Wondering how to choose the best bank? There certainly is a lot to consider. Whether you’re opening an account for the first time or looking to switch banks, the right bank for you should be a reflection of your financial goals.
At a minimum, any bank you choose should provide you with security and flexibility. But there are a number of other factors that you must consider as well.
How To Choose a Bank for Your Financial Needs
Here are 8 tips to help you choose the best bank for your financial goals:
- Know Your Bank Options
- Know Your Account Options
- Make Sure They are Insured
- Review Fee Structure
- Review Balance Requirements
- Customer Service Should Be Readily Available
- Review Interest Rates
- Other Financial Products and Services
Types of Banks
First, it’s important to understand the different types of banks that are out there. Once you do, you can narrow down your choices by focusing on the services and features that are important to your banking experience.
Here are the main types of banks:
Traditional Banks
Traditional banks, as the name suggests, are the oldest and most common type of bank. Think of the big national banks like Bank of America and Chase, with physical branches scattered across the United States.
The main benefit of traditional banks is accessibility. Fee-free ATMs and local branches should be relatively easy to find when you need them. You’ll also have access to a wide variety of financial services and well-constructed websites and mobile apps.
The downside of large, traditional banks is that, as with most bigger banks, you’re one of many people that they’re working with. With so many customers to serve, large banks may not offer the most personalized customer service. They may also be less flexible with things like checking account fees.
Online Banks
If you want a traditional experience, but don’t feel like you need a brick-and-mortar bank, an online bank might be a good option.
Online banks have few or zero physical locations. All of their services, like online banking, bill pay, and checking, are generally accessible online or over the phone.
And, since their entire business runs on the internet, their mobile bank apps and websites are generally user-friendly.
Another benefit is that online banks are often able to provide more competitive interest rates and lower fees because they don’t carry all of the overhead that traditional banks do.
Credit Unions
For those looking for something more community-oriented, a credit union could be a great fit.
Credit unions are member-owned non-profit organizations. If you join one, you’ll have a vested interest in it. If a credit union does well, those profits are shared with its members.
Due to their community-focused design, credit unions have a reputation for good customer service. You may also find better rates than traditional banks can offer.
One drawback, however, is that since credit unions are locally-based, they don’t have the deep pockets of the big banks. As a result, their technology is typically a little behind, especially when it comes to mobile banking.
So, don’t expect to experience the same types of high-end websites and mobile apps that larger banks provide.
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Types of Accounts
It’s also important to know what types of accounts each bank offers.
Here are the three most common types of accounts that you can expect to choose from:
Checking Account
A checking account provides all of the essentials for your everyday banking needs — a debit card, physical checks, and the ability to transfer funds and pay bills.
A checking account is used for most purchases, and when you take out cash from an ATM, it’s usually coming from this account.
There are several different types of checking accounts, such as premium or rewards checking and many banks offer free checking account options, so be sure to understand the different offerings that each bank has.
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Savings Account
Savings accounts are typically used to store emergency funds or for setting money aside that you plan to use for a particular purpose (e.g., a down payment on a home).
While you can take money out of a savings account, some banks have a limit on how much, or how many times, you can withdraw money from it each month.
High-Yield Savings Accounts (HYSAs) typically offer a higher Annual Percentage Yield (APY) on your deposits than traditional savings accounts.
In most cases, you can earn more money from the interest in an HYSA than with a traditional account.
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Money Market Account
Money Market accounts live somewhere between checking and savings.
They’re interest-bearing as well, and typically provide a bit more flexibility than a traditional savings account.
What makes them different is that money market accounts generally require a higher account balance.
In exchange, may get higher interest rates.
Next, let’s take a look at some other important considerations when choosing a bank.
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Insurance is Always Required
No matter what type of financial institution you work with, you’ll want to make sure that they’re insured.
Most banks are covered by the Federal Deposit Insurance Corporation (FDIC), while most credit unions are insured by the National Credit Union Administration (NCUA).
Both the FDIC and NCUA insure the bank or credit union for up to $250,000 per customer, so if the institution holding your money ends up failing, you’ll be covered for up to that amount.
Not all banks will be insured, and the bottom line is that this isn’t an area where you want to be taking risks.
Watch Out For Fees
Each bank has some level of fees, whether it be checking account fees, overdraft fees, ATM fees — it’s just part of the business.
But, with careful planning and choosing the correct bank and account, you can find a way around most of them.
The key to avoiding unnecessary costs with your bank is to understand which fee-triggering behaviors you may be susceptible to.
If you tend to overdraft your account, carry a low balance, or frequently transfer money out of your savings, you’ll want to choose a bank that offers overdraft protection.
