Banks – they’re everywhere, all vying for your business: credit unions, community and national banks, and neobanks (digital-only banks). Although the process shouldn’t be stressful, the prospect of selecting the right financial institution to meet your needs can quickly become overwhelming.
You’ll need to consider factors such as your current financial situation, your existing banking and saving habits, your anticipated future needs, and how much you’re willing to pay in fees. Before committing to anything, check out the information below to help guide you to the perfect choice to meet your needs.
Types of Banks
In this day and age, it’s no longer a matter of “do I prefer SunTrust or Chase bank?” Today, most people are able to choose between traditional brick and mortar banks, credit unions, and even completely digital banks. Here are the three main types of banks you’ll want to consider:
Traditional Banks (Brick & Mortar)
Traditional banking consists of brick-and-mortar locations where customers can walk in and interact with service personnel. If you prefer face-to-face service, a traditional bank is more than likely the best option for you.
Credit unions are basically non profit banks. Unlike traditional banks, they are managed by the members. Each credit union has an elected board of directors that manage it. Profits are “returned” to the members in the form of high savings rates, reduced fees, and low loan rates.
Though traditional banks do offer an array of technical solutions, neobanks (virtual-only banks) are built 100% digitally. Their products are new, sleek, and highly attractive to technical users. Because of their comparatively lower overhead costs, neobank interest rates are usually slightly higher and they are less likely to charge fees. However, if you have any issues, you won’t be able to simply walk into a branch and ask for assistance.
Types of Bank Accounts
The list of account types is ever-expanding. If you go to a large, national bank, you will likely be asked if you want to open a checking and/or a savings account, receive credit via a credit card or personal loan, earn higher interest with a money market or certificate of deposit account, and many other options. The number of products is nearly limitless – going in with a game plan of what you want and need is essential.
The two most frequently used accounts offered at nearly every institution are checking and savings.
Checking: A checking account is the most basic and common account type. It was created for regular deposits and withdrawals and is very liquid (easy to move money around). Checking accounts usually come with debit cards and checks that allow unlimited withdrawals and deposits, whereas a savings account sometimes limits both.
Savings: A savings account is very similar to a checking account and nearly as liquid, but has a few restrictions. As mentioned above, the number of withdrawals may be limited. In exchange, savings accounts are interest-bearing, meaning the balance carried in them will generate a small amount of cash every month. These accounts are commonly used for emergency funds and other short-term savings goals. Additionally, it is generally safer to hold large sums of money in savings accounts rather than checking accounts. That’s because your debit card is usually attached to your checking account, not your savings account. If someone were to steal your debit card, they would not have any access to your savings account.
Money Market Deposit Account: Much like a checking account, most money market accounts come with a debit card. However, like a savings account, they also can earn interest and might have limitations on withdrawals and deposits.
CD (Certificate of Deposit): A CD is a fixed-term savings account. They typically have higher interest rates than regular savings accounts, so you can earn more, but there is a catch. CD interest rates typically stay fixed, while savings account interest rates can change. Additionally, you usually can’t withdraw funds from a CD until the term ends (unless you’re okay with paying a penalty fee). Regular savings accounts allow you to withdraw periodically.
For most people, it makes sense to have both a checking and savings account. Your bank accounts don’t have to be through the same bank. It may be a good idea to diversify your funds by keeping them in separate banks – but it can also be easier to manage your funds if they are in one bank.
Most banks will have several different types of checking and savings accounts for you to choose from, with different fees and limitations. It is a good idea to speak with a financial advisor at the bank of your choice to decide which account type is right for you, if possible.
Top Factors to Consider When Selecting a Bank
Physical location availability: Consider your lifestyle and preferences when handling your finances. Do you prefer in-person interactions, or would you rather hop on your computer or make a quick phone call? Do you need your bank to have a physical location close to you so you can stop in when necessary?
ATMs: How often do you need quick access to cash? Banks often charge extra fees for using another bank’s ATM. If you think you will need quick cash, choose a bank that has several fee-free ATMs in your area.
Sign-Up Bonuses: Many banks offer cash bonuses just for signing up! Don’t let this fool you, though – that is NOT a reason to sign up for every bank you can find. You might end up paying so many fees that the bonuses would be pointless. Stick to one bank (or two, if necessary).
Interest Rates: Interest-bearing accounts (savings, money market, CDs) will pay you a small amount for balances held. Generally speaking, online banks offer slightly higher rates than traditional brick-and-mortar.
Overdraft Fees: Especially for checking accounts with debit cards, what will your bank charge you if you accidentally overdraft on your account (meaning, you spend more than what is available)? Some overdraft fees can be more than $30, and you’ll be charged that every time you go over.
Account Fees: When opening any new account, make sure to check the fine print for any annual fees or service charges you may encounter. For example, some banks charge fees for having a low balance.
There are some fee-free options out there. Doing a small amount of research could save you hundreds every year.
There is not a one-size-fits-all answer to choosing a bank. The amount of available options provides nearly unlimited flexibility and customizability. Make a list of all the things you’re looking for, then compare your options online. Good luck!
About the Author
Lincoln is a former data analysis for a financial accounting software startup working with 95%+ of Fortune 500 companies. This role required rapid problem solving as well as a complete understanding of customer needs and the ability to speak intelligently about those needs, making complex systems simple to understand. His passion for personal finance and helping people, coupled with this unique experience working with the highest paid financial professionals in the world has led to a holistic style of thinking which benefits all who he comes into contact with.