Updated on Friday, June 18, 2021

Whether you’re choosing a bank for the first time or debating switching to a new one, there are multiple factors you should consider to ensure the bank you choose is the right one for you. Specifically, you should identify your own unique needs that you’d like your financial institution to fill. It’s also important to look at items like fees and interest rates to set yourself up for financial success.

It can be tough to know where to start when choosing a bank, but answering the following eight questions can help you find the right financial institution for your needs.

1. What type of financial institution is right for you?

Ultimately, there are pros and cons to each type of financial institution, making it important to identify your unique needs and look at which type of financial institution comes closest to meeting them. Here are the three main types of financial institutions you’ll likely be choosing between:

• Traditional banks are for-profit institutions that are owned and controlled by their shareholders. Anyone can open an account with one of these institutions, as you don’t have to be a member to do so. Traditional banks have physical branch locations for in-person assistance, but their rates can be lower in comparison to those offered by online banks and credit unions.
• Credit unions are not-for-profit financial institutions that are formed by another entity, like a corporation or a community group. They vary greatly in size, but are controlled by their members — who are also their customers — which helps them to act in their customers’ best interests. As a result, credit unions tend to be more local and community-oriented, but also more regional with fewer branches and less access to some of the technology of big banks. You’ll typically need to meet certain requirements in order to become a member of a credit union and open an account.
• Online banks, or internet-only banks are banks where you exclusively access your account online. Since online banks do not have physical branches, there will be no access to in-person services. The tradeoff is that online banks tend to have some of the most competitive rates, due to their lower overhead costs.

2. What services do you need?

When choosing a bank, it’s important to identify the specific services you’re looking for, and to then make sure the institution you choose offers them. Many banks offer a standard list of services, such as checking and savings accounts, debit and credit cards and mobile and online banking. Beyond these more standard services, a financial institution may also have offerings such as car and mortgage loans and financial advisory services.

You should also consider whether you want to do all of your banking with one institution or if you’re comfortable working with multiple banks. It may be worthwhile to open accounts with multiple financial institutions if you’re chasing the highest rates, for instance, or you want to devote an account to a certain purpose. On the other hand, you might value the ease of having all of your accounts in one place, as well as access to a broader range of services.

3. What type of accounts do you want?

Once you’ve determined the type of financial institution that’s right for you and which services you’ll need from it, it’s important to figure out the type of account you want to open. This decision will depend on your goals and how you plan to use the account.

Below are some common account types you may consider:

• Savings account: A savings account is an account held by a financial institution where you deposit money, typically in exchange for a small amount of interest. Most allow you to make a maximum of six withdrawals a month, with a fee charged for each additional withdrawal. This makes them slightly less liquid yet still accessible, making them a good fit for an emergency fund or short-term savings.
• Checking account: A checking account is a highly liquid account that allows for easy and unlimited deposits and withdrawals of your funds. However, due to this liquidity, the interest accrued on checking accounts typically isn’t substantial. Checking accounts are usually a good option for covering everyday expenses and receiving direct deposits.
• Money market account: A money market account is a type of deposit account with qualities of both a savings account and checking account. They tend to earn higher rates than savings accounts, but the minimum balance requirement is also usually higher. Though you’re still limited to six withdrawals and transfers per month, money market accounts typically come with checks and ATM cards, allowing for greater accessibility.
• CD: A certificate of deposit (CD) is a time deposit account, where you deposit your money for a set period of time, generally from six month to five years. In exchange, you generally earn a higher interest rate, but you cannot touch the money in the account for the full term of the CD. If you pull out the money before the time is up, you’ll likely face an early withdrawal fee. This makes CDs best if you’re saving for a goal in the future and are confident you won’t need to touch the funds in the interim.

4. What fees are involved?

Be sure to investigate the kinds of fees a financial institution may charge you for different activities, such as overdrafting your account or using an out-of-network ATM, not to mention monthly maintenance fees you could owe simply for having the account.

An effective way to avoid fees is to look at your needs and typical banking habits, then pick an account that aligns with them. For instance, if an account requires a minimum balance in order to waive the monthly fee, make sure it’s feasible for you to maintain. If having a higher minimum balance could be difficult for you, find an account with a low or no minimum balance.

The same goes for dodging overdraft fees and ATM fees. If you know you have a tendency to accidentally spend more than you have in your account, look for an account that doesn’t allow overdrafts or at least offers overdraft protection. Similarly, some banks have broader ATM networks than others, or may even reimburse costs you incur from making out-of-network withdrawals.

It’s important to do your research and be aware of potential fees attached to certain activities to avoid surprise charges. The fees may look low at first glance, but they can certainly add up.

5. What is the interest rate?

It’s also crucial to explore interest rates when you’re choosing a bank to ensure you’re getting the best rate available based on your needs. You want to make sure your money is working for you, not just sitting there.

You can usually find a financial institution’s current interest rates listed on their website. To determine just how competitive the rates are, it can help to take a look at a benchmark like the FDIC to see the current national average rates for a given account category.

Interest rates fluctuate from institution to institution, so it’s important to do your research and shop around for your best rates. In general, the rates offered by online banks and credit unions tend to be the most competitive.

6. What mobile banking options and apps are offered?

The technology offered by financial institutions can enhance your banking experience. Bank apps can include features such as mobile check deposit, budgeting tools, savings features, bill pay and more, making it easy to skip a trip to the bank and improve your financial habits.

Still, some banking apps are better than others. It’s going to be crucial that the app and website are user-friendly and easy for you to navigate, especially if your bank is online-only. In addition, security features such as two-factor authentication are vital to making sure your information stays safe.

7. What is the ATM and branch accessibility like?

Access to ATMs and physical branches can be an important feature to take into account when choosing which bank is right for you.

For instance, if you’re planning on making frequent ATM withdrawals, it’s important to choose a bank that minimizes fees while maximizing ATM access — otherwise, ATM fees could quickly add up. Some banks, however, may not charge you for using out-of-network ATMs or even offer reimbursements for the fees you incur from third-parties.

And even if a bank has a large number of branches, it’s important to consider the proximity of the available ATMs and branches to where you need them if you’re someone who likes to bank in person. Consider if any of those locations are convenient for you based on where you live and work. If you frequently travel to a specific location, are there ATMs there?

8. Is there FDIC or NCUA insurance?

When researching which bank to choose, be sure to select one that’s insured by either the Federal Deposit Insurance Corporation (FDIC) (if it’s a bank), or the National Credit Union Association (NCUA) (if it’s a credit union). These two government agencies offer insurance of up to $250,000 per depositor, per institution, per account category. This will ensure that your money is safe up to the legal limits safe in the instance your financial institution were to fail.

Not all banks or credit unions are insured. To make sure your deposits are insured, check the FDIC’s BankFind tool for banks. For credit unions, use the NCUA’s Credit Union Locator.

Source: https://www.magnifymoney.com/blog/banking/how-to-choose-a-bank/

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