Beyond that, banks may offer simple ways to avoid fees, such as linking your account with a direct deposit from your employer.
Traditional banks typically have the most and highest fees, but they sometimes will wave the occasional overdraft fee.
Community banks and credit unions may have lower monthly maintenance fees than national banks, but you might pay ATM fees, for example.
Fees can be annoying and frustrating, but with the right approach, you’ll be able to avoid them and save money over time.
If you’re the type of person who likes to have cash on hand you probably want to look for an account that doesn’t charge ATM fees.
While the big national banks boast thousands of convenient locations, many of them charge ATM fees if you use an out-of-network ATM.
Online banks and credit unions often waive ATM fees or offer ATM fee reimbursement.
Balance Requirements Will Vary
Each bank, and each account within the bank, will likely have some level of a minimum balance requirement to avoid fees and keep the account open.
The last thing you want is to end up with a bank account that has a daily requirement outside your means, so be sure to look into it ahead of time.
Accounts with higher account minimums, such as money market or private bank accounts, will usually offer greater benefits than those with a low requirement.
If you tend to keep a low balance, look for a bank that doesn’t require a minimum balance.
If you are a higher-income individual, it might make sense to consider premium accounts that offer perks in exchange for holding higher balances.
Good Customer Service is a Must Have
The quality of customer service varies from bank to bank. A large, multi-national bank might have the workforce to sustain a massive customer service platform.
At the same time, you may have to wait longer for assistance due to the volume of customers they’re serving. You also won’t have a personal relationship with the banker.
Online banks often have self-service customer support platforms. In some cases, online banks don’t even have a number that you can call.
Credit unions and local banks have the upside of people on the ground who are part of your banking community.
At the same time, they may not be able to match the customer support resources that larger banks offer.
Pro Tip: Be sure to look online for customer reviews, or ask your friends and family what their experience has been with any particular bank. Banking is an industry that tends to inspire strong feelings in customers one way or the other, so, it should be easy to find plenty of honest, first-hand experiences.
Interest Rates Will Vary
Banks want to keep you happy and retain you as a customer. One of the ways they’ll attempt to do that is by offering competitive interest rates.
Whether you’re working with an interest-bearing checking, savings, or money market account, you’ll want to take advantage of the highest interest rates you can find.
APY is the name of the game when it comes to earning interest with a bank account, which is the amount of money that you can expect to earn on your deposits. This amount varies from bank to bank.
Online banks, due to their low operating costs, tend to offer more competitive APYs than traditional banks. But it also depends on the type of account you hold.
Other Financial Products And Services
If you’re looking for more than just a standard bank account, you’ll want to look into the other products and services that the financial institution offers.
Many banks offer additional products, such as credit cards, mortgage loans, retirement accounts, and wealth management advising.
Keeping all of your accounts with the same institution can make life easier. If you’re early on in your personal finance career, it might be a good idea to think down the road.
How To Choose a Bank: FAQs
What are some things to look for when choosing a bank?
Believe it or not, the first step in choosing a bank is not looking at banks themselves — it’s self-evaluation.
What is your current financial situation? What are your financial goals? What concerns do you have about banking? Do you need help budgeting?
Once you can answer these questions, you’ll have a clearer image of the type of bank you need. Identify what it is that you need from a bank, and find the one that can provide as much of it as possible.
How do I choose a bank for the first time?
Getting your first bank account can be intimidating, but following the above steps and being honest with yourself about what you’re looking for will make it much easier.
Your first experience with a bank should be simple and worry-free.
You probably do not want to jump right into a complex money management platform before you fully understand your financial goals, and how a bank can help you achieve them.
Talk to people in your life who have been banking for years, and understand what they love and hate about it.
Compare bank reviews, read first-hand user accounts, and try to learn as much as you can about what each bank is all about.
What are the best banks to bank with?
The best bank will always be the one that fits in with your individual needs. With that in mind, it’s hard to say which particular bank is the best one to go with.
The best banks for a college student will obviously differ from the best banks for small businesses. That being said, there are several watermarks of the best banks.
- They should be insured.
- They should have customer service that is helpful and available when you need it.
- People who bank with them already should feel happy and secure in doing so.
- And most of all, they should enable you to access your money and grow it over time.
What is the best type of bank account?
At the risk of sounding redundant, it depends. There’s no single bank account that meets all the needs, just as there is no bank that works for everyone.
The best type of bank account is the one that meets your needs and preferences.
It also helps when the bank is transparent about what it can do for you and has a proven track record.
As always, read the fine print so that you know exactly what you’re getting into, and compare it with other options.
With the right approach, your bank will be something that you don’t even need to worry about as you grow your wealth over time.
