It is important to select a bank that aligns with your lifestyle and meets all of your financial needs and goals. Most offer similar services, but there are differences between each products and policies that can have a big impact on how suitable they are for you. When selecting a bank, the major factors to consider are their type (online, regional, credit union, etc.) and their associated fees. You should begin the process of choosing a bank by identifying what is most important to you as a user.
Once you know the type of bank you want to do business with, you should narrow down your choices by examining things like interest rates (the higher the better) and fees (the lower the better). When it comes to savings accounts the national average savings interest rate is 0.06%, the average checking rate is 0.03%, and the average money market rate is 0.09%. Use these as benchmarks when selecting a bank. We discuss fees in greater depth below.
Choosing Between Different Banks
One of the first things to consider is the type of financial institution you wish to hold accounts with. Banks can be International/National, Regional/Community, Online-Only, or a Credit Union.
National banks are often one of the most convenient options out there. With their abundance of physical locations and ATMs all over the country (or the world), customers for these types of banks will have no issue finding branches near them, wherever they may be. However, because they are so large and have so many customers, these types of banks usually offer the least competitive interest rates and fees. For those who travel a lot, opening accounts with these large banks will offer them the most flexibility.
These institutions can also be great for students. Most national banks offer student-specific accounts that have looser balance requirements and fee schedules. They are also especially convenient for individuals that may attend college far away from their hometown.
National Bank Highlights
- Wide ATM networks allow you to bank anywhere you go.
- The average savings interest rate for national banks is 0.06% according to the FDIC.
- Rates aren't as high as some online and regional banks, which means your money won't grow as quickly.
- Good option for students
Because regional banks and credit unions often operate on a smaller scale, customers can have a much more intimate relationship with these financial institutions. Furthermore, these smaller institutions generally offer better interests and more competitive fee schedules. However, because of their geographic limitations, it may be inconvenient to withdraw and deposit money when traveling. Furthermore, you may have to switch banks entirely should you move out of the area.
Credit Unions are not-for-profit organizations that offer the same financial services to banks. Unlike traditional banks, these institutions are member owned and cooperative institutions that oftentimes offer customers better rates than typical banks. However, in order to have an account with a credit union, you must first qualify to be a member of the credit union. Different credit unions have different membership requirements. These requirements commonly include your employer, geographic location, family, or membership to a particular group or trade union. Furthermore, because credit unions generally have fewer locations you may run into similar geographical constraints as you would with regional and community banks.
Regional Bank & Credit Union Highlights
- These banks are known for having better interest rates, and better customer service.
- May require you to switch banks if you ever move.
Due to an absence of costs associated with holding brick and mortar locations, online-only banks are able to relay these savings to customers by offering some of the most competitive interest rates and fee schedules of all the banks. However, because these banks lack physical locations, withdrawing and depositing cash or checks can be cumbersome at times. Therefore, for individuals that regularly handle cash, these types of institutions may not be the most ideal. If you are enrolled in automatic direct deposit with your employer and rarely use cash, consider opting to enroll in an account with an online bank. The lack of physical branches is unlikely to be a hindrance.
Online Bank Highlights
- Typically online banks have the most competitive interest rates and fees.
- Not as good for people who want face time with a banker, especially when going over more complicated financial products.
Studying the fee schedule is an extremely important task that a customer should perform before choosing a bank. Banks may not always be completely transparent with their fees and may sometimes need be contacted directly for this information. It is crucial that you conduct research and are not blindsided by any charges to your account. A fee may not be particularly high, but multiple unexpected charges over time can really eat away at your savings. Some of the most common fees charged at banks are overdraft fees, account maintenance fees, and ATM fees.
When you choose a bank, make sure you aren't being charged fees that are well-above average.
Overdraft Fees: Overdraft fees are incurred when a customer’s withdrawal is greater than the account’s available balance. These are usually the most expensive fees that a bank will charge. While this fee primarily hovers around $35 and $36, some banks will charge a lot less, sometimes even as little as $20.
Typical Overdraft Fee: $29
Account Maintenance Fees: This fee also varies dramatically depending on your bank and the particular account you hold. Most of the time, these monthly fees will be waived as long as you meet a certain balance requirement. Of course, this balance requirement varies heavily as well. Some banks advertise accounts with absolutely no maintenance fees. Others will not waive the maintenance fee, regardless of the amount of money that you have saved in the account. Most student accounts lack monthly account maintenance fees.
Typical Maintenance Fee: $6/month for savings & $7.76/month for checking
ATM Fees: You will never be charged for using your own bank’s native ATMs but many have small charges for withdrawing money from another institution’s ATMs. This coupled with an additional fee that the other ATM usually charges you for not being an account holder can make it very costly to withdraw money from your account. Some banks will not charge customers non-native ATM fees. This means account holders will only need to pay the fee on the particular ATM they are withdrawing from. National/international banks, as well as some credit unions, will occasionally offer customers with high savings accounts a certain stipend in ATM fee reimbursements each month.
Typical ATM Fee: $2.50 - $5.00
Other Important Considerations When Choosing a Bank
Ensuring that your money will be safe at whatever bank you end up doing business with is of paramount importance. The FDIC will protect up to $250,000 of your savings at each bank, not per account at each bank. Therefore, if you have high volumes of savings, you may want to consider opening accounts across multiple banks in order to protect as much of your money as you can. While larger banks may be more well known and generally may have better reputations, even these large institutions can be involved in major scandals. Smaller institutions are not necessarily any less secure than their larger counterparts but may not have as much publicity surrounding them. Therefore, be sure to look into their credentials before conducting business with them.
Finally, one of the last things to consider before committing to a bank is to assess your needs as a customer and determine your personal preferences are for banking. Are you a person that needs human interaction when conducting transactions? Or would merely working with a machine suffice? How is the bank’s customer service department and how much will they be willing to help you should special circumstances arise? Overall, by considering these factors and all the ones listed above, you will be able to select a financial service provider that aptly satisfies all of your banking needs.