UAE: Ins and Outs of closing your current account and opening a new one

You might want to close an account because you've found a better account, you're relocating to a new place where your bank has no branches, or because you're dissatisfied with your old bank's customer service. By taking the right steps when switching banks, you can ensure a seamless transition and free yourself from plenty of headaches.

Essentially, the steps you need to take when closing your bank account is first finding your new bank and next you’ll need to review and transfer automatic payments and recurring transactions, transfer the money from your old bank to your new bank and then finally, close the account and request a written letter.

Or you can approach your nearest branch and fill up the account closure form. The form sometimes asks for another bank account in order to transfer money before the account is closed. In case your account is a dormant one, then you will have to first activate it to close it and submit the closure form. The bank would ask you to surrender your debit card and unused cheque leaves, if any, along with a duly signed letter or an application for closure of the account. Some banks also ask the user to destroy or hand over the debit card once the account has been closed.

• First find a new bank to operate from, before closing your current account

Before closing your old bank accounts, you should have a new bank ready to receive your money. If you close your bank accounts and then start looking for a new bank, you may find yourself inconvenienced when you need to write a check, transfer money or pay a bill.

• Review and transfer automatic payments and recurring transactions

Since banks allow customers to automate much of their finances, consumers who want to leave banks may be hindered by the chore of having to re-establish that automatic flow of money. In most cases, however, the transition simply requires you to change the bank account number.

Review your bank statements for the past six to 12 months so you can identify which automated transactions need to be rerouted to your new bank. These transactions could include rent payments, bill payments, direct deposit and automatic fund transfers. You may also find infrequent transactions that also draw from your old accounts. After rerouting these automated transactions, keep in mind that you need to give it two to three weeks for these transactions to shift to your new bank accounts.

• Transfer the money from your old bank to your new bank

When you have confirmed that automatic transactions have been rerouted properly, you can begin to move your money to the new bank. You can do so without telling your old bank that you plan to close your accounts. Be watchful of any withdrawal or transfer limits if there is a large amount of cash in your old accounts.

• Close the account and request a written letter

At this point, you can ask the bank to close your accounts. You may need to visit the bank in person, call a customer service phone number or submit your request in writing. If you didn't already move your money out, you will receive the balances in your accounts in the form of a check.

Many consumers have complained of "zombie" accounts, which occur when a bank reopens an account because a company attempted to draw money from it. Closed accounts may be reactivated because of billing errors or when customers forgot about an automated bill payment.

So it is important to request a written letter that states that your accounts are closed – just in case you have to settle any discrepancies in the future. With some planning, switching banks isn't such a terrifying experience. Just follow these steps to ensure that your account is closed with the fewest hassle and banking fees.

Debunking myths: Does closing your account affect your credit score?

Before you move on from your bank, you want to know if closing a bank account affects credit scores, so you can take precautions if necessary. Closing a bank account doesn't affect your credit score. As long as there are no issues with your account, you can switch to a new bank without worrying about damaging your credit score.

Many people mistakenly believe that all financial information, including bank account activity, is factored into their credit scores. That's not the case. Your credit score is calculated based only on information included in your credit report, and your bank details aren't reported to the credit bureaus.

Banks may check your credit when you apply to open an account, under normal circumstances your bank activity isn't factored into your credit score at all. That means your bank deposits, withdrawals, and daily transactions don't help or hurt your credit score.

Even overdrafts don't affect your credit score, assuming you pay the overdraft fee and clear up any outstanding negative balance before the bank takes action. While closing a savings or checking account won't affect your credit score, closing a credit card account can. Credit card accounts are regularly reported to the credit bureaus and factor into your credit score.

There is a situation where closing a bank account could affect your credit score, in a bad way. If your account is over drafted and has a negative balance when you close it (or when the bank closes it because you haven't caught up), the negative balance may be sent to a collection agency for further action. Third-party collection agencies collect debts on behalf of other businesses.

Once a collection agency takes over your account, they will likely report the account to the credit bureaus. At that point, it will go on your credit report and be factored into your credit score. Unfortunately, collections remain on your credit report for seven years from the first date of negative activity, even after payment is made.

Debunking myths: Can your bank cut you off from your funds?

Your bank has the right to cut you off anytime it wants. But why exactly would it break up with you? There are the customers who bounce checks, constantly overdraw their accounts, commit fraud or otherwise lose the bank money. Those are the easy ones to get rid of. But then there are the customers who fall into a gray area.

Banks are urged by regulators to close questionable accounts -- or else risk getting hit with penalties. So they often end up shutting accounts even when a customer isn't doing anything explicitly illegal. If a customer is merely involved in an industry that has been black-listed or considered high risk, a bank may deem it safer to cut off the relationship, experts say.

In guidance to banks, regulatory bodies worldwide lists business categories that have been linked to "high-risk activity," including home-based charities, overnight loan providers, dating services, credit card repair services, gaming and gambling websites, and telemarketing companies. When you open a business account, banks can determine if you are in a "high-risk" industry by running a background check and continuing to monitor the types of transactions that are made once the account is open.

The regulator also recommends that banks look at the volume and nature of consumer complaints filed on public-forum websites. A company that requests a large number of returns or charge backs (which often occur when a customer is dissatisfied with a purchase), should also raise red flags. Other reasons for heightened suspicion: customers who give unclear descriptions of their businesses when opening accounts, as well as those who make multiple transactions that don't seem to make sense.

Debunking myths: Can my bank charge me for closing a bank account?

Yes, this has happened several times to many and the bank also charges you when you close your account within a particular time period. If your account was opened less than a year ago, you may have to pay additional fees in the UAE. How much does it cost to close a bank account in this case? Depending on the bank, this amount may be several hundred dirhams (usually up to Dh500).

There has consistently been a lot of hue made by consumers about bank charges especially when it comes to monthly average balance maintenance charges. Generally, if the account is closed within a year, account closure charges are levied by the bank. These are known as bank account closing charges.

However, for most banks, there will be no account closure charges in case a person closes the bank account after one year. Banks generally don't charge anything if a person closes an account within 14 to 30 days of opening it. Despite the charges, it is always advisable not to hold multiple accounts. Most of the times when we change jobs we have to open a new account as companies have tie ups with different banks. But as you change job and as salary stops crediting to a particular account for a few months it converts into a savings account.

All charges of savings account is levied on that account. You will also have to maintain a monthly average balance to avoid penalties. It is also always better to limit your bank accounts and maintain only those which are necessary. Most of the saving bank accounts are not free and come with costs like debit card fees, SMS alerts fees etc. The more accounts you will have, the more you will have to pay for these charges every year, experts say.

Closing several bank accounts would also save your from the trouble of misuse as less number of accounts would mean a regular tracking of transactions. Also keep in mind you earn an interest of around 1.5 per cent on saving bank account amount, which is much less than returns you would get while investing in mutual funds, pension funds etc.