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Washington, D.C.

How To Close A Bank Account

29.06.2021
107
9 min.

Correct closure of a bank account

At first glance, a bank account terminating may seem to be a simple issue however, there are several steps that should be followed as well as actions taken to terminate an account in a proper way. Following the correct procedure may be helpful in order to avoid unnecessary expenses, fees and complications.

How To Close A Bank Account

1. Opening a new account with a bank

Prior to closing an existing account one important thing needs to be done – opening a new one. This is necessary for transferring payments and funds later.

A bank account termination may be caused by moving to a new area but in case the reason is improper or inconvenient card's or bank's conditions or service then those of a new account should be carefully examined. A client can start with just checking out the best options. Thus, the search begins from the most proper the industry has on offer. If the account to be closed charges too high commissions then finding a free account to avoid further payments is essential. In fact, a variety of options are present on the market so there is no need to proceed having an inappropriate account.

Important! Once a new account has been found a customer needs to verify whether the bank provides a "switch kit" that includes forms and checklists to give instructions to depositors and billers regarding an account change. This may make the process of switching more comfortable.

2. Update automatic and repetitive payments

Before an account's permanent closure a number of issues must be resolved. Firstly, a client needs to evaluate all automatic and repetitive payments. They include music and TV streaming services, educational loan payments, gym membership, etc. For better comprehension of personal spending habits it is helpful to look at bank statements of the previous year.

By doing this a client can start the process of their cancellation from an old account and customizing for a new one. It is necessary to remember dates of next payments as it will prevent the possibility of double charging by every account and will also ensure an overdraft in 1 account will not be received. On the one hand, the renumeration may be charged from a new under-funded account. On the other hand, it may be forwarded to an old emptied one.

3. Change direct deposits

Customers should keep a close watch not only where money is coming but also where it comes from. For this reason, employers' payroll department has to be informed for updating settings of direct deposit in order to reflect the account change. The new route and account numbers should be provided. It may take a while to take into force so a customer should keep an eye on both accounts to be sure the changes are correct.

This is also applicable to brokerage accounts, investments and any other income sources a client may have. Account information should be updated on these accounts to guarantee payments receipt.

4. Transfer funds to a new account

After updating payments and deposits, funds can be transferred to a new account. A client needs to check the presence of transfer restrictions as if there are any, the entire balance cannot be redirected at once. In this case, only transferring it little by little is possible. Besides, in case a minimum balance requirement is set on the account a client should remember to save that amount on it as well.

Attention! Enough money should be left on an old account to cover the remaining or unexpected payments. Otherwise, a client may meet overdraft fees.

5. Terminate an existing account

Finally it's time to close a previous account. Indeed, this can take weeks or months, depending on duration of payments calculating and switching to a new account. At this stage it is important to focus on automatic payments as there is no need hold a zombie account when the bank has to reopen the account for making a forgotten automatic payment.

There are several ways to terminate a bank account. A client can visit the nearest branch and close it with the help of a bank representative. This may be the easiest option as any questions can be asked directly.

If there is no wish to visit an office a client can close an account online as well. The exact processes can vary depending on a bank. Typically, it is necessary to contact the bank's customer service via the secured messaging system and inquire the account to be closed. Some banks require to send an e-mail message or call customer service for proper account termination.

6. Receive written confirmation

Regardless the way of an account closure a client needs to receive written confirmation from the bank that contains the information that the account has been terminated. This will help in creating financial records and can also be used as a proof of termination provided the bank will be restoring the old account for future payments.

Tips for a proper bank account

Provided a client wants to close an existing bank account but the next one has not been set up yet, there is nothing to worry about as a variety of options is available. If a current account accrues interest a new one should come with more profitable conditions. On the other hand, if a potential overdraft in the future is possible an account with a low overdraft fee is worth being searched.

A financial advisor can help get better understanding if a client hesitates what option to choose. The right consultant can take a more comprehensive look at finances and determine less commissions to pay or higher rates for being able to save money.

Reasons for a bank account closure

There is a number of reasons for terminating a bank account and below are some of the most widespread:

  • Moving to a new city or state
  • To get better rates of interest
  • To qualify for the bonus offered by the bank
  • To get rid of poor quality customer service
  • To switch to Internet banking
  • To avoid costly fees
  • To get the best features and services
  • To consolidate banking
  • To open a joint account
  • To switch from a child account to an adult

Important! Whatever the reasons to terminate a bank account a client needs to evaluate the decision carefully to make sure the right actions regarding the financial situation are performed.

How to terminate definite bank accounts types

Not all closing procedures are handled the same way as various scenarios requiring additional steps to be followed may appear. Below are some that should be pointed out:

Joint account

A bank can claim an inquiry for an account closure signed by both holders. However, a lot of banks only need one account holder's permission for termination. Closing a joint account online may demand both parties to log in individually in order to inquire the account closure.

Overdraft account

An overdraft presence may appear to be an obstacle for terminating the account. Before the bank can process the closing request at least a zero balance needs to be restored.

Inactive account

In case an account is indicated as inactive it should be reactivated in order to provide the bank with an opportunity to close it. A client can reactive the account online, though a mobile app or contact the bank's support service.

Child's account

Sometimes parents open a custodian bank account for their kids but once the child becomes an adult then making of different banking transactions may become necessary and this could mean switching from an old account. Some options like the Children's Savings Account introduced by Capital One 360 are automatically converted to a savings account of a regular type at the moment the child turns 18. Provided a client has reached the legal age required by a particular state for taking full control of an existing custodian account, the procedure of termination is normally the same way as for any other type of account.

Deceased person's account

Terminating deceased person's account can be a more sophisticated process than other types' closing. Operational procedures mainly depend on the way the deceased has structured finances including whether the beneficiary was indicated or the will is present. Requirements and documentation may differ by state law. Consulting a lawyer before proceeding is a good idea.

Whether a bank account closure affects credit history

A lot of clients wonder if their current or savings accounts closure can affect their credit score. Knowing how to keep a proper amount on a current account there is no need to worry about the influence of an account termination on credit history.

Note! In most cases, this procedure as well as funds transferring neither improves nor spoils credit rating.

Keeping an inactive account may appear to be not the best decision as without its closing a commission for a dormant account may be charged upon a certain period of time.

However, having no overdraft protection, keeping a negative balance and trying to close an account without further actions cannot be hidden from banks or lenders. Provided a client has encountered financial difficulties it is better not wait till the issue of overdraft and related fees arise. For protection of the loan outstanding payments should be settled immediately.

The process of an account termination is actually a great opportunity to reflect the state of finances through a monetary audit. Client's goals may be in the process of achieving or a client has realized that it is time to start budgeting and track invoices as soon as possible.

Final tips:

  • A client should open a new account prior to closing the old one as this allows to have an uninterrupted access to the funds. It is also a useful tool if a client is moving to another area as it affords access to money in order to pay for movers' service, car rentals and other related expenses.
  • It is necessary to ensure that all direct deposits like salary, automatic transfers and withdrawals from the account have been stopped. This should be done approximately for a month prior to the account closure. This includes such payment as gym membership, insurance as well as other household bills.
  • When looking for a proper new account a client should consider the minimum balance and commission requirements that may be incurred with the new bank. Restrictions on withdrawals and transfers should be carefully examined too.
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