bank account. If you suspect you might have a bad report, or if you suspect you have been a victim of identity theft, it is a good idea to review your ChexSystems report. You can request one report per year for yourself at www.chexhelp.com.

4.      Decide if the timing is right. Be aware that in addition to a possible credit check, if you open a new debt account, such as an overdraft account, creditors might see that as a revolving credit account on your credit score. These inquiries can affect your credit rating. If you are considering applying for a home loan or vehicle loan, it might be wise to postpone the change until after your loan closes.

5.      Make the switch. Keep your old account open at least a month or two while direct deposits and automatic payments transfer to your new account. During this time, keep enough funds in both accounts to cover any automatic payments and outstanding checks. Otherwise, you may incur overdraft fees or bounced payments, which could result in late payments that affect your credit rating. Before you close your old account, verify that all withdrawals have been posted. After your account is closed, shred and securely dispose of old ATM cards and checks.

Changing financial institutions takes time and effort. However, the long-term financial rewards often are worth it. The key is to do your research to ensure the next bank you choose is a good fit for your current and future financial needs. 

Andrew Housser is a co-founder and CEO of Bills.com, a free one-stop online portal where consumers can educate themselves about personal finance issues and compare financial products and services. He also is co-CEO of Freedom Financial Network, LLC providing comprehensive consumer credit advocacy and debt relief services. Housser holds a Master of Business Administration degree from Stanford University and Bachelor of Arts degree from Dartmouth College.
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