Banks are not all the same. If you’re wondering how to choose a bank, you’re looking at dozens of options. No option is clearly “best” for everyone. You’ll need to review your needs and choose the one that’s best for you.
Let’s make it simpler by breaking the process into practical steps.
Choose the right bank for your needs
First, you need to assess your needs. Remember that you’re not just looking at your immediate needs. Banking is a long-term relationship, so consider your financial goals and your probable needs down the line. Switching banks is inconvenient. You probably won’t want to go through that process unless you have a particularly good reason, like an out-of-state move or a job that qualifies you for credit union membership.
Once you’re clear on your needs, you’ll need to look for institutions that meet those needs. Here’s where to start.
1. Assess the location
Location matters. Even if you open your account online and manage it largely online, you’ll want to have good access to your home branch. That’s particularly true if you prefer transacting business face to face and building personal relationships. Branches near your home and workplace can be a plus. Consider ATM networks and locations as well.
2. Which types of accounts do you need?
Banks offer several types of accounts. Not all banks have all account types, and some may have better terms than others on some account types. Here are some accounts that you may need now or in the future.
- Checking accounts hold your day-to-day spending money. You can usually access your money with a debit/ATM card or check. There are no transaction limits, but these accounts pay little or no interest.
- Savings accounts hold the money you want to put away for the future, like your emergency fund or money you’re saving for a down payment or another financial goal.
- High-yield savings accounts pay more interest on your savings than a regular savings account, but there may be a high minimum balance.
- Certificates of Deposit (CDs) commit your money to an account for a certain period and lock in your interest rate. They are an excellent way to save for expenses at a fixed time, like a tuition payment or a planned trip.
- Money market accounts are similar to savings accounts, but you’ll have a debit card or personal checks for easier access to your money.
- Brokerage accounts allow you to invest your money in stocks and bonds. Some have very low minimum investments or offer partial shares.
There may be some advantages to keeping all of your accounts at one institution, but it’s unnecessary. Many people use multiple institutions, and there’s nothing wrong with doing the same.
For example, if your local branch charges for out-of-network ATM access or foreign transaction fees, you might benefit from starting a separate “travel” account with an online bank like Schwab, which offers free ATM access worldwide and no foreign transaction fees on debit card transactions.
3. Examine other traditional bank services
Banks offer a range of services. You’ll need to decide which services you need and which you’re likely to need in the future. Here are some to look at.
- Credit cards
- Car loans
- Personal loans
- Debt consolidation loans
- Student loans
- Financial planning
- Bill payments
- Accounts for children
- Credit-builder loans
Almost all of these are available from multiple providers. You can apply for a vast range of credit cards and loans online. So why get them from your bank?
It sometimes makes sense to apply online for a card or loan. If you have good or excellent credit, you may get better deals.
If your credit is not that good or you have a limited credit history, there’s a strong case for applying at your own bank. Your bank knows your finances as no online lender can, and you can often have direct access to decision-makers.
4. Consider interest rates
There are two types of interest rates to consider.
- The interest rates you’ll pay. If you borrow from your bank, you’ll pay an interest rate, expressed as an annual percentage rate or APR. You don’t need to worry about these rates if you aren’t borrowing.
- The rates you earn. The interest the bank pays on your deposits is expressed as an annual percentage yield or APY.
Many banks don’t pay interest on checking accounts, but some do. Compare rates on savings accounts, CDs, money market accounts, or other accounts you might use. The rates you earn may seem small, but they compound over time.
5. Find the fees
Banks often don’t advertise their fees — you’ll have to read the fine print — but they significantly impact the cost of banking.
Here are some fee structures you may encounter.
When a bank advertises a “no fee” account, that means that they will never charge a maintenance fee to keep your account open. Other fees may still apply.
A no-fee account is a great option if you often keep a low balance in your account.
Best no-fee checking accounts
Here are some no-fee checking accounts to consider.
- The Ally Bank Interest Checking Account has no minimum balance and no maintenance fees. You get up to $250 in fee-free overdraft protection and an 0.25% yield.
- Schwab Bank’s High Yield Investor Checking Account has no fees, no minimum balance, and a 0.25% APY. There’s a strong mobile app and no foreign transaction fee.
- Capital One 360 Checking offers no minimum, no fees, 70,000 fee-free ATMs, and no-fee overdraft protection with a 0.1% interest yield.
Check local banks and credit unions for comparable offers!
Fees that are waived
Other banks charge fees but waive them if you meet specific criteria, like maintaining a minimum balance, receiving your salary through direct deposit, or using your debit card a certain number of times a month.
