How to close a bank account — and 6 times when you should

Bank accounts are a dime a dozen, but the wrong one can cost you a pretty penny over time. If you’re ready to move on from your current bank account, closing it is a simple way forward.

Closing a bank account is simply a matter of:

1. Having your account in good standing,
2. Transferring your money to a new account, and
3. Telling your bank to close the account.

However, knowing when to close an account is a different story.

Here, we’ll take a closer look at what you should do before closing a bank account and some situations when it makes sense to close your account. Let’s get right into it!

Get organised before closing your account

Before you close your bank account, you’ll need to ensure a few things are in order.

1. Put your bank account in good standing

Before you give your bank the go-ahead to close your account, make sure that:

• You have no outstanding charges that will be paid from your bank account.
• Your account isn’t overdrawn and has a balance of zero or greater.
• Your contact information (mobile number, address, email address) is up-to-date.

Your account could be sent to collections if you attempt to close it while it’s overdrawn or your balance is in the red. If an account is sent to collections, it can have as significant an impact on your credit score as a default or County Court Judgement (CCJ). The collections account could be visible on your credit report for as long as seven years.

2. Get your bills and direct debits in order

Additionally, you’ll want to put your billing information in order before closing your bank account. Take the time to:

• Reroute any direct debits or standing orders to your new bank account.
• Update your banking information with your employer so your paycheck goes to the right place.

If you don’t reroute your direct debits, your payments will fail, and late payments could be added to your credit report. Late payments hurt your payment history and your credit score, so take the time to link your bills to your new account.

When to close your bank account

Having multiple accounts is common, and often it’s beneficial. Many people will use different accounts to clearly separate their savings from their outgoing bills and monthly expenses.

However, you’ll inevitably reach a point when closing an account is the best choice. Some common reasons for doing so include:

1. Finding a bank that offers better interest rates: As inflation outpaces most savings account interest rates, you could be losing money in many savings accounts. If you find an account with a better interest rate, taking your money there can be a smart move.
2. Having a poor experience with customer service: If you’re having problems getting information from your bank or completing tasks, you may want to move your account to another bank.
3. Finding that your bank has low availability: If you moved to London but are still using a building society in Cornwall, you may have to pay a fee every time you use a cash machine in the city. This can be inconvenient and costly in the long run.
4. Having an unused overdraft while applying for credit: Consider closing unused overdrafts if you’re applying for something like car financing. If you suddenly start using your overdraft, it could impact your ability to pay your car financing. Because of that possibility, lenders may be less comfortable extending you a line of credit.
5. Losing money on fees: Depending on your bank and account type, you could lose money on account fees. If you don’t use the account, it’s better to simply close the account and take your money elsewhere.
6. Needing the money in an old account: It’s no secret that finances are tight for many of us across the UK right now. Many people find themselves closing neglected accounts and putting their money to use.

Does closing a bank account hurt your credit score?

No, closing a bank account won’t impact your credit score. The only exception is if you try to close your account while it’s overdrawn or has a negative balance. This could result in the account being sent to collections. Ultimately, that can have a similar effect as a late payment that is sent to collections.

Effortlessly monitor your bank account balances with Pave

When you open your new account, you’ll want to keep an eye on where your money is going and if you have the money to cover your bills.

However, it can be hard to find the time to monitor your bank account. Fortunately, the Pave app can do it for you. We’ll monitor your balance and upcoming bills so you can stay current, avoid late payments, and build a strong credit score.

In addition to making it easier to track your payments, Pave can help you build your credit score. With personalised credit fixes and payment reporting, we’ll help you take the steps to building strong credit.

Ready to monitor your accounts with ease while building your credit score?