How to Switch Banks

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American banks aren't the most lovable of institutions. It's no wonder that the American consumer is sick and tired of low interest rates on savings accounts and sky-high ATM fees, to say nothing of the disappearance of free checking. When all these price hikes are taking place at mega-banks that received government bailout funds a few years ago, it feels all the more galling.

Maybe you have wanted to switch banks for a long time. Maybe it's only just occurring to you now that there are better options out there. Whatever your reasons, you have decided to change banks. Whether you choose another mega bank or a local credit union to handle your funds, here's how to swap financial institutions. The process can often take up to two months, but taking your time to properly manage your money is a good thing, so don't rush it. (See also: 7 Banks Still Offering Free Checking and Great Interest Rates)

1. Choose Your New Bank/Credit Union

You obviously can't close an old account without first having a new place to stash your cash, so decide what factors are most important in your choice of financial institution. For some people, the convenience of large banks is enough to compensate for terrible customer service. For me, that wasn't enough, so when I switched banks, I moved to a credit union. I love my credit union, even though its location isn't always convenient for me.

There are many qualities to consider when choosing a new bank, including what kind of ATM fees are involved, whether or not free checking is offered (and all the caveats that go along with that, like a required minimum balance), if they offer free online bill pay — whatever financial activities are most important to you, check to see if they are possible with your new bank, and how convenient and costly they are.

If you share financial accounts with a spouse or other family member, be sure to discuss and consider their needs, as well as your own, when choosing a new bank.

2. Open Your New Account

Once you've settled on a financial institution, march on in and open your new account. You'll want to order checks, even if you think you'll never use them (you'll need them for setting up direct deposit, and it never hurts to have them on hand), a debit card, set up online accounts, and obtain any other paraphernalia that will make your banking experience easier. You'll probably meet with an account manager when you open your account - get their business card and do not be afraid to use your contact as a go-to when you need help with your banking. Having a one-on-one relationship with an account manager at a bank isn't common these days, but if you choose a smaller bank or credit union, having a good relationship with a manager can make your financial life easier.

TIP: Don't be pressured into opening a credit card or line of credit with a new bank. Many big banks now won't offer free checking without some kind of connected savings or credit account, because both savings and credit accounts earn interest for the banks.

3. Determine Your New Bank's Fund-Holding Period

Most banks and credit unions will hold deposits from new customers for the sake of "security" until they decide that you are a trustworthy customer. When I opened my bank account at Citibank in Manhattan back in 1999, they actually had a two-week holding period for deposited checks, even business checks. This wasn't mentioned until after I deposited my entire paycheck into my fledgling checking account, whereupon my money was put "on hold", leaving me with exactly $20 in cash to survive for the next two weeks.

Find out if any security holds apply to direct deposit, check deposits, and even cash deposits. When first opening an account, there's no reason to go whole hog and put all your money in at once. Just deposit a couple hundred dollars and let them hang onto it for "security." Once you've passed their test and the holding period is up, you can start moving your funds into your new account.

4. Set Up Direct Deposit

Work with your company's HR firm to change your direct deposit from the old bank to the new. This might take longer than you think, so find out when the switch will happen. If your HR department requires a blank check from your account to set up direct deposit, be sure to order your checks right away — they can take up to a couple of weeks to receive.

5. Start Transferring Your Bill Payments

If you use an online bill pay system to pay bills as they are sent to you, you can transfer the accounts over from one online bill pay system to another manually. If you have bills that are automatically deducted from your bank account, like car payments, auto insurance, or a monthly gym membership, you can determine who needs to be notified of your new banking info. Start by exporting the past two months' worth of checking transactions to an Excel spreadsheet, then sorting according to the transaction name. Delete extraneous information and pinpoint the transactions that occur every month. If you use a finance tracking system like Mint.com, you probably already have a good idea of which transactions will need to be moved to your new bank or credit union.

It is possible that you may miss an auto-deduction or two, but not to worry — debtors will not sit idly by if your scheduled payment fails to go through, so you'll be notified immediately. Make sure to settle any missed payments as soon as you are notified.

6. Transfer Your Debt (if possible)

What you do with your bank-issued credit cards depends largely on your debt situation. It's entirely possible that you are paying off a large credit debt and aren't able to transfer the amount to another credit card. If this is the case, and you need to keep your old bank account open in order to make payments to your credit card, things get a little trickier. When I left my old mega bank, I transferred all of my debt to a new personal loan that I took out at my credit union, but not everyone will have that option. If you are leaving your bank partly because your credit card APR has been jacked up to unbearable levels, consider a debt consolidation plan that will allow you to make a single monthly payment on all of your credit cards (and you can make the payment from your new bank account). Most debt consolidation programs can help you get a lower APR on your existing debt. You might also consider applying for a loan from Lending Club.

If you can't move your debt from one card to another, you can at least continue to pay down your debt on a bank-issued credit card, even if you no longer want to hold your primary checking account with the same bank. My mortgage is managed by U.S. Bank, an institution that I am not particularly fond of. Even so, I am unable to refinance or move to mortgage to another institution, and so I maintain a checking account (and now a savings account, since U.S. Bank no longer offers free checking accounts without a connected savings account) that part of my paycheck is deposited to every other week. I only deposit enough money to cover my mortgage and to keep the account open; otherwise, I have nothing to do with the bank at all, and all of my primary checking and savings are managed by a local credit union. This simplifies my relationship with a bank that I don't like, but have to deal with.

7. Close Your Old Account

You won't be able to close your old bank account until all pending debits have cleared, so stop using your old debit card and checks once your new account is established. It's a good idea to leave your old account open for about a month while discontinuing its use — leave a few hundred dollars in the old account, just in case you forgot about the check that you sent your nephew for his birthday. This is also a good way to identify any automatic payments that are being debited from your account (while the account isn't cluttered by your daily spending habits). Be certain to leave enough money in your old account to cover any checks you have written, because the last thing you need is a bounced check ruining things for you. Once all written checks have cleared, close that account down! Banks will try to make this as hard as possible for you — be polite but firm in your resolve to continue your banking activities elsewhere.

8. Offer Feedback

Don't be afraid to offer feedback to your old institution. If an account manager wants to know why you're leaving their fine financial institution, be certain to give it to them straight. You can explain that the fees were too high, or that you wanted to find a bank that offered an actual interest rate on savings accounts. Maybe the hours aren't convenient for you. Whatever your reason, calmly share it with management. Don't be under any illusions that the banks really care about you (you're small potatoes), but Bank of America's recent disowning of the $5 debit fee shows that large public outcry can affect institutional policies.