How to Select a Bank

A bank should be tailored to your specific financial condition. Each bank has different capabilities, so finding the ideal bank to help you achieve your needs — whether it’s higher savings rates or access to a vast ATM network — is critical.

The Key Takeaways

Traditional brick-and-mortar banks, online banks, and credit unions are the three main forms of financial institutions that can be fairly referred to as banks.

Looking behind the marketing gimmicks, most bank accounts may be characterized by the fees they impose and the interest rates they pay.

Peace of mind is undoubtedly the most significant service provided by any bank and should be a consideration in your decision.

Understand that you can have accounts at multiple banks at the same time when you analyze your bank account.

Also, in many circumstances, closing an account is free or very low cost if you are no longer satisfied with your bank.

Take these steps before opening a bank account to help you make the best decision possible.

• Identify the right account

• Look for banks that charge low or no fees

• Consider the convenience of a local branch

• Take a look at credit unions

• Find a bank that supports your lifestyle

• Examine digital features

• Understand the terms and conditions

• Read reviews for banks you’re considering

1. Identify the right account

Banks provide a wide range of products and services, and comparing them all at once can be overwhelming. Matching the correct sorts of accounts to your financial goals and priorities is an excellent place to start.

The most common accounts are as follows:

• Checking accounts
• Savings accounts
• Money market accounts
• Certificates of deposit (CDs)

If you wish to replace your checking account, you should consider a larger, traditional bank that offers a variety of checking accounts. Alternatively, you may choose a high-yield checking account, such as those offered by several credit unions and online banks.

Consider opening a high-yield savings account if you want to receive the highest rate of return. Online banks often pay greater interest rates than traditional banks. As of this writing, the average savings account APY is 0.25 percent, however the top banks give around 5% APY. Online banks are equally as safe as traditional banks as long as they are guaranteed by the Federal Deposit Insurance Corporation or, in the case of credit unions, the National Credit Union Administration.

Money market accounts, which are similar to savings accounts but may allow you to write checks, are another alternative. A debit or ATM card, usually with a monthly transaction restriction, was included by several institutions. These accounts have the potential to earn a high APY, but they may have large minimum balance requirements, so select a bank that has a minimum you can meet.

CDs are an additional way to generate interest. When you put money in a CD for a fixed period — from a few months to several years — you’ll get a guaranteed rate of return. You can withdraw your funds before the CD expires, but you will most likely have to pay costs or forfeit some interest or principal. Rates and periods vary from bank to bank, so assess your financial goals and if the CDs available meet your needs.

You may also want to look for a bank that offers debit and credit cards, as well as lending products like mortgages and personal loans.

2. Look for banks that charge low or no fees

There’s no reason to continue with a bank that charges avoidable fees when many others do.

Online banks are well-known for charging low costs. Because they have fewer (if any) branches, they have reduced operational costs and so do not charge as many fees as traditional banks. Some ATMs charge free fees for some online bank cardholders.

Keep an eye out for monthly fees, ATM fees, and overdraft costs. According to Bankrate, the average overdraft cost is $29.80. Even enrolling in an overdraft protection program (in which the bank pays an unaffordable purchase) might be costly.

Many banks, even large ones like Citibank and Bank of America, are taking steps to eliminate or minimize overdraft costs. Consider whether the banks you’re comparing have capitalized on this trend by implementing more liberal overdraft policies.

Take the following measures to avoid fees once you’ve identified the appropriate account for your needs:

• Connect your checking account to another account at your financial institution so that if you overdraw one, the bank will take money from the other account to cover the transaction. This service may have a price, but it is usually cheaper than an overdraft fee.
• Set up low balance alerts on your bank’s or credit union’s website or app. These notifications, which may include SMS messages, notify you when your account is about to be overdrawn.
• See if you can get the monthly maintenance price waived. To waive the fee, banks frequently require a minimum daily balance or direct deposits.

3. Consider the convenience of a local branch

Another important issue in banking is accessibility.

According to Paul McAdam, senior director of regional banking at J.D. Power, ATM location convenience, branch location convenience, and the availability of online and mobile banking are all essential concerns.

What conveniences you value may differ based on your background. Consumers who are accustomed to performing the majority of their chores online may prioritize digital banking tools over the convenience of branch locations. For people who are more acclimated to branch banking, the opposite may be true.

Nonetheless, according to J.D. Power, branches continue to play an important part in the lives of most consumers, with 78 percent reporting they opened their most recent account or product in person at a branch. Its data also shows that handy branch offices are the most prevalent reason consumers choose their major banking institutions.

