Closing your bank account may seem simple at first glance. However, there are a number of steps to follow and actions to take to close your account properly. Following the correct process will help you avoid unnecessary charges, fees and complications. We’ll walk you through the process from beginning to end and provide tips of what to look out for along the way.
1. Open a New Account
Your first step starts not with the account you want to close but rather with your new account. You’ll need to open your new account first so you have somewhere to transfer your payments and funds later on.
Perhaps you’re closing your bank account because you’re moving to a new area. But if you’re closing the account because you’re unhappy with it or the bank itself, you’re going to want your new account to fit just right. A good place to start is simply by checking out the best checking accounts. That way, you know you’re starting your search with the best the industry can offer. If the account you want to close charged too much in fees, be sure to look for a free checking account to avoid any further fee hassle. Really, there are a ton of options out there to choose from. So you don’t have to be stuck with an account you don’t like.
Once you’ve found your new bank account, check whether the bank offers a “switch kit.” A bank’s “switch kit” includes checklists and forms to instruct depositors and billers about the change in your accounts. These can help make the switching process more convenient.
2. Update Automatic and Recurring Payments
Before you actually close your account for good, you need to tie up any loose ends. To start, take stock of all your automatic and recurring payments. This includes things like your music and television streaming services, your gym membership, student loan payments and more. It helps to look at your bank statements from the past year to get the best look at your spending habits.
Armed with your list of payments, you can begin cancelling them from your old account and setting them up with your new account. Be sure to take note of when each next payment will be, though. For one, this will prevent potentially paying twice for a service from each account. It will also ensure you don’t overdraft one account to make the payment. On one hand, the payment might draw on your underfunded new account. On the other hand, the payment could draw on your old account after you’ve emptied it.
RELATED: Check out these pieces of money advice you should never ignore:
13 pieces of money advice you can't afford to ignore
13 pieces of money advice you can't afford to ignore
1. Pay yourself first
"People still don't grasp the fact that they need to save a dime out of every dollar," author and self-made millionaire David Bach told Business Insider in a Facebook Live interview. He said the average American who's saving money is saving just 15 minutes a day of their income, when they should be saving an hour.
Bach noted troubling research from the Federal Reserve that revealed nearly half of Americans wouldn't have enough money on hand to cover a $400 emergency. Yet, he continued, millions of those people will buy a coffee at Starbucks today and expect to buy the new $800 iPhone next year. Americans have money, he says, but we aren't saving it.
So get on the "pay-yourself-first plan," as Bach calls it, and automatically save an hour a day of your income. "When that money is moved before you can touch it, that's how real wealth is built," he said.
2. Beware of lifestyle creep
There's a lot of pressure in your 20s and 30s to keep up with your friends. Maybe they're buying a nicer car or a house, but if you're not in the financial position to keep up, don't try.
"I always refer to it as 'lifestyle creep' because one of the big things that people can do — that's an advantage to them — is keep their fixed expenses somewhat stable and reasonable for what they make," Katie Brewer, a Dallas-based certified financial planner who founded Your Richest Life, told Business Insider.
Planning for your recurring costs — like mortgage, rent, a car payment, and insurance — ensures that expenses won't creep up on you and derail your financial future. Of course, Brewer said, if you're making good money you should have the freedom to spend it how you wish, as long as your lifestyle doesn't overtake your income.
In short: Live below your means.
3. Take advantage of an employer-sponsored 401(k)
Putting money into a retirement plan as early as you can, no matter the amount, is a smart and easy way to pay yourself first.
If your company offers a 401(k) plan, take advantage of it. In some cases, employers will offer a contribution match. "That means the company contributes a set amount — say, 50 cents for a dollar — for every dollar you contribute up to a specified percentage of your salary," Beth Kobliner writes in her book "Get a Financial Life: Personal Finance In Your Twenties and Thirties."
"That's free money, equivalent to a 50% or 100% return. There's nowhere you can beat this!" she writes.
Plus, 401(k)s allow you to contribute your pre-tax money, meaning the more you contribute now, the greater the growth (thanks, compound interest) and the more money you'll have down the road, though you will be taxed when you withdraw the money for retirement. For 2017, the maximum contribution to a 401(k) is $18,000.
4. Invest in the stock market, just don't try to time it
"No one can time the market, so know that if there is a decline, it's going to bounce back. Over time, being in the market pays off more so than staying out of it," Michael Solari, a certified financial planner with Solari Financial Planning, told Business Insider.
