Is It Bad to Close Bank Accounts? What You Need to Know
Unsure about closing your bank account? Get clear answers on potential impacts and a practical guide to ensure a hassle-free, informed decision.
Many individuals consider closing bank accounts for various reasons, such as finding better services, consolidating finances, or simplifying their banking relationships. While the process is generally straightforward, understanding the implications and preparing adequately can prevent unexpected issues.
Understanding Potential Impacts
Closing a checking or savings account does not directly affect your credit score. These accounts are not considered credit accounts and are not reported to major credit bureaus. Your credit score is primarily influenced by your borrowing and repayment history on credit products such as credit cards, mortgages, and auto loans.
A different situation arises if you have direct deposits or automatic payments linked to the account you plan to close. Failing to update these arrangements before closure can lead to missed payments or interruptions in income. For instance, a paycheck direct deposited into a closed account will likely be returned to your employer, causing a delay in receiving your funds. Similarly, automatic bill payments, if not redirected, could result in late fees from service providers or even service cancellations.
Closing one account might also affect other accounts or services linked to it, such as overdraft protection, loans, or investment accounts. Some banks link accounts for features like combined balances to waive fees, so severing one connection could impact the terms of another. It is important to identify and sever these connections to avoid unforeseen issues. Banks may also charge an early account closure fee if the account is closed within a short period of opening.
Essential Preparations Before Closing
Before initiating the closure process, transfer all funds out of the account. This can be done through an electronic transfer to another account, requesting a cashier’s check for the remaining balance, or withdrawing the money as cash. Ensure the balance is zero or positive, as banks require any negative balances or outstanding fees to be resolved before closure.
Identify and update all automatic transactions to a new account. This includes direct deposits from employers or government benefits, as well as automatic withdrawals for bills, subscriptions, or loan payments. Reviewing several months of account statements can help identify all recurring transactions that need to be updated.
Confirm that all outstanding checks have cleared and no pending transactions remain. Download or print all necessary account statements for your records, as access may be limited once the account is closed. Finally, contact your bank or review your account agreement to determine if any closure fees apply.
The Account Closure Steps
Once preparatory steps are complete, initiate the account closure. Contact your bank through various methods, including visiting a local branch, calling customer service, using an online banking portal, or sending a written request by mail. Some banks may require a signed letter or a specific closure form.
When submitting the closure request, provide your account number and valid identification. Banks will verify the account is in good standing before processing the request. If there is a joint owner on the account, both individuals may need to be present or provide their consent for closure, depending on the bank’s policy.
After submitting the request, verify the account has been officially closed. Request written confirmation of the account closure, which could be an email or a formal letter. This confirmation serves as your record. Retain this documentation, along with your final account statements, for future reference.