Different bank accounts often serve different purposes, and the right mix of accounts in your portfolio is a great way to ensure your money is working best for you.
There are plenty of details that can help you decide which bank and which accounts offered by that bank are best for you — but it’s important to start by determining your current situation and financial goals. How much money are you starting with, and what are you setting it aside for? How long do you want to keep it in the account? Will you make regular contributions?
Once you’ve set a goal and a plan for your money, you’ll be more prepared to find a bank that offers exactly what you’re looking for. Here are a few things to consider, and expert advice to help you evaluate a bank before opening up an account.
What to Consider When Choosing a Bank
These factors can help ensure you choose the financial institution and bank account to reach your financial goals. Here’s what to look for:
- FDIC or NCUA Insurance
- Bank Reputation
- Online vs. Traditional Bank
- Mobile and Online Banking
- Branch Locations and ATM Access
- Account Types Offered
- Interest Rates
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.
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. Traditional Banking
Those who aren’t tech savvy may be wary of banking online, but rates on online savings accounts are much more competitive than those of traditional, national banks. Online, you can find savings account APYs between 1% and 2%, versus the typical 0.1% (or less) 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 a drawback depending on your personal preference.
Mobile and Online Banking
Even if you go with a bank that isn’t digitally native, you’ll still want one with online account access and even a mobile app. Depositing checks and initiating online transfers can save you a lot of time. 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.”
Branch Locations and ATM Access
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.
And if you choose an online bank but still want the option for in-person transfers, check what options are available for ATM access. Some banks may allow access to certain ATM brands, while others may reimburse ATM fees.
Account Types 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.”
Online banks still tend to have the highest rates for savings accounts, money market accounts, and CDs. In today’s rising rate environment, it can really pay to choose a bank with competitive rates, which adjusts its APYs to keep up with other options on the market.
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.
Online banks are also more likely to have lower fees or none at all than traditional banks.
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.”