Even if you want to conduct practically everything online, you may wish to choose a bank with some physical branches.

4. Take a look at credit unions

Many consumers are familiar with the largest banks, but credit unions should also be considered.

Credit unions are non-profit, member-owned organizations. Members often see profits returned to them in the form of decreased fees, higher savings rates, and cheaper borrowing rates.

It is no longer as difficult to join a credit union as it formerly was. Many are available around the country, and many allow you to qualify for membership just by joining an organization or making a charity donation.

5. Find a bank that supports your lifestyle

The bank you select should meet your requirements. If you’re self-employed, for example, you’ll need a bank that can help you build your business.

If you want to save more money, seek a bank that has tools that can assist you in achieving your goals, such as:

• High-yield savings accounts.
• A wide range of CD terminology, allowing you to pick a term for your individual aims or construct a CD ladder.
• The capacity to create and name individual savings accounts. For example, you could create a savings account for your emergency fund, a travel fund, and a present fund.
• Features for tracking expenses. Many banks’ websites or apps have budgeting features that make it simple to manage your costs and understand where your money is going.
  

  6. Examine digital features

Most banks provide basic services, such as the ability to transfer funds, pay bills, check balances, and make mobile check deposits, via an app or a website.

However, not all banks provide services that consumers are increasingly seeking, such as the option to lock a debit card (and prevent someone else from using it) or set mobile banking alerts. Furthermore, not all online banks provide a smartphone app, so you may have to access your account via a mobile browser. Having sophisticated banking software can help you keep track of your accounts and save money.

7. Understand the terms and conditions

Important information concerning a bank account can normally be found in the account agreement, which may not be visible on the account’s home page but is usually available elsewhere on the bank’s website. Examining the disclosure might help you avoid missing any hidden fees.

If there are monthly service fees, the account agreement will include information on how to waive them. If there are out-of-network ATM fees, the fee disclosure may include whether the bank provides refunds.

Check to see if your savings are federally guaranteed by the National Credit Union Administration or the Federal Deposit Insurance Corporation (in case your bank fails).

Also, while you compare products, keep an eye out for promotional prices that are about to expire. Some banks may provide enticing teaser rates that subsequently fall to considerably lower rates.

8. Read reviews for banks you’re considering

After you’ve begun comparing a few banks, reading expert evaluations about them can help you understand what to expect from the financial institution, including customer service and goods. Customer reviews can also be beneficial, especially because many customers continue with their banks for a long time.

If you can’t decide on a single bank, managing accounts at numerous banks or credit unions may be the best option.

Types of Banks

Everything from interest rates to customer service is affected by the type of bank you choose. Online banks may not be the best option if you require in-person help. Big banks don’t necessarily provide better interest rates.

Each form of institution has advantages and disadvantages. Traditional banks, online banks, credit unions, and neobanks are only a few examples.

• Traditional Banks

• Online Banks

• Credit Unions

• Neobanks

1. Traditional Banks

Traditional banks are physical establishments that have a network of branch locations where you may manage and discuss your accounts in person. They usually provide a wide range of goods, ranging from checking and savings accounts to loans, credit cards, and investment services. Traditional banks are frequently the greatest option for managing all of your accounts in one location.

Traditional banks might be small or large, local or nationwide. The majority of today’s largest banks are traditional banks that have been operating for decades, such as Bank of America and Chase Bank, but there are also numerous smaller ones.

Traditional banks are frequently less competitive with deposit accounts, charging monthly fees and giving fewer services and lower interest rates. These banks are also more likely to have poor online platforms or to need you to apply in person for accounts.

2. Online Banks

Online banks are digital financial institutions that allow customers to open and manage accounts online. They usually do not have branch offices, however, they do have significant ATM networks.

Online banks are perfect for fee-free banking and digital technologies. Because they do not have branches, online banks typically have lower overhead expenses than traditional banks, which can result in greater savings for customers. What they lack in physical presence, they make up for with competitive interest rates and low fees. Discover Bank and Ally Bank, for example, have no monthly maintenance, ATM, or overdraft fees.

3. Credit Unions

Credit unions are a form of financial institution that is owned by its members. They are not owned by stockholders, but rather by customers. Credit unions frequently collaborate with nonprofit groups and may be active in their areas.

Credit unions, because they are member-owned, frequently offer higher interest rates on deposit accounts, lower interest rates on loans, and fewer fees than regular banks. Credit unions may also be appropriate for individuals seeking a service-oriented, specialized banking experience.

Credit unions have the disadvantage of having small branch networks and rigorous membership requirements. Some of the top credit unions, on the other hand, participate in shared branch banking and make it simple for everyone to join.

