Discover the 10 questions to ask when choosing a bank, so you end up choosing the right bank for you. Especially given that you’ll probably be stuck with your bank for awhile (given the inconvenience of changing).
Which of these four types of banks is right for you? And what are the 10 things you should know before choosing a bank? Knowing this will save you money.
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So how do you choose the right bank among options that at first glance seem very similar? We discuss the key factors to consider, so you end up with an option that’s as perfect as possible in an imperfect world.
First, consider your current financial situation, banking habits and desires, and your potential future needs. Also ask yourself what your intended purpose of a bank is. It could be argued that it’s a great place for a checking account, savings account, CDs, and car loan or mortgage. But it is often not the optimal place to buy mutual funds or other investments.
4 Types of Institutions – Decide Which Is Right Before Choosing a Bank
Depending on who you ask, you’ll get anywhere from three to five types of financial institutions as options. They’re important to know as a key component to choosing the right bank. We explore four.
1. Large national or multi-national banks
Large banks offer the advantage of a nationwide network of branches and ATMs, and typically a wider range of products and services than small banks, online banks, and credit unions.
Pros: If you travel a lot, these large banks give you easy access to cash, free ATMs, and in-person banking services almost anywhere you go. Even internationally. They also offer a wider range of products and services than a smaller regional bank, online bank, or credit union can. If you’re looking to keep all your assets under one roof, this might be the way to go.
Cons: Large banks with hundreds of branches have high costs. So they lack the incentive to offer you the most economical fee structure. That means you’ll pay higher fees on your accounts and receive lower interest on your savings accounts, checking accounts, and CDs. Plus, at a large bank, you’re more likely to be treated as a number. Also, if you don’t use all those products and services, the fees may not be worth it.
2. Smaller regional banks
If you love the idea of localized customer service and a bank that’s invested in your local community, then a smaller local or regional bank might be for you.
These banks are much smaller than their international cousins. But that doesn’t mean they have less to offer. Some have grown to substantial size and number of branches within their service area.
Pros: Regional banks pride themselves on their relationships. They’re more willing to work with you based on relationship. For example, if you’ve been with them for a number of years, they may be more willing to forgive an overdraft mistake or give you a better rate on a loan. Yet you get similar products and services to the behemoths.
Cons: You’re unlikely to find branches for in-person banking if you travel outside your home region. And overall, they’ll likely offer fewer products and services than the multi-nationals. Their online options may be less sophisticated and even their local branches may be fewer than you’d have with the big banks.
3. Online-only banks
Online banks offer a different value proposition than traditional banks. Instead of having to support brick-and-mortar buildings and a large staff, they radically slash costs and pass the savings on to you in the form of higher rates on your checking accounts, savings accounts, and CDs.
Options like Schwab One Bank and others tied to investment companies are a kind of hybrid of national banks and online banks.
Pros: If you don’t care about in-person banking, you should consider an online bank. You’ll get higher interest rates on your deposits, which means (a little) more money coming in every month. They may offer rebates on out-of-network ATM fees. And they generally offer the same lineup of products and services as other banks, plus robust digital options. Many young adults favor online banks when choosing the right bank for them.
Cons: If you live in a rural area, you’re at a slight disadvantage given relatively fewer ATMs, especially if your online bank does not offer rebates on out-of-network ATM fees. Also, if you’re a stickler for in-person banking relationships, an online bank is probably not right for you.
4. Credit unions
Credit unions are non-profit member-owned organizations that provide financial products and services to their members. Most have the feel of regional banks, giving back to their community and offering a more relationship-oriented banking service.
Except that you have to qualify for membership. Qualifying may be easy or tricky. Some credit unions qualify you on the basis of living, working, or even shopping in their service area. Others have more stringent requirements, such as working for a particular company. You have to ask. Many credit unions have more relaxed membership qualifications than they did years ago.
The important distinction is that unlike a bank, at a credit union you’re a member. As a member you’re a part owner and have a voice in management decisions. Some credit unions even offer an annual rebate based on their profitability that year (since they’re a non-profit).
Pros: Because of a credit union’s unique structure, you get advantages over conventional banks of any size… lower interest rates on loans, and higher interest rates on your deposits into savings accounts, checking accounts, and CDs. Their “know your name” relationship can mean better customer service and more flexibility when it comes to loan terms or overdraft forgiveness.
Cons: You have to meet certain requirements to join. Since they’re mostly local, don’t expect to do business with them when traveling outside your area. Product offerings may be slimmer than other options, and their digital platform may not be as robust. This can vary though, as some credit unions have grown to where there’s virtually no difference.
Did one of these four appeal to you more than others? Before you zero in on your exact choice, here are the 10 questions to ask when choosing a bank.
