We often do not put much thought into choosing a bank because it seems like all banks offer pretty much the same features. But not every bank is created equal. Many people simply sign up with whichever bank their parents used, or whichever bank is closest to where they live. You might not realize that selecting a bank is one of the most important financial decisions you will ever make. It can save you headaches, hassle, and money if you get more strategic about finding the right bank for your needs. It is time to do your homework to find the one that is right for you. And we are here to help you get started.
At a bare minimum, you want a bank that is insured through the FDIC (that is the Federal Deposit Insurance Corporation). That means that if your bank fails (yeah, it happens), the government will make sure you get back any money that was in your checking, savings, money market and certificate of deposit accounts, up to $250,000. From there, you’ll want to consider two things: how a bank can save (or earn) you money, and how convenient a bank is for your personal needs.
The 4 Types of Banks (Pros and Cons)
Choosing the type that is right for you depends on the products and services you need, how you prefer to access your money, and the level of customer service you desire.
Traditional Larger Banks
These are the big names you have heard of such as Chase Bank, Bank of America, and Citigroup. Traditional banks provide more branch and ATM locations, in-person banking options and a wider range of financial products and services to customers primarily through a network of brick-and-mortar branches.
- Pros: Convenience. Just about anywhere you travel in the United States, these banks will have a physical location or ATM.
- Cons: Large banks with millions of customers have little incentive to offer the best financial products.
Online banks such as Ally Bank and ING Direct offer products similar to traditional banks but have few or no branches. Because they have less overhead than traditional banks, their fees and interest rates are often more competitive. But while online banks have customer service representatives to assist you, you will not be able to walk into a branch if you have a problem. If you do not need constant access to ATMs or to be able to speak with a teller, there is no reason not to consider this type of institution.
- Pros: They pass some of this cost savings on to their customers in the form of higher interest rates on checking and saving accounts, and better customer service.
- Cons: No in-person interaction (only online chat or telephone) and fee-free ATMs are often available, but only in or near urban locations. If you live in a rural area, you may have to drive miles to find one.
Credit unions are nonprofit, member-owned organizations that provide financial products and services to their members. Since credit unions are member-owned, profits are returned to members in the form of lower fees and rates on loans and higher interest on checking and savings accounts. And because of that member relationship structure, your local credit union may be more willing to work with you than a larger bank would.
- Pros: Because members and owners are one and the same, you can often find lower account fees and better interest rates on loans and savings and checking accounts.
- Cons: You need to meet the requirements of any specific credit union to open an account and you probably will not find any branches if you travel out of your credit union’s direct area. Product types are not as varied.
Community or Regional Banks
These banks usually have a much smaller network compared to national bank chains. Interest rates and products vary from bank to bank, but these banks offer basic accounts and a more personal brand of service.
- Pros: You can find similar services to a big bank with a smaller, hometown feel. Plus, community banks are generally more willing to work with you based on the relationship you have with them.
- Cons: Rates and products are not as varied as what large organizations offer. Also, online banking may be less sophisticated at community banks than online and multi-national banks. Lack of access to branches when traveling.
Monetary Factors: Look For the Fees
With interest rates being so low for the last few years, there are not many banks currently offering jaw-dropping interest rates to entice you to open a savings account. However, you will still want to shop around and get the best deal you can. Interest rates are important because earning more interest on your savings (or, conversely, paying less interest on a bank loan) puts more money in your pocket.
Perhaps even more importantly, you want to make sure you will not be paying a bunch of fees that will eat up your meager interest earnings. Some fees like cashier check and wire transfer fees are unavoidable no matter where you bank. But, there’s pretty much no reason to go with a bank that’s charging a monthly service fee just to have a checking account. Many banks offer free checking, but you will still want to read the fine print to look for other hidden fees such as:
- ATM out-of-network fees. Some banks charge you up to $5 per transaction if you happen to use an out-of-network ATM. To avoid this, look for a bank with a robust ATM network. Some online banks even offer to reimburse out-of-network fees.
- Overdraft protection fees. The average fee in the U.S. for overdrawing your account is $34. Ouch! Many banks allow you to tie your checking account to your savings account, to cover times when your checking account falls a little short.
- Early account closure fees. Some banks will charge you if you close your account within a short time after you open it.
- Minimum balance fees. Be very careful about this one. Some banks will charge you a monthly fee if your balance drops below a certain threshold — sometimes a threshold that most Americans would consider quite high — like in the thousands of dollars.
Convenience Factors: Find a Bank to Fit Your Life
We are all busy every day just trying to earn a living, so don’t add to your to-do list by keeping your money someplace that makes accessing it inconvenient. You want to choose a bank that makes it easy to set up direct deposit and has mobile deposit options for any paper checks you receive.
Most banks offer online banking these days, so make sure you like the user interface and functionality available, including online bill pay, which saves you time and postage stamps. See what technology your financial institution has that will allow you to bank from home or on the road, as well as any apps they have that could make your banking experience more convenient.
With concerns about the safety of online accounts increasing, you may want to look for a bank or credit union that has two-factor authentication, which provides an added layer of security to your banking transactions.
If a physical branch is important to you, make sure there is one nearby and that it has convenient business hours. If you travel frequently, you may also want to consider whether there are branches and ATMs in the cities you visit most.
Last, but not least, you will want to check out some customer reviews. Are there lots of complaints about hidden fees or not being able to talk to a human when you need one? If so, keep shopping.
Choosing a Bank: The Bottom Line
Consumers tend to remain customers of their banks for a long time. Carefully weighing your options is best before committing to a particular bank, because you want to choose a bank or credit union that you actually enjoy doing business with and that fits your lifestyle. Look at the products and services they offer, their fees, accessibility and ease of use, and the digital and online options. Read reviews, and ask for recommendations, and do not forget to ask about a bank’s security measures. With online hacking and breaches a common threat, you cannot be too careful these days. And, given that banks make money charging fees to their customers, you have a right to expect they are protecting your money. And when you do find the bank that is right for you, don’t forget to sign up for low balance and fraud alerts so that you can keep your account safe and in good standing.