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What Should You Do When Your Online Bank Closes?

The world of online banking received a bit of a shock recently when PerkStreet abruptly announced that it was closing [3]. Up until the announcement was made, almost no one had any idea that it was coming. People were taken by surprise — especially when they found out PerkStreet wasn’t able to pay out the perks it owed customers.

Online baking has become popular in recent years, thanks to its convenience and to the competitive rates offered by banks that don’t have to worry about the high overhead costs that can come with physical branch locations. However, as the PerkStreet model shows, even an interesting and potentially-disruptive model can fail.

Hopefully, your online bank is FDIC-insured [4]. If it is, your money is protected, within certain limits [5]. PerkStreet customers don’t have to worry about their money; the bank was properly insured. So, since you don’t have to worry about your money, what should you do next?

Find Out What Outstanding Transactions You Have

Your first step is to find out what outstanding transactions you have. You need to make sure that you have enough money in the account to cover outstanding checks, ACH transfers, and automatic withdrawals. You don’t want your account to go negative, since that can result in a collections account later. At the very least, ending with a negative account balance can make it difficult for you to open another bank account later.

Contact Companies to Change Your Account Information

If you have recurring withdrawals from that account [6], you need to contact all of the affected companies immediately. If a bank knows that it is closing, you usually have four to six weeks to make arrangements. Contact the companies that withdraw from your account and give them alternative information. Find out how long it takes for companies to re-direct your transactions. In many cases, it requires 10 to 20 days for changes to take place. This is why you need to move as quickly as possible.

If you have to, open a new account, with another financial institution. This is the trickiest part of the whole operation, since you have to balance what is still coming out of the old account with the ability to fund your new account sufficiently.

Change Direct Deposits

You also need to change the location of your direct deposits [7]. If you have recurring savings transfers, you will need to cancel them. Contact your employer’s human resources department to arrange a new destination for your direct deposits. The sooner you contact your employer, the better. Again, find out how long it will take for the changes to take effect. You will need to plan so that you don’t end up in trouble as you transition from your old account to your new.

Don’t Rely On a Startup Bank

While the events of the last few years have shown us that even the biggest banks can fail, the reality is that you are taking a bigger risk when it comes to a startup bank. While online banking is convenient, don’t rely entirely on that bank. Make sure you have another account, somewhere else, that can be quickly called upon to provide you with what is needed if you need to smooth the transition when a bank closes.

What do you think of the PerkStreet closing? How do you arrange your banking to avoid these problems?

(Photo: Suzie Tremmel [8])