Sometimes known as "set it and forget it" investments, these diversified funds automatically adjust their asset allocation and risk exposure based on your age and retirement horizon. Early on, when the need for that money is still a couple decades away, the fund will adopt a more growth-focused strategy. As you ripen toward retirement, it dials back the risk.
You may not get the average annual return of 11% in your target date fund — given you'll be invested in a blend of stocks, bonds, and alternative assets — but if you get even 6% per year, an original $10,000 investment will be worth more than $32,000 in 20 years without you having to do a single thing. Compare that with $12,200 in your high-yield savings account or $10,020.20 in your traditional savings account.
kid put coin to piggy bank on the vintage wood background, a saving money for future education concept and copy space for input text.
5. Build an emergency fund
Let's face it: It's really not a matter of if you'll need to fork over cash for a car or home repair, child expense, or medical emergency, but a matter of when.
"No matter how well you plan or how positively you think, there are always things out of your control that can go wrong," Bach writes in his bestseller "The Automatic Millionaire."
"People lose their jobs, their health, their spouses. The economy can go sour, the stock market can drop, businesses can go bankrupt. Circumstances change. If there's anything you can count on, it's that life is filled with unexpected changes," he wrote.
Most financial planners suggest stockpiling anywhere from three to nine months worth of expenses in an emergency fund that you can turn to when in need. If you don't have savings at the ready, you run the risk of having to rely on family or friends for help, or worse, falling into debt.
6. Pay off your credit card balance in full every month
Sometimes a credit card can feel like free money, until you're slapped with the bill. Even then, most credit cards only require you to pay 1% to 3% of your balance each month, which can be an alluring prospect if your budget is tight. But consistently paying the minimum could cost you a fortune in the long run, damage your credit score, and affect your ability to qualify for a mortgage.
Not only did she swipe her credit card with no reservations and adopt the bad habit of paying just the minimum amount — Torabi said she once forgot to pay the bill all together.
She remembered incurring a late fee that showed up on her credit report and gave her a true "wake-up call." The incident happened before she "realized the power of automating" her bills, a practice that can save you money on late fees and relinquish you from remembering due dates and the embarrassment of missing a payment.
Though you're "never going to kill your financial future" by accumulating money, Brewer says, "you're losing out on opportunity costs by having money sitting around ... especially if it's sitting in an account making barely anything in interest."
If you're risk-averse, one way to manage savings overflow is to move your money into a high-yield savings account, where you could be earning 1% interest on your money, rather than the 0.01% earned in a traditional savings account. Or, as previously mentioned, stick it in a low-cost target date fund and see your returns balloon over time, with little to no work required.
8. Have more than one credit card
It may seem financially reckless to have a wallet full of credit cards, but it's actually smart. According to John Ulzheimer, credit expert at CreditSesame.com, having a single credit card can damage your credit score, thanks to something called your credit utilization ratio — that is, how much of your available credit you're actually using.
"That percentage is very, very influential in your credit score," explains Ulzheimer. "People say that you're in good shape if you keep your utilization within 50% of your available credit, or 30%, but really, it should be below 10%."
Available credit counts all the cards you have: If you have one card with an $8,000 limit and one with a $6,000 limit, your total available credit is $14,000, even if you only spend $1,000 a month. With a single card, you have no unused credit cushioning the impact of your spending. The closer you get to your limit, the harder the hit on your credit score.
"Say you have $5,000 of credit card debt at an 18% interest rate. Say you happen upon $5,000 of money. If you take some of the advice out there, and split the use of that $5,000 (half to establish an emergency fund, half to pay down credit card debt), you still have $2,500 of credit card debt and $2,500 of money sitting in cash.
"The $2,500 of credit card debt at an 18% interest rate costs you $450 a year. The emergency fund earns almost nothing in interest. So you're out $450."
Bottom line: You'll save more paying off the debt than you'd earn if you invested it, whether in a high-yield savings account or the stock market.
10. Always be insured
Every American citizen is required to have health insurance, or be fined hundreds of dollars by the IRS each year. Kobliner advises signing up for insurance should be "your No. 1 financial priority" because it'll protect you from unforeseen accidents or illness, and prevent yourself or your family from going bankrupt in the case of an emergency.
If your employer offers health insurance, take it, Kobliner says. It's almost always cheaper than buying a policy on your own (but keep in mind that you can be covered by your parent's insurance until age 26). Before signing up, though, make sure you understand the cost and extent of the plan, including your deductible, or how much you'll be paying out-of-pocket before insurance takes over.
If you do end up needing to purchase a policy on your own, head over to healthcare.gov to compare plans and pricing.
