One Money Design

Fresh off Tuesday’s post on how to evaluate your next bank, I thought I would continue the discussion with how to switch to a new bank account.  Money magazine outlined their recommended steps this month and the more I thought about the subject, I realized there might be a lot of people that accidentally get into overdraft situations because they move their funds too quickly.  Obviously, there really isn’t much concern when you’re opening a new savings account, but switching a checking account is more challenging because of the volume of withdrawal transactions.

Open your new checking account and fund it

Before doing anything with your current account, you’ll want to open up your new account and fund it.  I suggest transferring a small amount first to get the account set up.

When you’re ready to move all your funds over to the new account, be careful not to withdraw too much from your current checking account.  This could put you in an overdraft situation.  So, here is how I specifically recommend avoid this problem:

1. If you’re keeping track of spending in the current account look at your checkbook register or your personal finance software.  It’s wherever you enter your transactions after they occur. 
2. Log into your current checking account online and write down the balance.  If the balance is the same as what you have in your register there should not be any more transactions yet to clear your current account (assuming you’ve recording all your spending).
3. If you do have different balances, you need to look at what makes up the difference.  Your register should have every transaction.  You know the transactions in your register will eventually show up in your current checking account, so you’ll not want to transfer to the new account more than what will be required to cover them.

I’m conservative when it comes to these things as I want to make sure I don’t make a mistake.  So rather than leaving just enough to cover any outstanding transactions, I would recommend keeping some extra funds in the account just until everything clears.  How much?  It’s up to you.  Just decide what amount is going to keep you in the safe zone.

Once you’ve transferred your funds (again leaving more than enough to cover outstanding transactions) over to the new account, you’re able to start using it while comfortably waiting to clear all transactions from your old account.  But, there are still a few more steps to take care of before you’re done.

Change direct deposits

You’ll want to make sure your deposits now go to your new checking account, so contact your HR department to complete the appropriate paperwork to make the change.  Other changes, as Money suggests, may include investment income, pension and Social Security payments.

Change automatic payments

If you’ve set up automatic bill payments or have funds automatically withdrawn from your account at a certain time each month, you’ll want to change them over to your new account.  Hopefully, you can make most of these changes online these days, but if you can’t, I recommend calling the company once you have enough funds in your new account to cover any payments. 

Allow yourself plenty of lead time on making such changes.  Money recommends two weeks of lead time before a bill is due.  I tend to agree with this conservative advice.  Again, if you’re not careful, you could put yourself in an overdraft situation.

Transfer remaining funds and close account

Once all transactions have cleared your old account, automatic payments have been changed and deposits are going to the new account, you can now close your old account.

While none of this is rocket science it can result in a mistake if you’re not careful.  The main thing to keep in mind is to stay organized.  Don’t move to quickly leaving your account empty when transactions haven’t cleared or automatic payments are soon to be withdrawn.  If you want to be extra safe, you can always leave both accounts open for a while and keep some funds in your old account until you’re certain everything has cleared.

Do you have any tips for switching to a new bank account you can share with others? 

Related Posts:

• How to Evaluate Your Next Bank