Switching banks can be a hassle. That’s particularly true if you’ve got services such as direct deposit of your paycheck and automatic bill payment set up. But there are some good reasons to move your money or to add an additional financial provider. Fortunately, there are more and better options than ever, thanks to an explosion of new bank-like services offered by fintech startups.
The #1 Reason To Switch: High Fees
According to an April 2019 study by Javelin Strategy & Research, a financial services analytic firm, the number one reason why people switch banks is dissatisfaction with bank fees.
It’s now more expensive than ever to access your own money. According to a recent Bankrate study, the average fee to withdraw money from an out-of-network ATM has hit a record high of $4.72, up 33% over the past decade.Today In: Money
Meanwhile, those who struggle to make ends meet are hit particularly hard by bank fees. In 2017, consumers paid $34 billion in overdraft fees. According to Bankrate, the average overdraft fee is now $33.36.
A recent analysis of customer data by mobile investing app STASH found that women, with their lower average earnings, end up paying 18% more each year in banking fees—a result of ending up with five overdrafts a year, compared to four for men.
PROMOTED
There’s another way, too, bank fees hit hardest those least able to afford them. According to MyBankTracker.com, the biggest banks require at least $1,500 in a basic checking account to waive their monthly maintenance fee, which average $10.99. (See The Best Checking Accounts for options that don’t require a high minimum.)
The #2 Reason To Switch: To Earn Higher Rates
The second-highest driver for switching banks, according to the Javelin study, is customers’ desire to earn interest higher rates on their savings and money market accounts and certificates of deposit. Nearly one-fifth (19%) of respondents cited this as a push factor.
The average bank savings account currently pays just 0.9% a year, while the average bank money market account pays 0.16, according to the FDIC. Fortunately, new competitors are driving up rates. A long list of fintech companies, including SoFi, Betterment, Personal Capital, Wealthfront and Aspiration, are offering cash management accounts that pay interest rates as high as 2% of more. (See: The Best Cash Management Accounts Of 2019.)
Here, instead of switching banks completely, you might want to add a financial service provider to take advantage of a higher rate cash management account. In fact, having an savings or cash management account at a second place, provided that account is linked to a debit card, is a good way to protect yourself should your primary provider have an outage. (See Four Things To Do To Survive A Bank Outage–Like Chime’s.)
If you’re looking for the The Best One And Five Year CD Rates, however, you’ll find them from a mix of traditional and online only banks.
The #3 Reason To Switch: Better Online Service And Apps
Consumers also have a growing attachment to online banking. The Javelin study found 13% of respondents cited the desire for better online banking capabilities to be a major push factor from their current bank. Conversely, 55% of respondents say it’s the factor that motivates them the most to stay with a bank. Mark Schwanhausser, director of digital banking at Javelin, explains why taking banking online is so important to consumers.
“Consumers feel like they’re more likely to find what they need online — they’re more likely to get the customer service, have a greater sense of confidence — they end up with a greater sense of satisfaction with online banking,” Schwanhausser says.
What to Consider When Choosing a New Bank
Consumers are faced with many options when it comes to picking a new financial institution. With all of the bells and whistles being offered, it can be overwhelming to navigate all of the options available, to say nothing of the sign-up incentives.
Sure, when you’re picking a new credit card, it may make sense to go for one with a great sign-up bonus. After all, you probably carry several cards. But when you’re switching banks, don’t get too attached to temporary introductory offerings. Instead, keep these basics in mind:
Pricing
Bill Clancy, VP of deposit banking at Northpointe Bank, says pricing is one of the most important things consumers should consider when selecting a new financial institution. Ya think? Before opening a new checking account, consumers should consider the following:
- Monthly maintenance fees: Most banks will charge a monthly service or maintenance fee to keep your account open. While the monthly fee might sound small (what’s $10?) it adds up over time. Anyway, there are ways to avoid paying a monthly fee.
