How to Choose the Right Bank and Bank Account

Consider your own needs as well as banks' policies

a woman handing a clerk her credit card
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You might be opening your first checking account, or maybe you've moved to a new area so you have to find a new bank, but you don't need a reason to look into banks and the services they offer. Many people forget that they're customers and that they can change financial institutions simply because they've found a better fit elsewhere.

Some people choose to keep accounts at multiple banks to keep their business and personal expenses separate, or so they can qualify for a loan at a different bank. In any case, some consideration of your needs and lifestyle can help you make the decision.

Considerations When You're Choosing a Bank

You might be better off going with a larger bank that has locations all over the U.S. if you travel a lot for your job or just for fun. You'll have easier access to your money when you're away and you can save on ATM fees. Otherwise, you might find that the products and customer service at a smaller bank are a better fit for you.

A bank that offers a smartphone app can be a good choice if you're always on the go. Just read customer reviews of the apps first to make sure you're getting what you think you're getting.

Then there are credit unions. You should take advantage of it if you qualify for one because credit unions offer higher interest rates on savings accounts and lower interest rates on loans. Generally, the fees are much lower at credit unions as well.

And don't overlook online-only banks. They've become a burgeoning industry in the millennium. They're ultra-convenient and associated rates and fees are often very good as well.

Questions to Ask Before Choosing a Bank

  • Where are the banks' locations? Will you have to drive some distance to get to a branch if necessary?
  • What services does the bank offer? Do they match your needs?
  • Are their rates reasonable? Compare them to other institutions to be sure.

What Kind of Bank Account Should You Open?

Many banks have minimum balance requirements and fee schedules for different accounts. Check the website of any bank you're considering so you can find out how much the minimum balance requirement is, then determine if you can afford it.

You'll probably be able to avoid monthly banking fees, earn higher interest rates, and avoid fees for money orders and travelers’ checks if you're able to maintain a higher minimum balance.

On the other hand, you'll be charged fees if your balance falls under the minimum balance limit and you'll quickly lose any of the advantages offered by the account if you choose a minimum that's too high and unmanageable for you. You might be better off foregoing the perks and opening a free account or one that has a very low monthly maintenance fee if your usual average balance is low or even middle-of-the-road.

Many banks also waive monthly fees if you set up automatic deposits into your account, or if you meet a minimum number of transactions each month. It's even possible to find free checking and it's worth searching for a bank and account that will give it to you.

Questions to Ask Before Choosing a Bank Account

  • What are the monthly service fees?
  • What are the minimum balance requirements?
  • Are there any transaction limits or bonuses?

Read the Fine Print

Carefully read over all the conditions and terms that go with your new account. Some accounts limit the number of debit card transactions you can make per month or the number of checks you can write. There might be charges associated with online banking or bill pay. The bank might have unique policies regarding when your funds will become available or how to stop payment on a check.

If your bank offers online options to manage your account, paying attention to fine print might matter more because a lot of convenience options are addressed with the services available online.

Be sure you understand all the charges and limits before you set up the account.

Remember to:

  • Compare the fine print on different accounts at the same bank.
  • Read all the brochures and disclosures before opening the account.
  • Ask questions if you're not sure what a policy means or how it will affect you.

Find Out What Happens If You Make a Mistake

You'll want to keep a running total of your checking account so that you never overdraw, but mistakes do happen, so consider your overdraft options.

Many banks allow you to set up an automatic transfer from a savings account to your checking account if you inadvertently overdraw your account. Others offer overdraft lines of credit with a transfer fee, then you'll pay interest on the amount you've transferred.

Other banks will allow your account to go into the negative, but they'll charge you a fee for each item they pay while your account is overdrawn. You'll want to avoid this type of protection because it can be quite expensive.

Things to keep in mind include:

  • Some banks might waive fees the first time you overdraw each year, so ask.
  • Find the best strategy to deal with possible mistakes.
  • Balance your account each month to help avoid issues in the future.

Opening a Savings Account

You might want to set up a savings account at the same time you establish a checking account. This will make it easier for you to save money on a regular basis.

You can set up automatic transfers between the accounts. You might never even miss the money if you arrange to make the transfers on payday, and you might be surprised at how quickly the money starts to add up.

You might also want to consider an online savings account because they often offer higher interest rates. You can still set up automatic transfers with this option. 

Questions to Ask Yourself When Opening a Savings Account

  • What's your savings goal? Pin down exactly why you want to save.
  • Do you want to establish an emergency fund so you're covered if life should go wrong?
  • Are you saving toward some long-term achievement, like accumulating the down payment for a house?

The money in an emergency fund should be instantly available to you without penalty if disaster ever strikes. You'l probably want just a plain, simple savings account or a money market account for this purpose. If you choose savings, look for an account that pays at least 1.5 percent.

Long-term savings might be better off in certificates of deposit (CDs). The interest rate is typically much better. You'll pay a penalty if you cash out before the CD matures, but you can commit to a term of year or less with many banks.

Can You Be Turned Down for a Bank Account?

Banks don't want to lose money more than other businesses do, so they might decline your business if you have a poor banking history. Most banks check with a service known as ChexSystems, a reporting agency for consumers' banking activity.

If you have a history of overdrafts or, worse, if another bank has closed your account, you might find that you have difficulty opening another one. You might qualify for only a "second chance" account and you'll probably have to pay higher-than-average fees.

On the bright side, you can usually "graduate" to a better account after a period of time if you don't make any further mistakes.

Some banks might even pull a copy of your credit report when you try to open a new account. You have a right to know why if you're turned down, so be sure to ask what factors influenced the bank's decision.