Choosing a financial institution to handle your money is one of the most important financial decisions you can make. You will receive significantly different amounts of interest on your money if you open an account with different banks. Banks offer widely different levels of service, charge widely different levels of fees, and charge a wide range of fees.
In practice, this means choosing the right bank is rarely a one-off decision. With changing financial and investment goals, your best bank will likely change over time. Therefore, a useful tip is to remember that you have no limit on the number of bank accounts you can hold or how often you can switch banks.
As with your investments, diversifying your bank accounts can help you maximize your returns. Here is a guide that will help you choose a bank for checking and savings accounts based on the three most important factors: the type of bank, the rates and fees it charges, and the additional features it offers.
Types of Banks
The first and most important factor when selecting a bank is the type of institution that fits your needs. As a general rule, there are at least three different types of financial institutions that can reasonably be referred to as banks, each with its own advantages and disadvantages.
Most people think of traditional banks when they think of banks. Most of these banks provide services to their customers through brick-and-mortar locations and offer ATMs to both their own customers and those of other banks. In addition, they offer online bill pay and deposit services.
In spite of their longevity, traditional banks are less attractive today than their online competitors or credit unions. Both of these institutions charge lower fees than traditional banks.
However, you might prefer to do your banking in person. In case of questions or problems, you can visit the branch nearest to you. This may make traditional banks a better choice for you. However, it’s still worth exploring other options.
Online banking allows you to manage your money via the Internet—when and where you want. You can view all your banking transactions, move money, view and print your canceled checks, and pay bills online.
You can also set up notifications for when checks clear or your balance goes under a predetermined minimum. Many online-only savings accounts offer higher interest rates than traditional banks.
The main benefit of online banking is convenience. You can access your accounts and complete transactions from anywhere at any time. You can automate transactions to beef up your savings or make sure bills get paid on time every month.
Mobile banking apps add even more convenience than online banking. With these apps, which are offered by many banks and credit unions, you can manage your money from your smartphone, no matter where you are.
These apps allow you to deposit checks remotely, so you don’t need to go to the bank or ATM. You can do virtually any banking function using your mobile banking app, including:
- Making transfers
- Paying bills
- Checking your balance
- Reviewing transactions
- Reporting fraud
The only thing these apps can’t do? Give you cash. However, they can direct you to the nearest ATM or brick-and-mortar bank so you can get the cash you need quickly. In addition, payment apps like PayPal, Zelle, and Venmo let you quickly and easily transfer money to other people.
You can use these apps for everything from secure online shopping to splitting a dinner check when you’re out with friends to sending and receiving money immediately. You can link these apps to bank accounts and credit card accounts, then pay whichever way works better for you at the time.
However, many people find customer service offered by online banks frustrating. This is a fact recognized by the industry. Most online banks now provide extensive customer support, but you won’t be able to speak to a bank employee in person.
As the digital tools and services offered by traditional banks have become more advanced, the distinction between online and traditional banks has become increasingly blurred. So, it may be possible to enjoy the convenience of digital banking while also enjoying the advantages of a traditional branch.
Learn more about how to increase the security of online banking.
Credit unions are owned and controlled by customers, who are members. They are nonprofit organizations that return surplus earnings to members in the form of lower interest rates on loans, increasing interest rates on deposits, or offering free or low-cost services.
Similar to banks, credit unions offer accounts that are insured and fully backed by the US government. This ensures that your accounts will be protected for up to $250,000 in each participating financial institution. Banks are backed by the Federal Deposit Insurance Corporation (FDIC); credit unions are covered by the National Credit Union Administration (NCUA).
Joint accounts (accounts with two owners) have $500,000 of protection ($250,000 for each owner) and are treated as separate from any accounts held by each individual owner in his or her own name.
That means you would be insured for up to $250,000 in accounts in just your name, as well as half of a $500,000 joint account. Retirement accounts such as IRAs are also treated separately for purposes of the $250,000 FDIC protection. For example, a married couple could have the following accounts FDIC-protected at the same bank:
- $250,000 in husband’s name
- $250,000 in wife’s name
- $500,000 in a joint account between husband and wife
- $250,000 in an IRA for the husband
- $250,000 in an IRA for the wife
That would protect a total of $1,500,000 in one financial institution!
Credit unions, however, can have very strict rules for members in order to access their services. They also may not all provide online banking. Having to access and work with one of these accounts regularly may not be the best option for a checking account.
Fees and Interest Rates
In choosing where to bank, it is also important to consider the institution’s fees and interest rates. People typically maintain two types of accounts: a checking and a savings. It is very often beneficial to have these accounts at different institutions because the features you need for each type of account will differ.
Fees you must know
A checking account typically comes with a monthly fee, but this fee can vary widely depending on the bank. You may be able to have these fees waived or reduced by your bank if you meet certain requirements, such as maintaining a minimum balance requirement or setting up direct deposit.
For a checking account to be as cost-effective as possible, you need to understand what a bank will charge you. Common charges include:
- Monthly maintenance fees
- Overdraft fees
- Statement fees
- Wire transfer fees
- Returned check fees
- Stop payment fees
- Certified check fees
- Cashier’s check fees
- Out-of-network ATM fees
Among checking accounts, fees are by far the most important factor. In all other respects, the checking account with the lowest charges is the best.
You should look for a different set of features for your savings account. Savings accounts should not need to be accessed as often as checking accounts, so you won’t need app or online banking services. You won’t pay high fees on most savings accounts when you don’t make frequent withdrawals.
Instead, the principal way that these deposit accounts differ is in their interest rates. It is often credit unions or online banks that offer the best rates, although they can vary widely. Research rates before you put your money in savings.
Two of the most fundamental aspects of choosing a bank are the type of institution you choose and how much it will cost you in fees or lost interest. Most banks, however, will also offer a variety of other services, discounts, or features that you might find useful.
Since everyone’s needs vary, take a moment to consider how you use your accounts and where you might be losing money in fees or time. From there, find the bank that’s perfect for you. Things to consider include:
- Online and app-based banking. These options are now available at most banks. You can save a lot of time if you use your account a lot, including setting up new payments and managing standing orders.
- Local branches and ATMs. Despite the fact that most of your banking is done online, there may be times when a branch is more convenient. Local banks are essential to many people, at least for their checking accounts. For example, if you travel frequently and need easy access to cash on the road, having a network of ATMs may be important to you.
- Security. The level of security offered by banks for online services varies, despite the fact that most of them are insured against loss. It may be helpful to scan the news for recent security breaches at banks to rule them out.
This last point relates to another-you should choose a bank that you can trust. In most cases, people believe that large national banks are trustworthy because of their name and reputation, or simply because they bank with their parents. This is not wrong-peace of mind is perhaps the most important service a bank can provide, and should play a significant role in your decision.
The best way to choose a bank can be summarized quite easily. Look for a bank that:
- Provides easy access to your money
- Has no exorbitant fees
- Provides a good interest rate on your savings
- Provides great online banking and app-based services
- Offers excellent customer service
- Is trustworthy when it comes to your money
Compare a few options according to these criteria, then see which bank or credit union is the best. It’s okay to change your mind or open another account if your first choice turns out not to be optimal for you.