- Minimum balance requirements: Minimum balance requirements are often used, particularly by traditional banks, as a way for customers to avoid monthly maintenance fees. A Chase Total Checking Account, for example, will waive a monthly maintenance fee if customers have $500 or more in monthly direct deposits, a $1,500 minimum daily balance or keep at least $5,000 across all of their Chase accounts. Each bank’s requirements are different, so be sure to read the fine print—and take note of if you’ll be able to meet the requirements or have to pay the fee. Hint: if your paycheck is directly deposited in a bank like Chase, that alone, should be enough.
- Overdraft fees: For those who find themselves regularly overdrafting their checking account, taking note of this fee—-and also how a bank applies overdraft fees—is essential. Customers can opt out of overdraft protection, which means, for example, your debit card will be declined if there are not sufficient funds in your checking account to cover a purchase, but you won’t have to worry about incurring a $34 overdraft fee to buy a $3 coffee.
- ATM fees: Take note of how many ATMs a bank has (or how many are in the network it gives you access to) and what the fee policy is if you need to take money from an ATM maintained by another bank or network. In such a case, you could end up paying fees to both your own bank and the bank that owns the out-of-network ATM.
This ATM check is particularly important if you’re using a fintech or a nontraditional bank without its own network. USAA, for example,gives you free-free access to 60,000 partner ATMs, and then refunds up to $15 in ATM fees per month imposed by other, out-of-network banks.
Fintech Chime gives you free access to a network of 38,000 MoneyPass ATMs, but charges $2.50 per transaction if you use an out-of-network ATM. And that’s in addition to the other bank’s charge. (Chime argues its network contains more ATMs than big banks offer.)
You may also want to factor in savings rates when picking a bank. But remember, you can keep your checking account one place, and move savings elsewhere. In fact, there’s even a service—Max My Interest—that will chase rates for you.
Technology
Prospective bank customers should take good note of the bank’s technology. Does it have an app? What’s the online banking experience like? What are the safeguards and protections against fraud? Can you deposit a check by scanning it in on an app?
Research shows the most important factors for customer satisfaction in online banking include efficient and reliable service, security, responsiveness and how easy it is to navigate the website. If you’re considering a bank, poke around its website first.
No, ou won’t be able to navigate into the actual online banking portal, but you will get a good feel for the user experience. Also pay close attention to the contact options. Some banks with the highest customer satisfaction, like USAA, now have online chat capabilities that will direct you with a customer service representative without ever having to pick up the phone.
Online banking is the biggest pull factor for customers considering a new bank—and the biggest reason why they’ll stay with one. Know ahead of time if the bank suits your technological needs, especially if you live in a rural area where branches might be few and far between.
Customer Service
Javelin’s research shows that 41% of consumers cite “superior customer service” as one of the most important aspects for their prospective primary bank or credit union. But how can you know which bank is going to give you a truly good experience, and value as a customer? Clancy says this is where utilizing your network can be of benefit.
“Friend and family referrals have always carried significant weight for consumers,” Clancy says. “This is especially true for younger consumers who look to parents and older siblings for advice knowing those individuals have gained wisdom through experience.”
How to Switch BanksSome consumers may be hesitant to switch banks because of the inconvenience. Now that financial technology has developed, however, switching to a new financial institution is much easier than it was in the past.
You can switch banks in these three easy steps:
1. Pick a bank
After taking price, technology and customer service into mind, it’s time to settle on a bank. Once you have, you can usually sign up for a checking account online; if you’re more old school, banks with brick and mortar locations will be happy to walk you through the enrollment process in person.
2. Call your current bank and have them transfer funds and close the accounts
Once you’ve opened a new account, it’s time to call you old bank and have it transfer the funds to your new ones; this can also be done online. One important thing to keep in mind, though, is that you must close out the old accounts after transferring the funds. Remember the monthly maintenance and minimum balance fees we discussed? If you don’t close out the accounts, you might be subject to them—and will end up being charged each month for the empty accounts. Always close the accounts out after transferring funds.
3. Set up your automatic payments
Don’t forget to transfer over any automatic payments you might have had enrolled in your old bank accounts. Though the thought may seem time consuming, you’ll thank yourself later when your bills are still paid on time. Follow me on Twitter. Send me a secure tip.