10 Questions to Ask Before Choosing a Bank or Credit Union
1. Security of your funds
Be sure the bank or credit union is insured by the Federal Deposit Insurance Corporation (FDIC) for banks or the National Credit Union Association (NCUA) for credit unions. Never ever put your money on deposit at a bank or credit union that doesn’t have this protection. Bad stuff can happen. Don’t let it happen to you.
Don’t like wasting money? Find a bank that doesn’t nickel and dime you to death.
You should be able to get an account that does not charge monthly maintenance fees, per check fees, and other extraneous fees. These can amount to $100 or $200 a year or more, excluding any overdraft fees you might incur.
Speaking of which, be sure to ask what the overdraft fee is. And whether you can avoid it by linking a savings account to your checking account. The average overdraft fee in 2019 was $33.36 per Bankrate.com data. That’s nearly as bad as a late credit card payment. And it may not matter if you just go over by two cents.
Besides overdraft fees, maintenance fees, and per-check fees other fees may include:
- Statement fees
- Out-of-network ATM fees
- Stop payment fees
- Returned check fees
- Wire transfer fees
- Cashier’s check fees
- Certified check fees
Consider which of these you’re most likely to incur. Some institutions waive some fees for specific groups, such as full-time students or seniors. Take advantage if you qualify.
3. ATM fees
If you rely on ATMs frequently, consider what fees your bank does (or does not) charge. Do they ding you every time you go out of network?
Some banks offer to rebate ATM fees up to a certain amount monthly. Others do unlimited rebates, even internationally. If you travel frequently and need ATMs on the go, this might be really important consideration for you.
4. Ease of deposit
Millions of people have direct deposit today. But you might still want mobile deposit for miscellaneous deposits like birthday checks from your grandparents.
Also consider what happens if you sell your car on Facebook Marketplace and suddenly need somewhere to deposit $10,000 in cash, or $5,000.
5. Interest rates
Interest rates can be a double-edged sword. You want them to be high on your deposits and low on your loans. Ideally you find banking options that pay higher-than-average interest on your deposits and charge lower-than-average interest on your debts.
6. Mobile apps and digital banking features
Most banks today offer basic services through mobile apps that include the ability to transfer funds, check balances, deposit checks, and pay bills.
What online features do you value the most? Do you use online bill pay? Need to transfer money to others regularly? Choose accounts where it’s free. And where it’s simple and easy to use. No sense in pulling your hair out for what should be a simple transaction.
Other increasingly popular features include the ability to lock a debit card (to prevent a stranger from using it) or manage mobile banking alerts.
Some banks don’t even offer smartphone apps. Yep, I know that’s hard to believe.
7. Balance requirements
Some banks require a minimum balance in order to get a no-fee account. And those minimums can amount to thousands of dollars. Make sure you’re able to pony up with that amount of cash that won’t be needed any time soon. Because as soon as you dip below the minimum, you’ll pay fees again.
8. Customer service
When you have a problem to be solved, or even a simple question, the last thing you want is to be stuck on hold forever. Or to get an angry or upset customer dis-service person.
It’s helpful to ask your friends and family what bank they like for customer service. This is a non-tangible you won’t learn from a website.
9. How soon are your funds available?
Most banks put a hold on check deposits for three business days. Some release a small portion immediately but hold the rest for three days.
If you’re living paycheck-to-paycheck, it’s critical that you have access to your money as soon as possible. Even if you have more margin, you should be aware of how soon your funds will become available.
10. Branch locations and availability
Some people will never be comfortable unless they can walk into a branch office and talk with a real person. How important is this to you? If highly important, don’t bank at an online bank.
As a general rule, young people tend to embrace online banks and many Boomers still want in-person options.
Find a Bank that Fits Your Lifestyle
Your chosen bank should fit your needs. Why wouldn’t it?
If you’re a solopreneur, have a side hustle, or are entrepreneurial, you might want a bank that can also meet your business needs.
If you’re trying to save money for multiple purposes (emergency fund, buying a house, travel fund, etc.) will your bank let you open a main account, and then name separate savings accounts for each purpose? Preferably with the ability for automated transfers into each of those accounts at assigned intervals.
Be sure to read any fine print. For example, are the interest rates teaser rates? What happens when that time period ends? What happens if you drop below your minimum balance for one day out of the month?
Know what you’re getting yourself into. While this isn’t a marriage lasting for decades, most people stick with their bank for a long time – sometimes even decades. After all, there’s a convenience factor once you’ve set up direct deposits and all.
Once you narrow your choices down to two or three banks, ask friends and relatives what they know about each.
If you’re still conflicted between two institutions, consider whether you’re able to monitor accounts at multiple banks or credit unions. It can take a little more time, but may offer you the best of both worlds.
And if you choose banks with digital transaction capabilities, you can automate transfers between them almost as easily as with a single bank or credit union.
You might find it to be the right option for you.