How to choose a bank

Choosing a financial institution to take care of your money is one of the most important financial decisions you can make. Different banks offer very different levels of service, charge different levels of fees, and will pay you very different amounts of interest on your money.

In practice, this means that choosing the best bank for you is rarely a one-time process. The best bank for you will likely change throughout your life as your financial and investing goals evolve. For this reason, a helpful tip is to remember that there is no limit to how many bank accounts you can hold, or how often you swap one bank for another.

Diversifying your bank accounts, just like you invest in, can help you get the most out of your money. In this guide, we’ll take a look at the three most important factors in choosing a bank for checking and savings accounts: the type of bank, the rates and fees it charges, and the additional features it offers. .

Key points to remember

  • There are three main types of financial institutions that can reasonably be called a bank: traditional banks, online banks, and credit unions.
  • Take a look past all the marketing hype, and you’ll find that most bank accounts are distinguished by the fees they charge and the interest rates they pay.
  • Peace of mind is arguably the most important service offered by any bank and should be an important part of your choice.

Types of banks

The first and most fundamental factor in choosing a bank is the type of institution that is right for you. There are at least three distinct types of financial institutions, each offering a unique set of advantages and disadvantages, which can reasonably be described as a bank.

Traditional banks

Traditional banks are what most people think of when they think of a bank. These banks provide services to their customers largely through a network of physical offices and provide ATMs to their own customers and those of other banks. Many have also started offering online banking services to pay bills and make deposits.

Although these banks have been around the longest, there are fewer reasons to choose a traditional bank today than its online competitors or credit unions. As we will see, these two institutions offer lower fees than traditional banks.

That being said, you may prefer to do your banking transactions in person. If you have a question or problem, you can visit your local branch and talk to someone. This could make a traditional bank the right choice for you. But it’s always worth checking out the other options available to you.

Online banking

Online banking was relatively rare 20 years ago, but its popularity has grown over time, making it a direct competitor to traditional banks today. Since online banks have fewer or no physical branches, their overheads are much lower than traditional banks, which means their fees are usually much lower.

Having said that, many people find the customer services offered by purely online banks frustrating. The industry is aware of this. The best online banks now offer plenty of customer support options, but you still won’t be able to go to a branch to speak to a bank employee in person.

In recent years, the line between online banking and traditional banks has become increasingly blurred, as the digital services and tools offered by the latter have become more advanced. This means that it may be possible to achieve the benefits of a traditional branch while still having access to the convenience of digital banking.

Credit unions

Credit unions are often overlooked as an alternative to traditional and online banking, but they have advantages that can make them a good choice.

First, credit unions are not-for-profit financial cooperatives. This means that they are owned by their members, so the profits are returned to their members via lower fees and higher interest rates on deposit accounts. In contrast, traditional public banks must meet their revenue targets and are accountable to shareholders.

And second, most credit unions have real relationships with their local communities. If you want a bank that gives something back to your community, a credit union may be the natural choice for you.

However, credit unions may have fairly strict rules for members to access services, and not all of them offer features such as online banking. This can make it a less than optimal choice for a checking account that you need to access and work on on a regular basis.

Fees and interest rates

The next factor to consider when choosing a bank is an institution’s fees and the interest rates it offers. Most people will have two basic accounts: a checking account and a savings account. The features you need for each type of account vary and it is very often a good idea to have these accounts in different institutions.

Costs to be taken into account

Most banks charge a monthly fee for maintaining a checking account, but these fees can vary widely. And a bank can cancel or reduce them if you meet certain criteria, such as meeting and maintaining a minimum balance requirement or setting up direct deposit for your paychecks.

To keep these fees to a minimum, it’s important to understand what a bank will actually charge you for using a checking account. Find out about its common costs, which may include:

  • Monthly maintenance fees
  • Overdraft fees
  • Statement fees
  • Stop payment fees
  • Returned Check Fee
  • Bank transfer fees
  • Cashier’s Check Fee
  • Certified check fee
  • Off-network ATM fees

Fees are by far the most important distinguishing factor among checking accounts. All other things being equal, you should choose the checking account with the lowest fees.

Interest rate

For your savings account, look for a different set of features. You shouldn’t need to access a savings account as often as a checking account, so you are unlikely to need an app or online banking. And as long as you don’t make frequent withdrawals, most savings accounts don’t come with high fees.

Instead, the main difference between these deposit accounts is in the interest rates they pay. These can vary widely, and the best rates are often those offered by credit unions or online banks. Shop around to find the best interest rate for your savings.

Additional features

The two factors we’ve considered so far – what type of institution you choose and how much it will cost you in lost fees or interest – are the most basic aspects of choosing a bank. However, most banks also offer a range of other services, discounts, or features that may be crucial for you.

Since everyone’s needs are different, take some time to think about how you’re using the accounts you currently have and where you’re wasting money on fees or time. Then find a bank that is best for you. Important factors can include:

  • Online and application-based banking services. Most banks now offer these options. If you use your account a lot, especially to set up new payments or manage standing orders, having a comprehensive online service can save you a lot of time.
  • Local branches and ATMs. Even if you deal with your bank primarily online, it may still be easier to visit a branch. For many people, having a local bank branch – at least for their checking account – is a must. Likewise, an ATM network can be important to you, for example, if you travel frequently and need easy access to cash on the road.
  • Security. Although most banks are insured against loss, they still vary in the level of security they offer for online services. A quick scan of the news to see which banks have recently experienced security breaches can help you rule out a bank in this regard.

This last point is linked to another: at the end of the day, the bank you choose has to be a bank that you trust. Many people still make their banking decision based on the company their parents do business with, or simply because they trust the name and reputation of a major national bank. There’s nothing wrong with that: Peace of mind is arguably the most important service any bank offers and should be part of your decision-making process.

The bottom line

The best way to choose a bank comes down quite easily. A good bank is one that:

  • Gives you easy access to your money.
  • Don’t charge exorbitant fees.
  • Offer a good interest rate on your savings.
  • Offers excellent online and app-based banking services.
  • Provides excellent customer service.
  • You trust your money.

So make a list, rank some options against those criteria, and see which bank or credit union comes out on top. Remember, you can always change your mind later or open a second account if your first choice isn’t right for you.


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