When it comes to changing bank accounts, inertia seems to set in. According to SoFi research from February 2021, a third of 1,600 respondents said they feel no benefit to switching their bank or financial institution. Another 20% said they feel loyal to their current bank.
But is it wise to sit tight with your current banking situation? Big banks may count on you to do so. They know that once you start a relationship with them, it’s hard to change. Maybe you’ve signed up for direct deposit or you’ve had your account since college. You may like that there’s a bricks-and-mortar branch near you and are reluctant to switch to online banking. Or maybe you have an online bank and figure they’re all about the same.
Whatever the case, now may be the time to rethink your banking relationship. Rising interest rates have encouraged some banks to offer more attractive rates as well as plenty of features and services with low or no fees.
Take a look at these five reasons why you may benefit from switching banks.
Smart Reasons to Switch to a New Bank
1: Higher Rates
The Federal Reserve has raised the federal funds rate — a key borrowing benchmark — several times this year and is expected to continue to do so. Some, but not all, banks have increased the annual percentage yield (APY) they pay on their savings and checking accounts. That means some banks out there, usually online banks, are offering rates closer to 2% or possibly more after years of near zero interest rates. An increase like that can add up over time and boost your savings.
It’s important to remember that your bank won’t automatically raise rates in line with the Fed. Some banks find that an increase doesn’t fit with their business plan. Or they may figure they won’t lose many customers if they don’t offer an increase.
Online banks, with lower overhead costs and more incentive to attract new customers, often offer much higher rates than traditional banks. It makes sense to check what APY vs. interest rate you’re currently earning on your bank account and see how that compares with other banks. That’s a tip for both checking accounts and savings accounts; there’s no reason not to earn top dollar.
Recommended: All About Interest Rates and How They Work
2: Low or No Fees
You may also want to make sure any extra interest you’re earning isn’t eaten up by fees. In fact, avoiding the usual fees can be a good reason to switch banks. Minimum balance fees, maintenance fees, paper statement fees, savings withdrawal fees, out-of-network ATM fees, and overdraft and NSF fees (that last one is for non-sufficient funds) can add up over time and take a chunk of your savings.
Fees you pay will depend on the way you bank. People who have a high monthly balance or who link their checking and savings accounts may never incur fees. Or, if your bank offers a wide network of ATMs in your area, out-of-network ATM fees will hardly ever apply. That said, many institutions, particularly online banks, offer no-fee banking with competitive APYs, so you can avoid paying any account fees at all. This can be a wise move if you are being charged costly banking fees.
3: Better Online and Mobile Banking
When it comes to how to manage a bank account, consumers want it to be fast and simple. Many have gotten accustomed to 24/7 banking. It used to be that online banks offered the most advanced electronic services. To compete, many bricks-and-mortar banks have improved their websites and mobile apps. But whether it’s an online or traditional bank, not all portals are the best they can be.
Make sure the banks you’re considering offer a secure, easy-to-use, state-of-the-art platform. Can you pay bills, scan mobile deposits, check your real-time balance, change your password, report possible fraud, and complete other functions at any time and almost anywhere you have a secure connection? Is there a chat or phone function available to get help if you need it? If possible, talk to other customers to see if they’ve experienced any glitches or compromised security.
If you are lacking the convenience of online and mobile banking, you may want to rethink where you bank for these reasons. There are many pros to online and mobile banking, and you should be enjoying them.
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4: More Banking Features
Many banks offer lots of extras when you open a new account or agree to maintain a certain minimum deposit. Waiving fees is common. So is a monthly reimbursement for out-of-network ATM fees. Some banks may offer a limited amount of no-fee overdraft protection coverage.
Also available: Connected checking and savings accounts with combined interest, discounts on personal loans from the same institution and budgeting tools included in the banking app. In addition, many banks offer incentives for setting up direct deposit and early pay options that offer faster access to your paycheck.
Once you’ve created a list of banks with favorable APYs, compare the various features each bank offers to help determine which is the best fit for your needs.
Recommended: Checking vs. Savings Accounts: Which is Better for You?
5: Sign-Up Incentives
How to switch banks isn’t necessarily complicated, but it’s probably not a good idea to do so solely because of a temporary sign-up promotion. If the fees are high or the bank lacks other features you need, you may find no bonus or other incentive is worth the trouble.
That said, if you’re shopping for a new bank, whether it’s a small or a large bank, and all other things are equal, it may make a lot of sense to take advantage of special promotions. Who wouldn’t want some extra cash or a higher interest rate?
Recommended: 8 Ways to Make Your Money Work for You
The Takeaway
How to switch banks does entail some time and paperwork. It’s easy to understand why consumers often avoid this task. But additional banking features, low or no fees, and a higher interest rate are some of the reasons why making the switch can make sense. Choosing a bank that’s a better fit can help improve your overall financial picture.
If the signs are pointing you in a new direction, you might consider trying SoFi Checking and Savings. Open an online bank account with direct deposit, and you’ll enjoy a competitive APY, no fees, and the Allpoint network of 55,000+ fee-free ATMs. What’s more, there’s the convenience of spending and saving in one simple place, plus SoFi recently announced that deposits may be insured up to $2 million through participation in the SoFi Insured Deposit Program1.
Photo credit: iStock/NicolasMcComber
1SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by banks in the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at SoFi.com/banking/fdic/terms. See list of participating banks at SoFi.com/banking/fdic/receivingbanks.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi members with direct deposit can earn up to 4.20% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 4/25/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
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