When you first open a bank account, it is easy to assume you will stay with that bank or financial institution and make transactions with them forever. However, sometimes individual needs change, or a new account comes out that you want to take advantage of. You might have questions, like whether or not it is OK to open and close bank accounts regularly.
Opening and closing bank accounts isn’t a problem, but there are certain rules and exceptions to be aware of.
In general, it is best to open a few accounts and keep them open for long periods of time. Read on to find out more about different types of accounts, when they are used, and when it is OK to open and close an account.
Can Opening and Closing a Bank Account Hurt My Credit?
Depending on the type of bank account, opening and closing the account could hurt your credit score. It is important to keep in mind the different types of accounts and the effect it will have on your credit score if closed.
Keep Checking Accounts in the Positive Before You Close Your Account
Closing a standard checking account will not damage your credit score. Opening a checking account shouldn’t be a problem either. Many banks will not check your credit when you open a new bank account because they don’t care how good you are at paying back debt.
Instead, they care more about how you handle your bank accounts and the history of your transactions.
So, they look at something called your ChexSystems report. Each step in that process allows the bank to request to see any unpaid fees or charges. You can request to see your Chexsystems score at Chexsystems.com.
How long does ChexSystems stay on your record?
Chexsystems keeps records of closed accounts for a period of five years from the report date unless the source of the information requests its removal or ChexSystems becomes obligated to remove it under applicable law or policy.
Transfer Funds if Your Balance is Negative
If you do find your checking account in the negative when you want to close it, transfer money from a different account via an online transaction or deposit a check or payment to ensure the old account turns positive.
Information for Closing a Savings Account
In general, free saving accounts can be opened and closed quickly and easily, and the same rules apply to saving as checking accounts. Before the account is closed, be sure that the balance is positive or charges could apply.
Keep Credit Card Accounts Open Longer
Credit cards function differently than checking and saving accounts. Credit bureaus will view you as less trustworthy if you open and close a credit card frequently, and your credit score will be negatively impacted. Creditors use this information to determine how trustworthy you are.
It may be tempting to take advantage of new rewards programs, but the hit to your credit score can negate that benefit and drag your number down.
Fees that can Lead to a Negative Balance
It’s not something anyone plans on doing, but in the process of making payments and monitoring transactions, most people overdraft their checking account at some point in their lives. This means that your balance has fallen into the negatives. Banks may then assess a fee, usually of about $35.
Once you are in the red, you can no longer withdraw from the account until you deposit enough to make the balance positive. Some banks may also not allow you to close the account if there are any pending charges or until you are in the black.
Other Types of Fees
Some banks will charge a fee as high as $25 if you close your account too soon after opening. Protect yourself against fees by reading the fine print associated with the account to divert costly fees and bill payments.
How can you Stay Away from Overdraft Fees?
If you haven’t over-drafted your checking account on a regular basis but need help in an isolated case, you can always contact your bank and request to receive a free refund.
Of course, the better option is to keep enough money in the account to serve as a buffer against large transactions. You can also sign up for overdraft protection, which could help you avoid the need to pay a fee. Overdraft protection can temporarily transfer money into your account to ensure that you have the time you need to make the appropriate payment.
Why Would I Want to Open and Close Bank Accounts?
So, why would someone want to regularly open and close a bank account? Isn’t one savings account and one checking account enough? Often, there are promotions and rewards that new customers can take advantage of that their old bank doesn’t offer. Here are some examples.
Banks often offer signup bonuses to people that open new bank accounts. You can make hundreds or even thousands of dollars a year by opening and closing bank accounts to take advantage of these signup bonuses.
Rewards Information for a Checking Account and Debit Card
This Chase Checking Account offers a $200 sign-on bonus for new customers. However, you’ll need to be aware of the $12, which is waived if you keep the account balance above $1500 or have monthly recurring direct deposits of at least $500. This account also offers automatic bill pay to take care of your monthly expenses.
This Citi Checking Account offers 1% APY, which is much higher than most checking services. You only need $1 to open the account, but you’ll need to keep a minimum balance of $5000 to avoid a $15 monthly maintenance fee.
Information for Savings Accounts
The main reason to close an old account and open a new one is to get a higher APY or annual percentage yield. This is the amount of interest your account will gain over time.
Yields for these accounts can vary over time, depending on competition and market conditions. Some examples of new accounts with high yields are the CIT Bank, UFB Direct High Yield, or the AXOS High Yield.
Other Savings Account Rewards
Other accounts offer a direct cash reward, for example, if you maintain a certain balance in the account for a specified amount of time.
Usually, this is around a few months to a year. Check out this helpful guide with information on the different types of accounts and rewards to ensure that you get the best offer.
Rewards Information for Credit Cards
Credit Cards also frequently offer sign-up bonuses that usually involve spending a certain amount of money within the first few months.
They also offer direct bonuses for hitting certain spending thresholds each month or spending specifically in certain categories. To help pick the card that is right for you, use this comparison tool.
Why You Might Want to Close a Bank Account
You may want to open a new account with a new bank. Before you do, you’ll need to close your old account. Here are some popular reasons that could lead you to close your account with your old bank.
The first reason you might want to close a bank account is that you are moving across the country, and their old bank does not have branches in their new area. It may be difficult to make payments and get access to services completely online. While one person may not mind making online payments, another person might find it very difficult. Consider a new bank or financial institution that has branches nationwide.
Another reason to switch to a new account might be that your old bank doesn’t offer recurring payments. Recurring payments allow you to transfer money online automatically to pay bills. If your old bank doesn’t offer this service, you may want to consider switching.
How Can I Close a Bank Account Online?
Closing a bank account online is easy. The first step is to see if any funds are remaining in the account. If there are, withdraw them before closure. Step two is simple. Call your bank’s phone number and notify them of your request for closure.
Is it OK to Close Your Bank Account?
So, is closing a bank account a good idea? It is OK to close your bank account as long as you read and are aware of all of the information regarding possible fees and penalties.
Why would I want to open and close bank accounts?
So, why would someone want to regularly open and close bank accounts? Isn’t one savings account and one checking account enough?
Here’s the simple answer: money. Banks often offer signup bonuses to people that open new bank accounts. You can make hundreds or even thousands of dollars a year by opening and closing bank accounts to take advantage of these signup bonuses.
Examples of bank account signup bonuses (banks can change or cancel signup bonuses at any time)
Bank account bonuses are a great way to keep your savings liquid while getting your money to work for you. They’re also very low-risk, as there’s almost no negative effect should you fail to qualify for the bonus in the end.
Consider taking advantage of some national bank account bonuses. And don’t forget to look at offers from local banks to see if there are any lucrative deals available where you live.
Once you’ve earned your bonus, close the account so you can avoid fees and move your money to the next bonus-paying account.