If you've recently moved to a new city, moved across town or simply want (or need) products and services not offered by your current bank, it may be time to swap out the old for the new. After all, few things last forever. While switching banks can have many benefits, several drawbacks must also be carefully thought out.
Pro: Earn Higher Interest
Not all banks or credit unions offer checking accounts that pay interest, but they typically offer savings accounts that do. The national average annual percentage yield (APY) on deposit accounts is 0.37% at the time of this writing, but some high-yield savings accounts pay over 4%. If your interest rate yields aren't reaching these levels, getting more for your money might be enough reason to switch banks.
Con: Researching Rates Can Be Time-Consuming
Not all banks offer high-yield savings accounts or interest-earning checking accounts, and it might take some time to find a bank that does and also meets your other needs.
The Federal Reserve increased interest rates seven times in 2022. So far, the Fed has raised interest rates twice in 2023, and more increases may be on the way. Researching the best interest rates and staying up to date with frequent changes can consume time you may not have. Staying put at your current bank can mean less time researching and more time meeting your financial goals.
Pro: Access New Digital Banking Tools and Features
In a 2021 survey by Mobiquity, 40% of respondents said they were likely to switch bank accounts to get better digital tools. Many millennials and Gen Z consumers do much of their banking online or via a mobile app and rarely visit a bank in person. Larger banks and online-only banks tend to have the greatest opportunity to offer the latest and greatest digital features, while smaller community banks and credit unions may fall behind. If you crave the online or mobile experience, this may be a top reason to switch banks.
Con: Forgetting to Change Direct Deposits and Withdrawals
It can be easy to forget direct deposits, withdrawals and automatic payments when switching banks. Let's say your home insurance is automatically taken out of your account semiannually or the IRS deposits your tax refund into your current savings account. If that's the case, you'll have to update your banking information so that your money is correctly withdrawn or deposited into your new account. In fact, you may have to temporarily fund both accounts with enough money to ensure you never miss a payment or withdraw too much.
Pro: Cash In on Incentives and Bonuses
Some banks and credit unions offer cash bonuses to attract new customers. Usually offered for a limited time to first-time customers only, you'll likely need to meet certain other requirements to qualify for the welcome bonus, such as by setting up direct deposit or making a minimum deposit into a savings account. Some welcome bonuses are also only available in some branch locations or through an online-only bank. Cash bonuses can be in the hundreds of dollars, making switching banks very appealing.
Con: Potentially Incur New or Higher Fees
Bank fees—overdraft charges, using out-of-network ATMs, inactivity fees, money transfers and more—can add up to significant amounts of money each year for bank customers. In fact, monthly maintenance fees alone can average nearly $14 per month, or about $168 per year, according to a survey by MoneyRates. Before switching banks, read the fine print to make sure the new account doesn't charge higher (or more) fees than your current bank or moving your money may cost you.
Pro: Improve Your Customer Service Experience
If you call your current bank to speak with a banking representative and wait on hold for an hour, you may find switching banks can ease your frustration and improve your customer service experience. This is especially true if you've been at the same bank for years and still have a negative experience each time you walk into the lobby or contact them by phone.
In other cases, maybe nearby branch locations have closed or branch hours have been reduced, making it difficult to get to the bank when you need to. There are dozens of banks, credit unions and online banks vying for your business that may be able to offer better customer service.
Con: You May Have to Build New Relationships
When you switch banks, you go back to stage one, and may need to build new relationships with employees at the new bank. It's not uncommon that stable relationships with bankers can have benefits, like loans processed in less time, for example. Relationship banking takes time, so starting over at a new financial institution may be a disadvantage if building bank relationships is important to you.
The Bottom Line
Switching banks can be an option if you're unhappy where you are and you want better rates, fewer fees or new digital features not currently offered at your existing bank or credit union. The most time-consuming steps of changing banks are choosing a new bank and switching all of your linked accounts. Thankfully, moving over to a new bank does not have a negative impact on your credit. Whether you choose to switch banks or not, take time to carefully consider all of your options so you make the best choices for your financial success.