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The logistics of switching bank accounts

Switch, ditch and save. We’ve all heard about using this savvy tactic to score a better deal, but just how much effort is required to swap financial accounts? And is the process really that difficult?

Changing isn’t difficult if you can approach it correctly in order to avoid fees and other nasties. It also requires some homework, but the rewards will far outweigh any time spent. Learn about the billions in lost interest on household transaction accounts.

Start by recognising your reasons for switching bank accounts in the first place. Are you looking for a more competitive offer? Have your needs and personal circumstances changed? Does your current account no longer suit your lifestyle? Your motivation will help determine whether you stay with your current financial provider or move elsewhere.

If you do decide to move on, be sure to understand any fine print regarding your account. Are there any termination fees for exiting the loan or term deposit early? If you’re sure you still want to go ahead, here are a few tips for changing specific finance products:

Home loans

The Reserve Bank of Australia (RBA) slashed its cash rate by 25 basis points earlier this month, opening the gates for lenders to offer even better mortgage rates than what you’re paying. If you’re considering refinancing your current mortgage to something more suitable, go ahead and shave interest and years off your mortgage.

Start by comparing a cross-section of home loans. Advertised interest rates aren’t a fair way to compare loans they often overshadow hidden fees. Look at the comparison rate instead to prevent any surprises.

It also pays to check that your lovely low interest rate isn’t a smokescreen for a costly refinancing fee. This can make your switch more expensive than what it’s actually worth.

Transaction accounts

Read the small print before you open the new bank account you’ve found. The last thing you want is to sign up for one with higher fees than what you’re currently paying.

If you’re getting a special package rate for having all of your bank accounts with one provider, don’t forget to ask them if switching bank accounts (even one of them) means losing your exclusive rates.

Now it’s time for the actual move, which is surprisingly easy. As of July 1, 2012, your new provider can do the work for you on your behalf. Request that they contact your old bank to get a 13-month list of your direct debits (gym membership, cable television, etc.) and direct credits (salary). You can then choose which regular debits and credits you would like to be moved across to your new account. Again, your new provider can do this for you, or you can pass your new account details onto your employer.

Don’t forget to leave some money in your old account to cover payments you may have forgotten about. If you miss one, you could be charged penalty fees. Close the account down once you’re certain no more deductions are scheduled.

Term deposits

Term deposit interest rates fluctuate with the economy, just like savings accounts, except that they currently pay higher interest than online savings accounts. It’s a wise move to shop around and sign up for a new term deposit when rates are on the rise. However, you also need to consider the term’s length and interest payment when choosing.

Your money is locked away for this fixed set time period. It’s untouchable and withdrawals are commonly penalised with a fee. Interest is also fixed and may be paid back into your account monthly, quarterly and so on. Obviously, monthly offers best maturity.