Closing your current savings account and opening a new savings account online is easier than might think. And it may be more lucrative than you ever thought. Why? Because a savings account online can pay higher interest rates than another savings account—particularly those with banks that do business exclusively online and don’t have physical branches.
For example, when this article first published, traditional physical banks, such as Wells Fargo, offered only .01% interest on regular savings accounts with smaller balances. Those same banks offered only about 1.5% on accounts with larger balances—the Wells Fargo Platinum Savings account offered 1.49% interest with a $25,000 balance.
Comparatively, an online-only savings account offered interest rates in the 2.25% range with no minimum balance at the time of publication. Note that interest rate and annual percentage yield (APY) are not the same. APY is actually higher than the interest rate because it includes compounding interest.
There are four simple steps to follow to close your old account and open a savings account online.
Step One: Decide What Type of Account You Want
The first thing that you need to do when switching to a savings account online is to decide what type of account you want, and then, of course, which bank to use. There are different types of savings accounts to consider. Each of them is used for different reasons. Each bank offers different interest rates for those accounts as well. So find what works best for your financial goals.
Consider finding a financial institution that offers FDIC insurance on your account. FDIC insured accounts to ensure you get up to $250,000 of your money back if the bank fails.
Basic Savings Account
A basic savings account is also called a regular savings account or traditional savings account. It’s the most common type of savings account. Most charge few, if any, fees. Most require only a small opening deposit—somewhere in the $25 range. And all of them let you earn interest on your money simply for leaving your money in the account.
Most banks let you pair your basic savings account with a checking, so you can easily transfer money back and form—making deposits and withdrawals to/from your savings into your checking account. Those deposits can even be scheduled for every month or any period of time that you choose to keep you on track toward your savings goals.
Money Market Account
A lesser-known type of savings account is a money market account or MMA. An account like this is good if you want higher interest rates and the ability to write checks. Although check-writing may be set to a certain number of transactions each month—six is the legal limit set by the federal government.
Many money markets require higher minimum initial deposit amounts and a minimum balance. And while money market accounts from banks and credit unions are usually covered by FDIC insurance, money market funds are not. So check with the institution to ensure you’re covered.
High-Yield Savings Account
High-yield savings accounts or high-interest savings accounts are a bit of a hybrid of traditional savings accounts and MMAs. They offer higher interest rates than basic traditional savings, but may or may not require a minimum opening deposit or that you maintain a minimum balance. Most are offered by banks and other financial institutions that are FDIC insured. And whether you can get a checking account or make unlimited withdrawals with a high-yield savings accounts varies by the institution.
Certificates of Deposit (CD)
A CD is a type of savings account. But, it requires you commit to leave your money in it for a set amount of time. A basic savings account, MMA or high-yield account lets you withdraw your money beyond any required minimum balance at will. Not so with a CD.
With a CD, you can’t withdraw any money until the maturity date without paying a penalty. When you deposit the money initially, you make a decision with your bank about a specific amount of time between the opening date and the maturity date. That period of time varies from 6 months to 5 years. Your money earns interest while in the CD. You can calculate how much you’ll earn using an online CD calculator.
CDs are typically FDIC insured.
Step 2: Cancel Automatic Payments and Deposits
The biggest problem that people face after closing a bank account is finding out that it’s been reopened without their knowledge and charged an overdraft fee because they forgot to cancel an automatic payment that comes out of that account. A direct deposit will result in an account being reopened.
The takeaway–before closing your current account, make sure any automatic deposits or withdrawals are switched to your new online savings account.
If the account you’re closing is a joint savings account, the process is the same. Both users on the account need to be sure that each of their bills and deposits is switched to the new account.
Step 3: Open and Fund Your New Account
Now, you can open your new online savings account and fund it. You can open an account online in a matter of minutes. And you can either fund it with money in your checking account or you can transfer the balance from your old account to the new account.
Careful though, if you haven’t yet closed your old account and it requires a minimum balance that you don’t transfer more than your required minimum balance.
Transferring the balance shouldn’t cost you anything, but you may be charged a service fee if the account was opened and closed within 90 days. PNC Bank and U.S. Bank charge $25 if you do, and some smaller banks charge as much as $50.
Step 4: Finalize Closing
The last step is to finalize the closing of your old account. It’s pretty simple.
It doesn’t matter if you’re switching from an online-only bank or from a brick and mortar bank or other financial institutions that have branch locations for the customer, the process of closing a deposit account is virtually the same. The only difference is that if you’re switching from brick and mortar, you can go to one of their physical banks and talk to a person about helping you make the switch.
Find out if your bank charges fees or penalties for closing an account. There usually aren’t fees for closing basic savings accounts, but closing an MMA may have a fee.
Finally, get written confirmation from the bank that you’re closing the account. Keep that written confirmation with your other financial records.
Opening and Closing Savings Accounts and Your Credit
Savings and other investment accounts don’t affect your credit. Only credit and loan accounts—revolving credit and installment loans—are taken into account for your credit score. So opening and closing your current account and opening a new one—or multiple new ones—won’t impact your credit score at all.
Opening a new account and closing another to get more from your money and reach your financial goals is a simple and straightforward process.
Not saving yet, look at:
- Reasons to Start a Savings Account
- Why a Savings Account Is Important.
- 7 Questions to Ask Before Opening a Bank Account
- Should I Have an Online Savings Account or Go to a Branch?
Ready to open a savings account online?