How to Choose a Bank

Which Bank Is Best?

A large group of piggy banks with one in the group of a different color that stands out from the crowd.
••• Ben Miners / Getty Images

Time to open a bank account but you’re not sure which bank to choose? Selecting your next account is an important choice. Because switching banks is a pain, this is not something you want to do again soon.

To pick the best bank for your needs, get familiar with the options available, and then choose the institution best fits your needs.

What Do You Need Today? In Five Years?

For now, you probably have immediate needs that a bank must satisfy. For example, you may need a place to deposit your paycheck, or perhaps you want a bank that charges lower fees than your current bank. By all means, get those needs met, but zoom out and think about how your needs may change in the coming years.

As you evaluate banks, consider whether or not you’ll grow out of an institution, or if banks excel in areas where you anticipate future needs. For example:

  • Will you stay in the same location?
  • Does the bank offer robust online or mobile services?
  • If you’ll start a business, can the bank handle business accounts?
  • If you plan to get a mortgage or refinance, does the bank offer discounts to customers who use other services?

While it’s wise to plan ahead, things change, and it’s hard to predict the future, so most people start by focusing on checking and savings accounts.

Rates and Fees

Examine interest rates and account charges as you shop for a bank: How much will you earn in your savings (assuming you keep a significant amount there, how much will you pay for loans, and what maintenance and transaction fees exist?

For checking and savings, low fees are particularly important. A slightly different interest rate on savings isn’t going to make or break you financially, so don’t be lured by the highest APY unless you’re among the wealthy. But monthly maintenance fees and stiff overdraft penalties can make a serious dent in your account, costing hundreds of dollars annually.

Example: When it comes to earning interest on savings or certificates of deposit (CDs), even a difference of 1 percent APY might not be that impressive. Assuming you keep $3,000 in savings, that’s a difference of just $30 per year between banks. If one of those banks charges $10 per month just to keep your account open, the obvious choice is to choose the bank with lower fees.

When borrowing money, remember that you don’t necessarily have to borrow from your bank. You can get a loan from a brand new credit union when you buy a car, for example (buying from a particular dealer might make you eligible to become a member of that credit union). Online lenders are also worth a look, as they may charge less than local banks and credit unions. If you borrow to buy a house, a mortgage broker can (and should) shop among numerous lenders for you, and you don’t have to be a customer with every potential bank.

Types of Banks

You can choose from several different types of “banks” for financial services. Most of them offer similar products and services (especially if you’re just looking for checking or savings accounts and a debit card for spending), but there are differences.

Big banks are the national names you’re familiar with. You may see numerous branches on busy street corners in large cities, and you probably hear about them in the news. These institutions have national (and multinational) operations.

  • Products and services available include almost anything you can imagine (and more).
  • Fees tend to be on the high side, but it’s possible to get fees waived (by setting up direct deposit, for example).
  • Rates on savings and CDs usually aren’t the highest.
  • Branch and ATM locations are numerous if you care about banking in person.

Local banks operate in smaller geographic areas. They tend to have more of a community focus, and they’re an essential part of your local economy.

  • Products and services available are usually sufficient for most consumers. These institutions should have everything you need personally, although large businesses and the ultra-wealthy may need to obtain specialized services from other providers.
  • Fees tend to be reasonable, and fee waivers are often available.
  • Rates on savings and CDs vary, but you might snag a deal with advertised “specials.”
  • Branch and ATM locations are available locally, but you may have to pay out-of-network fees if the bank doesn’t participate in a national ATM network.

Credit unions are not-for-profit organizations with a strong community focus. To open an account, you need to qualify and join as a “member,” but this process is often easier than you think.

  • Products and services should be sufficient for most consumers and small businesses. The smallest credit unions might offer slightly less, but you can almost always find checking accounts, savings accounts, and loans.
  • Fees tend to be lower, and it’s relatively easy to find free checking.
  • Rates on savings and CDs are often higher than big banks, but lower than online banks.
  • Branch and ATM locations may be more extensive than you’d expect. If your credit union participates in shared branching (most of them do), you have access to thousands of free locations nationwide.

Online banks have established themselves as a solid option, and it’s worth having an online-only account even if you don’t use it regularly. That said, going 100% online with your money can be tricky—physical locations still have value.

  • Products and services available include free checking and savings accounts as the main attraction, but other products may be available.
  • Fees tend to be lower. Most accounts are free unless you bounce checks or request certain transactions (like wire transfers, for example).
  • Rates on savings and CDs are often higher than you can find anywhere else.
  • Branch and ATM locations are nonexistent, but online banks either participate in robust nationwide networks or they reimburse ATM fees (up to certain limits).

Cash management accounts are a slight variation of online bank accounts. These are typically payment accounts offered through brokerage houses, so verify if and when your money is federally insured. Some accounts pay generous interest rates and provide debit cards and checkbooks for spending.

Technology and Convenience

As you narrow down your list, look for important features that you’re likely to use on a day-to-day basis. You don’t want interactions with your bank to be a miserable experience.

Remote deposit: If you ever get paid with a physical check, the easiest way to deposit it is to snap a picture with your bank’s app.

Bank to bank transfers: Look for banks that offer free electronic transfers to other bank accounts. This is standard with most online banks, but brick-and-mortar banks can do it too. Transfers make it much easier to manage your money and change banks.

Texting and email alerts: We all get busy, and it’s nice to get a heads up from your bank when something is happening in your account. You might also want a quick update on your bank balance without needing to log into your account. Banks with texting options and automatic alerts make banking easy.

ATM deposits: Going to a branch during banking hours isn’t always possible (or convenient). ATM deposits allow you to bank on your schedule and even add funds to some online banks.

Bank hours: If you prefer to bank in person, are the hours suitable for your needs? Some banks and credit unions offer weekend and evening hours (at least at the drive-through).

A Word About Safety

Banks are supposed to be a safe place for your money. Ensure that any account you use is insured, preferably by the U.S. Government:

If a bank or credit union fails, you should not lose any money as long as your deposits are below the maximum limits (currently $250,000 per depositor per institution, and it’s possible to have more than $250,000 of “your” money covered at one institution).

How to Open an Account

Once you choose an account, it’s time to go through the formalities of opening and funding it. Some institutions let you do everything online, which is a quick and easy option if you’re tech-savvy. If not, plan for a visit to the branch, and bring identification and an initial deposit (cash may work, or you might write a check or make an electronic transfer).

For more details on the process, see How to Open a Bank Account.

Switching banks: If you’re moving to a new bank, use a checklist to make sure nothing falls through the cracks. You don’t want to miss payments or pay fees for any mistakes.

Can You Have Multiple Accounts?

There probably isn’t a single best bank account out there. Different banks have different strengths. Online banks pay the highest interest rates on your savings. Online lenders and credit unions are a great option for personal loans and auto loans.

It’s okay to have more than one bank account. In fact, it’s wise to get the best features wherever you can find them. As long as you’re not paying multiple fees to multiple banks, you can have as many bank accounts as you want.