What can go wrong when you switch banks

Which of these are you?

• You are moving most of your savings by check or cashier's check: read the deposit hold section first. Move by electronic transfer where you can, because the hold rules treat it differently.
• Your rent, card and utility autopays run out of the account you are leaving: read the overdraft section. The fix is a cushion, not speed.
• The switch is for a sign-up bonus: read the bonus section before you count it in the math.
• You are consolidating several accounts into one bank or one app: read the insurance section. The limit is per bank and per ownership category.

What does the new bank check before it opens the account?

A bank must collect your name, date of birth, address and an identification number, and verify who you are within a reasonable time after opening. Beyond that, what it checks varies: some banks add a screening report or a credit inquiry, and others do not.

The identity step is a federal rule. Under a bank's customer identification program, it must obtain those four items and verify the customer using them, and its procedures must say when it will not open an account, what you may do with an account while it verifies you, and when it will close one if verification fails (31 CFR 1020.220). A mismatch between the name on your application and your records can therefore stall an account even when everything else is fine. Have an unexpired government ID and your Social Security or taxpayer identification number ready, and use your name exactly as it appears on those records.

The screening step is separate and not uniform. The CFPB describes deposit account and payments screening as the way banks and credit unions help decide whether to offer a checking or savings account, run by specialty consumer reporting companies. If you are declined for a new deposit account, the bank must send an adverse action notice naming the screening company it used, and you can request a free copy of that report from the company. We cannot tell you which banks screen, which company each uses, or whether a given bank also pulls a credit report and how that inquiry is recorded. Those answers sit in each bank's application disclosure, so read it, or ask, before you apply.

A decline tells you which report to request, and an error in that report can be disputed. ChexSystems explained covers pulling and disputing yours. The practical risk is applying to several banks in a burst and learning about a problem only after your old account is already closing.

How long can a new account hold the money you move in?

Federal rules limit how long a bank may hold deposits, but a new account gets looser limits for its first 30 calendar days. Cash and electronic transfers still go out the next business day, while large check deposits can be held up to the ninth business day.

The rule is Regulation CC, 12 CFR 229.13(a). An account is new for 30 calendar days after it is established, unless every customer on the account had another account at that bank for at least 30 days in the 30 days before opening it. In a new account, three things apply:

• Cash deposits made in person and electronic payments are still available the business day after the banking day of deposit. Regulation CC defines an electronic payment as a wire transfer or an ACH credit transfer (12 CFR 229.2, 229.10(a)-(b)).
• The next-day categories of checks, such as cashier's, certified and teller's checks deposited in person by the payee, and government checks, get next-business-day treatment only for the first $6,725 deposited per banking day. The amount above that can be held until the ninth business day.
• The standard schedule for ordinary checks (12 CFR 229.12) does not apply to a new account, and neither does the $275 next-day rule for other checks. Regulation CC sets no schedule for them here, so your bank's own policy governs, which is why the funds availability policy in your account agreement matters here.

The practical result is a table. Assume a single in-person deposit of a cashier's check in one banking day, and the figures from the rule above.

The cap is per banking day, so two deposits on separate days each get their own $6,725, which would free up $13,450 of a $25,000 move. A bank may release held money sooner than the rule requires; the rule sets the longest it may hold, not the shortest. The point is that you cannot count on it.

The way around the problem is the way the rule is written. An ACH or wire credit counts as an electronic payment and is available the next business day. Fund the new account by transfer from the old one, in two steps: a small test transfer first, then the rest. Chapter 6 covers the sequence.

What happens to autopays and bills during the move?

Timing overdrafts happen when you move cash out of the old account before every scheduled draft has cleared and before the first deposit lands in the new one.

Write down every payment that drafts from the old account, with its date: rent, loan payments, card payments, utilities, subscriptions, and any transfer to a brokerage. Then compute the cushion, which is everything that drafts before your first paycheck reaches the new account. Here is a hypothetical month. Balance $3,000. Rent $1,800, utilities $140, card payment $300, all due before payday.

The cushion is $1,800 + $140 + $300 = $2,240, so the most that can move is $3,000 - $2,240 = $760. Move $2,500 and only $500 is left, leaving a $1,740 shortfall. Rent alone would be $1,800 - $500 = $1,300 short.

