A Beginner's Guide to Closing a Bank Account

It is rare, but sometimes we close a bank account due to changing bank needs, or you might be moving to a new town or seeking better interest rates elsewhere. So, what is the process to close a bank account? Closing a bank account is a straightforward process where you need to follow specific steps to ensure the closure is handled correctly and all your funds are accounted for. 

How to Close a Bank Account Completely? 

Closing a bank account may vary by Bank. However, it is good to prepare yourself to ensure a smooth transition. You can close a bank account by simply visiting a bank branch, submitting a written cancellation request or calling customer service. 

Key Highlights

• There are many reasons to close a bank account, like getting a better interest rate, avoiding fees, or moving somewhere else.
• Before closing a bank account, settle unpaid balances,  update your direct deposits and bill payments, transfer cash and close the account.
• Many banks offer the flexibility to close an account online. This feature is especially available among online banks.

Steps to close a bank account

1. Open a new account

Select a bank where you get an account for free, which means you are not charged any monthly fees for not maintaining a minimum balance, you get easy access to funds. You are provided with the ability to transfer money online. You receive competitive interest rates and other benefits. Look for a bank where you get better customer service than the previous one.

2. Switch your scheduled payments to deposits

Transfer any direct deposit or automatic payment to your new account. Coordinate with your employer to reroute your paycheck through direct deposit. Also, list your recurring payments, including loans, insurance, credit card subscriptions, and utilities. This will help you set up payments with your new Bank.

3. Transfer your money

Clear all your outstanding transactions in your old account to avoid overdraft fees. If there is any minimum balance requirement, transfer the remaining funds to your new account only when you can close the old one. This will help you prevent monthly maintenance fees.

4. Contact your Bank

Inform your Bank that you want to close the account. Follow the process specified by your Bank, which may include online submission, a phone call to customer service or an in-person visit. Some institutions may even require the completion of an account closure request form. Before closing the account, ensure all your outstanding issues are resolved if there are any remaining fund inquiries about the options for transferring them to your new account.

5. Send a letter to your Bank.

Some banks ask for a formal letter to close an account. The letter includes 

•  Date
•  Account name and number of each closure request
•  For any remaining funds to be sent to your new address
•  Request for return confirmation of account closure
•  Contact information
•  Get written confirmation

After you initiate the closure process,  get the written confirmation from the Bank. It will serve as a document in case of any issues or discrepancies.

Can You Close a Bank Account Online?

Many banks provide the option to close an account online. All online banks especially have this feature. Some banks even facilitate account closure through online messaging or email, while others offer chat features and assistance via customer support.

Does It Cost money to Close a Bank Account? 

It doesn't cause fees or charges if you want to close a checking, savings, or money market account. However, it is important to note that time deposit accounts, like certificates of deposits, may incur penalties if you want to close a bank account.

For certificates of deposits, many banks impose an early withdrawal penalty if the account is closed before its majority date. This penalty prevents the account holders from closing the account and keeping their funds in the certificate of deposits for the agreed-upon terms. The penalty associated with the certificate of deposit may vary and is specified in the terms and conditions of the CD agreement.

If you want to close a time deposit account like CD, reviewing the terms and policies is advisable. This will help you incur any further fees or charges regarding the closure of your account.

How much time will it take to close a bank account? 

Closing a bank account is a straightforward process, and if you take care of the key steps, like transferring funds and outstanding transactions, it will reduce the time to close the bank account. If you have successfully withdrawn or transferred from another account, the actual closing process can be completed within a minute. Ensure you effectively manage the preliminary task to speed up the account closure process.

Things to Remember when closing a bank account

While closing a bank account, you must remember a few things to transition from your old Bank to your new Bank.

Redirect direct deposits

Before initiating the closure of your account, it is important to redirect your direct deposits to your new account. It means completing a new form provided by your payroll department to update the routing and account numbers. This process may take some time, so it is important to monitor your next paycheck to ensure it is deposited into the correct account. This will prevent you from any disruptions in your income flow during the transition.

Update your bill information

Automatic bill payment is a convenient way to make your bill payment; however, if you overlook updating your account information after switching banks, it will lead to more complications. When you close one Bank, open a new one, and fail to adjust your account details for automatic bill payment, your previous Bank could reject the transactions.

Wait for deposits and credits to clear 

Before you close your account, waiting for any pending deposits and credits to clear is important. If any transactions are pending or still in progress, it is important to ensure they have been successfully cleared before initiating the account closure. If you forget to consider pending transactions, it may incur an overdraft or insufficient fund fees.

Unlink your accounts

If your checking account is linked to a retirement, savings, or investment account, it is essential to unlink these accounts. Remove the information associated with the old checking account and replace it with the details of a new account. It is especially important to have automated investments or regularly receive dividends in your bank account.

Get written confirmation

It is crucial to obtain a written confirmation from the Bank stating that the account is officially closed. It will serve as a record providing documentation assurance that the closure process has been completed.

Final Words

There might be several reasons for you to close your account and switch to another one. You may be receiving a better interest rate than the previous one or shifting from one place to another. Despite this, the main thing is to effectively evaluate the process of closing your bank account to ensure a smooth transition from one account to another and avoid any fees or charges. 

FAQs

Does closing a bank account hurt my credit?

Bank accounts differ from credit card accounts and are not evaluated in your credit card report. Therefore, closing a bank account does not impact your credit score or credit history. Financial institutions report account closure to ChexSystem, which focuses on banking behavior and provides information to banks and Credit unions to help them assess the risk of opening new accounts for individuals. But it has no connection with your credit report or credit history.

Can I close my bank account and open a new one with the same Bank?

Yes, banks allow you to close one account and open another one.

How long do banks keep records of old accounts?

Banks are required to keep records of old checking and savings accounts for at least five years.

Read Also:

1. How to avoid ATM Fees

2. How to write a check

3. Are Online Banks Safe?