A bank should meet your individual needs, whether you are looking to make money from your savings, find useful budgeting tools, or gain access to a large network of ATMs.
8 steps to choosing a new bank
Before you commit to opening a bank, follow these steps to make sure you make a wise choice.
1. Identify your ideal account type
Banks offer many types of products and services. Trying to compare them all at once can seem overwhelming. A good place to start is deciding what type of account you want to open based on your financial goals and priorities.
Some current accounts include:
If you are looking to replace your checking account, you may want to go with a larger traditional bank that offers several types of checking accounts. Or, you might want a high yield checking account like those often offered at some credit unions and online banks.
If you want to save more money, you can open a high yield savings account. Online banks generally pay higher rates than physical banks. The average APY savings account is 0.06%, but the major banks pay up to 0.6%. Online banks are just as safe as other banks as long as they are FDIC insured and have some basic security protections. Money market accounts – which are similar to savings accounts but may have check-writing privileges but allow a limited number of monthly transactions – are another option.
CDs offer another way to earn interest. You will lock in your money for a fixed period of time (eg one year) and you will get a guaranteed rate of return. The rates and terms offered will vary from bank to bank, so consider your financial goals and whether the CDs on offer match your needs.
You may also want a bank that offers debit and credit cards, as well as loan products such as mortgages and personal loans.
As you do your research, knowing what to expect from a bank can help you narrow down your list.
2. Look for banks that charge little or no fees
You don’t have to stick with one bank that charges a ton of fees when a number of banks charge little or no fees.
Online banks are known for their low fees. Because they have few (if any) branches, they have lower operating costs, so they usually don’t charge as many fees as physical banks. There are even ATMs that allow free withdrawals for some online bank cardholders.
The fees you should watch out for include monthly maintenance fees, ATM fees, and overdraft fees. The average overdraft fee is $ 33.47, according to a Bankrate study. Even going for an overdraft protection program (where the bank covers a purchase you can’t afford) can get expensive. The 2017 Consumer Financial Protection Bureau study found that those who opt for overdraft protection pay about seven times more fees than those who don’t.
When shopping for a new bank, find one that has more lenient overdraft policies.
And when you find your perfect account, follow these steps:
- 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 withdraw money from the other account to cover the transaction. You may be charged a fee for this, but it’s usually lower than the overdraft fee.
- Sign up for low balance alerts through your bank or credit union website. These alerts, which you may be able to receive on your phone, will alert you when you are in danger of debiting your account.
3. Think about the convenience of a bank branch
In banking, another key factor is accessibility.
Most consumers will want to consider the convenience of ATM locations, the convenience of branch locations, and the availability of online and mobile banking, says Paul McAdam, senior director of banking at JD Power. The most important characteristic varies, however, particularly by generation. For young consumers, the capabilities of mobile banking outweigh the convenience of branch locations. The opposite may be true for customers of older banks.
Yet branches continue to play a role in the lives of most Americans, with 78% saying they opened their new account or most recent product in person at a branch, according to JD Power. Their data also indicates that conveniently located branches are the most common reason a consumer has chosen their primary financial institution.
Take-out meals? Even if you plan to do almost everything online, you might want a bank with physical branches.
4. Take a look at credit unions
Many consumers know the biggest banks. But you’ll also want to shop around and consider credit unions.
Finding out what local credit unions have to offer can take time. However, some research might pay off.
Credit unions are non-profit organizations owned by their members. The benefits are generally returned to members in the form of lower fees, higher savings rates, and lower borrowing rates.
Joining a credit union is not as difficult as it used to be. Quite a few are available nationwide and many allow you to become a member simply by joining an organization or donating to charity.
Start your search with the best Bankrate credit unions of 2021.
5. Find a bank that fits your lifestyle
The bank you choose should meet your needs. If you are an entrepreneur, you will need a bank that can help you start a business.
If you’re trying to save more money, look for a bank that offers features to help you achieve your goals.
Some banks, for example, allow you to open and name separate savings accounts. You can have a savings account for your emergency fund, one for a travel fund, and another for a donation fund.
It is also a good idea to consider your spending habits when deciding on your bank. Many banks have budgeting tools built into their websites or apps that make it easy to track your spending and see where your money is going.
6. Examine digital features
Most banks offer basic services through their app and website, 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 lack features that are increasingly demanded by consumers, like the ability to lock a debit card (and prevent a stranger from using it) or handle mobile banking alerts. In a small number of cases, there are online banks that do not offer a smartphone app and require you to log in through a mobile browser.
If you value a high-tech online or mobile experience, read our banking reviews and check with the banks that interest you to see if they can provide you with what you are looking for.
7. Understand the terms and conditions
You shouldn’t open a bank account without knowing what’s in the fine print.
If there are monthly service charges, ask if you can get them. If there are any off-network ATM fees, check to see if the bank offers refunds.
Make sure your savings will be federally insured through the National Credit Union Administration or the Federal Deposit Insurance Corp. (just in case your bank closes).
Finally, when comparing products, watch out for expiring promotional offers. Some banks may offer compelling teaser rates that end up dropping to a much lower rate.
8. Read the reviews of the banks you are considering
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 into. Once you’ve got to the point where you’re comparing a handful of banks, consider reviewing what the experts have to say about them.
Find out where your bank of choice stands in terms of customer service and whether you’re the type of person who would benefit the most from what they have to offer.
Consumers tend to remain clients of their banks for a long time. It’s best to carefully weigh your options before agreeing to start a relationship with a particular bank. If you’re struggling to settle into a bank, consider whether you can handle managing accounts in several different accounts that can collectively help you stay in control of your finances.