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With more options on the market than ever, choosing a bank isn’t as easy as it seems.
More banks requires more research — and some information is just hard to find. The pandemic has also made it more difficult to assess and evaluate in-person banking services, with branches temporarily closing. But this also presents an opportunity — those who were not as familiar with banking online may have found themselves doing just that during the pandemic. Opening yourself up to new possibilities in banking can lead to long-term financial gains.
Regardless of who you bank with, your bank of choice should fit your particular needs and be up-front about the policies that matter. We asked three financial experts what factors you should consider before opening up an account.
What to Consider
FDIC or NCUA insurance
Any bank or credit union you choose should be federally insured by the Federal Deposit Insurance Corporation or National Credit Union Administration. This is the baseline criterion: You need to know that if your bank were to shutter, your money (at least up to $250,000 of it) will be safe and accessible. Otherwise, you could be risking your financial health on an institution that won’t have your back in a worst-case scenario.
When weighing the merits of different banks, reputation matters. This exercise may be more difficult with big banks (how do you characterize a national bank with thousands of locations?), but it’s still possible to evaluate recent actions and news from a bank compared to another.
Tracy East, outreach and communications director for Consumer Education Services Inc., suggests checking the Better Business Bureau and your state’s banking commission for complaints or pending lawsuits. “Do your due diligence if they’re a newer bank that doesn’t have an established reputation and name that you can trust. Find out what people who have used them are saying and if there have been any issues or problems.”
Pay attention to how a bank responds to negative reviews too, says Todd Christensen, an AFCPE-accredited financial counselor who works for Money Fit by DRS Inc. If the bank tries to resolve the issue positively, that’s a great indicator they’ll treat you well, but “avoid any bank that blames the client.”
Online vs. in-person
Those who aren’t tech savvy may be wary of banking online, but it’s arguably the way of the future. While interest rates have been ticking lower in the past year — hastened more recently by the COVID-19 pandemic — rates on online savings accounts are much more competitive than those of traditional mega-banks. Online, you’ll likely still find savings account APYs between 1% and 2%, versus the typical 0.1% you’ll see at major brick-and-mortar banks.
The trade-off, of course, is you can’t go to an online bank in person for any issues. You’ll have to take advantage of whatever phone or digital customer service is offered, which may be better or worse depending on your personal preference. With the pandemic having closed bank branches across the country, many people are becoming more accustomed to digital banking services and may be more willing to switch permanently to an online bank with better interest rates.
Mobile and online banking experience
Even if you go with a bank that isn’t digitally native, you’ll still want one that is at least trying to embrace the 21st century. A bank with an app for depositing checks and initiating online transfers can save you countless trips. Brent Weiss, chief evangelist of Facet Wealth, a financial planning firm in Baltimore, says that “while the digital footprint is not critical, it does show a willingness to invest in technology.”
Number of locations and ATMs
If you value the in-person banking experience, then make sure to go with a bank with locations and ATMs near you — say, between your home and workplace. Otherwise, you may be taking a significant chunk out of your day to get your quarters rolled or a check deposited.
Products and services offered
Checking and savings accounts are the bread-and-butter products of any bank, followed by money market accounts, certificates of deposit, and loans. While you can open several one-off accounts that take advantage of the best rates of every product category, it wouldn’t be very efficient.
“Keeping all of your accounts under one roof like savings, checking, and high-yield money market accounts can help simplify your financial landscape,” Weiss says. “I generally recommend having only one or two banking relationships unless there is a specific reason to branch out.”
Interest rates and fees
Online banks still tend to have the highest rates for savings accounts, money market accounts, and CDs, though rates have been decreasing in the last year. A high rate can offer you a small, but not insignificant, form of passive income as you store your money for an emergency fund or short-term savings goal.
Fees are also important to monitor. Many accounts have overdraft fees, monthly management fees, and minimum balance requirements that can trigger penalties if you fall below them. Sometimes banks will waive those fees or minimums if you meet a certain standard, like adding direct deposit to the account, but you’ll need to make sure you meet them. Otherwise, you’ll be paying for the privilege of just having an account.
East suggests finding out all fees beforehand and getting them in writing. “I’ve heard too many people [say] they didn’t know that they had a fee if they dropped below a certain balance, and that fee made them overdraw their account and then there’s that ripple effect.”
Weiss agrees with the strategy. “While monthly fees seem small, they can eat into your hard-earned savings over time.”