4. Neobanks

Neobanks are financial technology (fintech) enterprises with digital platforms, not banks. They do not have their charters and instead, supply services through another regulated bank. Neobanks are frequently specialized and offer a small number of products—sometimes as few as one or two accounts.

They may outperform the competition with the things they offer because they operate online and have restricted offerings. Avoid this choice if you require full-service banking, but consider neobanks if you need a specific account. Chime, for example, has only three products, yet its feature-rich mobile banking app was named to Forbes’ 2023 list of the Best Money-Saving Apps.

Bank Fees

Fees are a significant consideration when selecting a bank. One-time and recurring fees can quickly mount up, and some are quite high. The typical overdraft fee is $35 per transaction, and monthly maintenance fees can range from $5 to more than $25. Some costs are avoidable, while others are not.

Here are some of the most frequent bank fees.

• Maintenance fees

• Out-of-network ATM fees

• Overdraft fees

• Nonsufficient funds fees

• Excessive transaction fees

1. Maintenance fees

This is the cost of having an account. These are usually charged on checking and savings accounts, although they may be waived if balance and activity requirements are met. Many online accounts have no maintenance fees.

2. Out-of-network ATM fees

A bank may charge you a fee if you use an ATM that is not part of its network. Out-of-network ATM operators may also impose additional fees.

3. Overdraft fees

An overdraft fee is a penalty fee levied when you make a purchase or payment that results in a negative balance on your account and the bank or overdraft protection plan covers the transaction.

4. Nonsufficient funds fees

A nonsufficient funds fee, often known as an NSF fee, is levied when there is insufficient money in your account to cover a transaction and the transaction is returned or denied.

5. Excessive transaction fees

Excessive transaction fees are levied when you withdraw more than the monthly limit from a savings account in a statement period.
Read the account disclosures and cost schedules for any bank account you’re thinking about opening.

Bank Interest Rates

If you’re still unsure about which bank to choose, a look at interest rates might help you decide.

Many banks offer interest on deposits. Savings accounts, money market accounts, and CDs are common examples, although checking accounts can also be included. The average interest rate on interest-bearing accounts is often far lower than the maximum possible rate.

According to the FDIC, the national average interest on savings accounts has climbed in recent years from less than 0.10% APY to more than 0.40% APY. Many large traditional banks continue to pay well below the national average on savings accounts, with rates ranging from 0.01% to 0.03% APY. Online banks and neobanks, on the other hand, may pay up to ten times the national average—some of the greatest savings rates now exceed 4.00% APY.

Find the best rates by searching for the term “high-yield.” High-yield savings accounts will give you the greatest interest on your savings, while high-yield checking accounts will help you get the most out of your money.

Find out what the conditions are for earning the greatest interest rates on every type of bank account you’re considering opening. To earn the greatest rates, you may need to keep a minimum balance or make a particular amount of transactions each month.

Look at Additional Bank Features

Aside from costs and interest rates, numerous bank features can make or break your banking experience. These are some examples:

• Digital tools

• Customer service

• Security features

• Deposit and withdrawal options

• Account minimums

1. Digital tools

For convenient banking, online banking platforms and smartphone apps are essential. Both have reviews and ratings.

2. Customer service

Look for services that make contacting assistance easier, such as live chat and longer phone service hours.

3. Security features

Look for accounts that have built-in safety measures like fast debit card locking and text notifications to protect your accounts from fraudulent activity.

4. Deposit and withdrawal options

Look for banks that make it simple to get your money. Mobile check deposits, extensive ATM networks, and free transfers are all beneficial.

5. Account minimums

Find a bank that has low or no minimum initial deposit and daily balance restrictions.

What Are the Different Types of Banks Available?

How do I pick the right bank?

Consider the costs that an institution may charge when comparing banks. These fees can nickel and dime you out of your funds. You’ll also want to ensure that you have easy access to your funds and that you receive acceptable customer service. Aside from that, how you choose a bank is determined by your specific wants and preferences.

How do people choose their banks?

A good bank allows you to easily access your money, does not charge extravagant fees, has good interest rates, has online and app-based banking services, delivers exceptional customer service, and is trustworthy with your money.

In conclusion

The product offers of the majority of banks are substantially identical. The distinctions between them are found in the unique features and nuances of each product, which is why it is critical to evaluate their various conditions and fees.

Based on your goals and lifestyle, consider whether you would gain the most from what each bank has to offer. Where you like to bank and how you handle your money are important considerations. Finding a bank that checks all of your boxes and costs the least amount of fees can make managing your money much easier.

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