11. Track your spending
Business Insider's Libby Kane has written, edited, and read hundreds, maybe thousands, of stories about money during her career, and says she's learned that "the best, most critical first step you can take to improve your finances is to track your spending."
Keeping tabs on where your money is going, whether fixed expenses like rent or mortgage payments and transportation costs or discretionary spending like dining out and travel, is a crucial part of mastering your money.
"Whether you owe money to the tax man at the end of the year or not, it's always a smart move to file your taxes," Kobliner advises.
And be aware that you can save money on taxes by taking advantage of deductions, or the specific expenses you're allowed to take out of your income before calculating your owed taxes. The standard deduction — $6,300 for singles and $12,600 for couples — is a good place to start, Kobliner says.
You can also itemize deductions to maximize your savings by listing specific deductions, including expenses for housing costs like mortgage interest or property taxes, and charitable donations, or making use of tax credits.
And if you don't file your taxes? You could pay a penalty fee of at least $135, plus interest on the money you owe, and lose ground on your credit report, among a host of other financial consequences.
13. Be patient
When bestselling author and motivational speaker Tony Robbins asked billionaire Warren Buffett a few years ago, "What made you the wealthiest man in the world?" Buffett replied, "Three things: Living in America for the great opportunities, having good genes so I lived a long time, and compound interest."
"The biggest thing about making money is time," the investor, who's now worth more than $76 billion, said in a recent HBO documentary about his life. "You don't have to be particularly smart, you just have to be patient."
In his latest letter to Berkshire Hathaway shareholders, Buffett announced that he was on his way to winning a $1 million bet he made in 2007 that his investment in an S&P 500 index fund would outperform five hedge funds over a decade.
Discover More Like This
BACK TO SLIDE
3. Switch Your Direct Deposits
Just as you want to look at where your money is going, don’t forget about where your money is coming from. Head to your company’s payroll department to update your direct deposit settings to reflect the change in account. You’ll need to provide your new bank account’s routing and account numbers. This may take some time to take effect so be sure to monitor both accounts to make sure the changes go through correctly.
This also applies to any investment or brokerage accounts and any other sources of income you might have. You’ll have to change your account information in those accounts to make sure you receive your payouts.
4. Transfer Funds to Your New Account
Once you’ve updated your payments and deposits, you can transfer funds to your new account. Check whether there are any transfer limits since you may not be able to transfer your whole balance over all at once. In that case, you’ll have to transfer your balance over a bit at a time. Also, if your account has a minimum balance requirement, don’t forget to keep that amount in there, too.
Remember all those payments you listed and updated? Don’t forget to leave enough money in the account to cover any remaining payments. It might also help to leave some extra money in there in the event other unexpected payments crop up. Otherwise, you could face overdraft fees.
5. Close the Account
Now it’s finally time to close your account. This may take weeks or months to complete, depending on how long it takes for payments to settle and migrate to the new account. It’s important to make sure all your automatic payments are taken care of at this point. You don’t want to end up with a “zombie” account which is what happens when a bank has to reopen your account to make a forgotten automatic payment.
There are typically a few ways you can close your account. You can head to the nearest branch to close it with a bank representative. This might be the most straightforward, since you can ask any questions you might have.
If going to a physical location isn’t your thing, you can also close your account online. Each bank’s exact processes will differ. Typically, you’ll need to contact customer service through your secure messaging system to request your account closure. Other banks may require you to call customer service or mail in a form to properly close the account.
6. Get Confirmation in Writing
No matter which way you close your account, you’ll want to obtain written confirmation from your bank that you closed your account. This will help you build up your financial records for future reference. It can also come in handy as proof of closure if your old bank resurrects your old account to make future payments at any time.
7. The Final Touches
To move on from your old account completely, it’s important to destroy your corresponding checks and debit card. This will prevent you from accidentally using them and from facing fraudulent use.
Even though your account is now closed, don’t forget to save your bank statements. You’ll need them for your records and potentially for taxes purposes.
Tips on Finding the Right Bank Account
Are you ready to close your bank account but don’t have your next account lined up just yet? Not to worry, since you have a ton of options available. Perhaps you’re ready to move on from your old college checking account. You can take a look at the interest-earning checking accounts out there to make keeping your money in an account a little more worthwhile. On the other hand, if you see a potential overdraft in your future, find an account with low overdraft fees.
Not exactly sure what you need from your next bank? Maybe a financial advisor could help you get a better idea. The right advisor can look at your finances more comprehensively and determine whether you could be paying less in fees or saving at higher rates. Luckily, finding the right advisor in your area is as easy as using our advisor matching tool. We can connect you to qualified advisors quickly to get you started.