What a shortfall costs depends on the transaction and the bank. Under Regulation E, a bank cannot charge a fee for paying an ATM or one-time debit card transaction into overdraft unless you opted in, but that opt-in rule does not apply to checks and ACH drafts, so a returned or overdrawn autopay can carry a fee (12 CFR 1005.17). Fee amounts and policies vary by bank, and we state none here; see your current account agreement. How to avoid overdraft fees and why debit cards can overdraft you cover the mechanics.

What happens to a sign-up bonus if one condition slips?

A bonus counts in your math only if you will meet every term of the offer. Each offer sets its own rules for minimum balance, direct deposit, time to qualify and how long the account must stay open, and some allow the bank to take the bonus back.

We state no standard figure, period or clawback amount, because there is none. The offer page and the account agreement are the contract. Before you count a bonus, write down four things from the offer: the amount, what you must do and by when, how long the account must stay open, and what happens if you close early. If any of them is unclear, treat the bonus as zero until you get an answer in writing.

The effect on the decision is large, and it is a number you can see. Take the model of record: Balance $10,000, current APY 0.45%, new APY 4.20%, 2 hours at $25 an hour, and a $25 transfer fee (all hypothetical).

With the bonus counted, the cost is negative: 2 x $25 + $25 - $200 = -$125, and the result is positive from the first day. Take the bonus out and the same switch has a cost of $75, a first-month gain of $30.60, break-even in month 3, and a 12-month net gain of $292.22. The plan said $492.22; the bank paid $292.22. The $200 is exactly the swing.

The bigger risk is that the bonus changes the decision. If the new rate gap alone does not cover the cost, a bonus you only might receive is the entire case for the move. Count it at zero first. If the switch pays without it, the bonus is a bonus. If it only pays with it, you are betting on your own follow-through.

Interest on savings is taxable income either way, so the comparison above is before tax on both sides. For how bonus offers are structured, see the bank account bonus roundup.

What happens to your insurance when you consolidate?

FDIC insurance is $250,000 per depositor, per insured bank, for each ownership category, and accrued interest counts toward it (12 CFR 330.1(o) and 330.3(i)). Consolidating several accounts into one bank can push you over the limit even when you add no new money.

Two hypothetical single-owner examples show it. First, $180,000 at Bank A and $90,000 at Bank B moved into Bank A totals $270,000, which is $20,000 above $250,000. Second, $245,000 is $5,000 under the limit today. After a year at 4.20% APY it grows by $245,000 x 0.042 = $10,290, to $255,290, which is $5,290 above the limit, though you deposited nothing more. A balance parked just below the limit does not stay there while it earns.

The fix is to count by ownership category, not by account. A joint account and an individual account at the same bank are different categories and are insured separately, but the rules for each category have conditions. FDIC limits and ownership categories walks through them.

What changes if the new provider is an app, not a bank?

Many savings apps are not banks. They place your money at one or more partner banks, and FDIC insurance applies to the banks, not the app. Confirm which bank holds the money before you move it.

The FDIC states that deposit insurance does not protect against the insolvency or bankruptcy of a nonbank company. Pass-through coverage can apply when the app deposits your funds at an insured bank and keeps records identifying who owns what, among other requirements. The FDIC's advice is to identify the specific insured bank or banks where the company says it will deposit your funds and to verify them with BankFind. Read the disclosures and terms of service for what the app promises.

Moving to an app also changes the other risks in this chapter. The funding transfer, the holds, the direct deposit and the bonus terms all depend on the partner bank as much as on the app. A freeze or a review of a new account is also possible, and algorithmic account freezes explains what that looks like without making claims about any one provider.

A pre-flight checklist before you close anything

Do these in order. None requires speed, and every one is cheaper to do before the old account closes than after.

1. Read the bonus terms and write down the dates. Count a bonus only if every condition is met.
2. Check the insurance math. Add the total at the new bank, in each ownership category, plus a year of interest, and compare it with $250,000.
3. Sum the drafts. List everything that drafts before the first deposit lands in the new account and leave that cushion in the old one.
4. Fund by electronic transfer. Use the check route only for what you can spare for nine business days.
5. Keep the old account open for a full statement cycle. Final drafts, refunds and interest posts show up late.

The same logic runs under the break-even math: a move pays when its gain beats its cost and your follow-through is reliable. This chapter exists so the follow-through is. The plan you build next puts these checks into a repeatable rule.