Bankrate
There are a countless number of decisions we have to make in life. We have to decide where to work, which home to buy, who to marry and where to bank.
Picking a bank isn’t as stressful as picking a mate or a house, but it’s not easy. Parking your cash in the wrong place can cost you.
Before committing to opening an account, consider these tips to ensure you’re making the right choice.
1. Identify the type of account you need
Banks offer many different types of products and services. Trying to compare all of them at once could seem overwhelming. A good place to start is deciding which type of account you want to open based on your financial goals and priorities.
If you’re interested in saving more money, you could open a high-yield online savings account. The Federal Reserve has cut interest rates twice so far in 2019 and many banks have lowered savings account yields. But compared to their brick-and-mortar counterparts, online banks are still offering competitive rates.
Perhaps you’re looking to replace your checking account. If that’s the case, you might want to go with a bigger, traditional bank that has multiple types of checking accounts to choose from. Or you may want a high-yield checking account like the ones often offered by credit unions and community banks. Money market accounts — hybrid accounts that may have check writing privileges, but allow for a limited number of monthly transactions, like savings accounts — are another option, but aren’t offered by all banks.
As you’re doing your research, knowing what you want out of a bank can help you narrow down your list.
2. Focus on the numbers
Don’t like wasting money? Find a bank that doesn’t levy unnecessary charges.
“Why would you pay $100 a year for checking, savings and basic banking if you can pay $30 or $5 or nothing?” says Douglas Boneparth, a CFP professional and president of Bone Fide Wealth, a New York City-based financial adviser firm.
Since online banks have few (if any) branches, they have fewer operating costs. That’s why they usually don’t charge as many fees as brick-and-mortar banks.
Fees you should watch out for include monthly maintenance fees, ATM fees and the cost of overdrawing a checking account. Bankrate data reveals that the average overdraft fee is around $33.36 in 2019. Even opting for an overdraft protection program (where the bank covers a purchase that you can’t afford) can be expensive. The Consumer Financial Protection Bureau (CFPB) found that those who opt in to overdraft protection pay about seven times more in fees than those who don’t.
When you’re shopping for a new bank, find one that has more lenient overdraft policies.
And when you find your perfect account, do this:
- Link your checking account to another account at your financial institution so that if you run out of money in your checking account, the bank will pull money from the other account to cover the transaction. You may be charged a fee for this, but it’s typically less than an overdraft fee.
- Sign up for low-balance alerts through your bank or credit union’s website. These alerts, which you may be able to receive on your smartphone, will alert you when you are at risk of overdrawing your account.
3. Think about accessibility
When it comes to banking, another key factor is accessibility.
Most consumers will want to take into account ATM location convenience, branch location convenience and the availability of online and mobile banking, says Paul McAdam, senior director of banking services at J.D. Power. The characteristic that’s most important, however, varies, particularly by generation. For younger consumers, mobile banking capabilities trump branch location convenience. The opposite is true for older bank customers.
Still, branches continue to play a role in the lives of most Americans, with 78 percent saying they’ve opened their most recent new account or product in person at a branch, according to J.D. Power. Their data also indicates that branch offices in convenient locations is the most common reason why a consumer selected their primary financial institution.
The takeaway? Even if you plan to do almost everything online, you might want a bank with some physical branches.
4. Don’t rule out credit unions
Many consumers are familiar with the biggest banks. But you’ll want to shop around and consider credit unions, too.
Finding out what local credit unions offer may take time. However, doing some research could pay off.
“By not having shareholders, credit unions can reinvest their earnings in the form of lower, reduced loan rates and higher earning rates on savings,” says Jaspreet Chawla, vice president of membership at Navy Federal Credit Union. “This creates a unique relationship that generally leads to more opportunities for members to engage with and have a voice in organizational decisions.”
Joining a credit union is not as difficult as it used to be. Quite a few are available nationwide and many allow you to qualify for membership simply by joining an organization like the American Consumer Council.
5. Find a bank that fits your lifestyle
The bank you choose should meet your needs. If you’re entrepreneurial, you’ll want a bank that can provide support as you build a business.
If you’re trying to save more money, Ben Brown, founder of the investment advisory firm called Entelechy, recommends looking for a bank that lets you open and name separate accounts.
“What I typically do is have clients open their main checking account, which acts as sort of a clearinghouse and then multiple savings accounts for different goals,” Brown says. “You might have a travel fund, a gift fund and a regular expense fund, just to make budgeting much easier.”
Considering your spending habits is also a good idea when deciding where to bank. Many banks have budgeting tools built into their websites or apps that make it easy to track your expenses and see where your money is going.
6. Examine digital features
Most banks offer basic services through their mobile and online channels, McAdam says, like the ability to transfer funds, pay bills, check balances and make mobile check deposits. But not all banks offer advanced digital capabilities.
Some banks are missing features that are increasingly being demanded by consumers, McAdam says, like the ability to lock a debit card (and prevent a stranger from using it) or manage mobile banking alerts. In certain cases, there are online banks that don’t offer a smartphone app.
If you value a high-tech online or mobile experience, read our bank reviews and check with the banks you’re interested in to see if they can provide what you’re looking for.
7. Understand terms and conditions
You shouldn’t open a bank account without knowing what’s in the fine print.
If there are monthly service fees, ask whether you can get them waived. If there are out-of-network ATM charges, find out whether the bank offers refunds.
Make sure your savings will be federally insured by the National Credit Union Administration or the Federal Deposit Insurance Corp. (just in case your bank closes).
Finally, as you’re comparing CD rates and other products, watch out for promotional deals that expire.
“Teaser rates or things like that — these are things that typically look good in the short-term,” Boneparth says. “But over the long-term, it ends up costing you money.”
8. Do your homework
You don’t want to become a member of a credit union or a customer of a bank without knowing exactly what you’re getting yourself into. Once you’ve reached the point where you’re comparing a handful of banks, consider reviewing what experts have to say about them.
Find out where your bank of choice might stand in terms of customer service and whether you’re the type of person who would benefit most from what they have to offer.
Consumers tend to remain customers of their banks for a long time. Carefully weighing your options is best before agreeing to begin a relationship with a particular bank. If you’re having a hard time settling on one bank, consider whether you can handle managing accounts at several different ones that can collectively help you stay on top of your finances.
