Once you find a bank account you like, you rarely switch to another. In fact, the average person keeps the same account for 17 years, Bankrate found.
What causes this long-term loyalty? One reason is that switching bank accounts, especially checking accounts, can be a complicated process. You must update direct deposits and change every automatic bill payment you make. As a result, many people prefer not to go through the hassle of switching.
But is this loyalty costing you opportunities to earn better returns? This is where the trend of “soft switching” comes in.
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Soft switching means trying out a new bank while keeping your current one, with the option to close the old account later. This is something I know well because I actually did, but before you rush to it or write it off, you should understand the benefits of soft switching and what to consider before making the change.
How I used soft switching to reach my goals
I was a big-bank customer for over a decade. But as I was building up my savings, I found their interest offerings to be less than adequate. I was only earning a fraction of interest on my account holdings, so I explored the best high-yield savings accounts offered by online banks, which provided substantially higher annual percentage yields (APYs).
Instead of closing my big-bank accounts and transferring all my money to SoFi, the bank I wanted to try out, I opened a high-yield savings account with SoFi and left my old accounts open. From there, I set up automatic transfers from my old checking account to my SoFi savings every time a direct deposit was made.
The result? I was earning hundreds of dollars more annually with my SoFi high-yield savings account. And after months of higher returns, I decided to open a checking account with SoFi as well, since it made accessing cash in my HYSA easier, and their checking account came with a 0.50% APY. From there, I closed my old big-bank accounts, completing the switch.
Why do people switch bank accounts?
If you’re trying to make your money work better for you, then switching bank accounts can be the smarter move in some instances. Say you have $10,000 in savings with your local bank, earning 0.02%. In the course of a year, you’ll earn $2 on that account.
That’s not optimal. Instead, if you take that $10,000 and open a high-yield savings account with Newtek Bank, you’ll receive an APY of 4.35%. Over the course of a year, you’ll earn $444.57, giving you an extra $442.57 just for switching bank accounts.
Higher rates are not the only reason people switch. Here are others:
- You’ve had bad experiences with your bank (high fees, poor customer service)
- You want access to better features (improved mobile app capabilities, responsive customer service)
- Avoiding fees, as some local banks offer accounts laden with them
- You want to take advantage of savings account bonuses
- You moved to a new city and don’t want to use your old bank account
- Access to other accounts (CDs, money market accounts) with better returns
Reasons switching banks might not be a wise move
Switching may not work in certain scenarios. If you rely on a local branch to assist you with banking, then going to an online bank takes away that in-person help. For some, having that help is necessary to keep finances in line.
Another reason is that “soft switching” bank accounts requires considerable attention to detail. Until you make a full switch, you will continue to manage multiple accounts from different banks, which can be overwhelming.
Therefore, only take this on if you feel comfortable managing everything. And if you need assistance in this area, the best budgeting apps make it easier to manage your finances, especially if you have accounts at multiple banks.
A checklist for soft switching bank accounts
(Image credit: Getty Images)
If you’re interested in trying it out, here are some things you should do to make the process smoother:
- Do your research first: Ensure your new bank has an excellent reputation, offers accounts that meet your financial needs and verify that accounts with sign-up bonuses don’t come with higher fees.
- Make gradual shifts: When I started, I only opened a HYSA with SoFi and set up automatic transfers from my Chase checking account to fund and build it up over time. This gave me time to test out SoFi’s banking features, customer service and more to ensure it was a good fit for me.
- Create a list of automatic payments/deposits: This made switching my checking account more manageable because it gave me time to update everything when I wanted to. I did this gradually over a few months to ensure I didn’t miss any automatic payments before closing my older account. It also made the process much less stressful.
- Continue to shop around: I recommend shopping your savings account at least once per year. Doing this allowed me to find a better solution than my SoFi HYSA, which helped me reach some savings goals faster. You can use this Bankrate tool to find options fast:
The bottom line on soft switching bank accounts
The average person keeps their checking account for 17 years. Does that inertia cost you in the long run? It could, as many online banks offer substantially higher rates of return on savings accounts compared to their brick-and-mortar counterparts. This is where soft switching comes into play, as it allows you to try new bank accounts while maintaining your primary one.
The key is to take your time, research ample options to ensure you find the right one and make the switch gradually. Doing this makes the process less stressful and ensures you don’t miss payments during the switch, while giving you access to the returns and features you deserve.