- The Citi Basic Banking account has no minimum balance, but there’s a $12 monthly fee. The fee is waived if you make a qualifying direct deposit and a qualifying bill payment every month or maintain an average balance of $1500 in eligible accounts.
- Chase Bank Total Checking has a $12 monthly fee, but it’s waived if you have a qualifying electronic deposit of $500 or more, a balance of $1500 or more at the start of each day, or a combined balance of $5000 in qualifying accounts and investments.
These accounts can be a good deal if you’re sure you will meet the criteria for a fee waiver. If you may not meet the criteria, you’re better off with a no-fee account.
There may be times when you’re willing to pay a low fee to gain access to specific advantages, like an extremely convenient location. Be sure to compare the value of what you’re getting to the cost of the fees.
Remember that maintenance fees aren’t the only fees banks charge. Keep these others in mind as well.
- Overdraft fees. Many banks charge these fees if a withdrawal, transfer, or payment exceeds your account balance. These fees can be high, and they can add up fast. If you often have a low balance in your account, look for a bank with no overdraft fee.
- ATM fees. Many ATMs charge a fee for out-of-network users. Some banks will reimburse these fees. Check how large the bank’s ATM network is and how they handle out-of-network ATM use.
- Excess transaction fees. You will pay a fee if you make more than six withdrawals in a month from a savings or money market account. Find out what the fee will be.
- Foreign transaction fees. Some banks charge a fee for transactions outside the country. If you travel abroad regularly, you will want to have at least one account with a bank that charges no foreign transaction fee.
- Paper statement fees. Many banks now charge for paper statements. If paper statements are important to you, look for a bank that does not charge this fee.
You may not be concerned with all of these fees, but in any case, you will want to take an inventory of all fees an account could charge. Read the fine print!
6. What type of bank do you want?
There are several types of banks, and you can narrow your options down by deciding which general type will suit you best.
We’re all familiar with traditional banks. We see their branches everywhere, and they advertise heavily. They’ll certainly be on your shortlist if you’re looking for a bank. We can divide traditional banks into two types.
- National banks have instantly recognizable names, enormous branch networks, and extensive product offerings. They are ideal if you have complex needs but don’t expect personalized service. And hold times can be long if you need to reach them by phone when you encounter a problem.
- Local banks work in much smaller areas and may have only a few branches. They also tend to have fewer services. They often offer a personal experience, and if your needs are simple and local, they may be just what you’re looking for.
Neither type is better than the other, but they will appeal to different types of customers. Consider both local banks and local branches of national banks.
Credit unions are financial institutions that are owned by their depositors. When you join a credit union, you become a part owner. Most credit unions have some membership criteria, which may simply be living in a certain area. There are also national credit unions, like PenFed and Alliant, which anyone can join.
Because credit unions are nonprofit, they often offer higher interest rates on deposits, lower interest rates on loans, and lower fees than commercial banks. They also tend to provide friendly service, financial education, and products like credit builder loans and payday alternative loans.
A credit union is a great choice if your needs are simple and local. You probably won’t get the range of services or the wide branch networks that commercial banks can offer.
Online platforms like Chime, Varo and Albert offer a full range of banking services with no branches. They are not banks, but their services are offered through partner banks and are fully insured. Because they don’t have the overhead of physical branches, they often offer high interest on savings. They may also offer cash advances or other features.
If you aren’t ready to be completely free of physical banking, you could consider holding accounts at both a traditional and an online bank.
7. Make sure your money is easy to access
You will want to be sure that you have easy access to your money, especially money in your checking account, without fees. Ensure there are in-network ATMs near your home, workplace and places you usually shop. If you expect to travel abroad, check for international access and fees. Not all international ATMs accept all forms of cards, and you don’t want to get stuck in a Belgian train station and be unable to buy tickets because the ATM doesn’t accept your card.
8. How is the mobile app?
Mobile apps are part of 21st-century banking. A good mobile app lets you move money and perform many essential banking functions from home. Many people now do all or almost all of their banking without ever visiting a bank. Even if you haven’t used mobile banking before, there’s a good chance you will use it in the future.
Check out the bank’s website and mobile app. Look for user-friendly systems that let you handle your standard banking functions remotely. Look for app reviews from Google’s Play Store or Apple’s App Store.
9. Is your money protected?
You want to be sure that your money is protected if the bank fails. The Federal Deposit Insurance Corporation (FDIC) insures deposits of up to $250,000 in each of six ownership categories.
If you had money in a single account (like a savings or checking account), a retirement account (like an IRA), and a joint account at the same bank, each would be separately insured for up to $250,000.
Be sure that the banks you’re considering are FDIC-insured.
The FDIC does not insure credit unions. Federal credit unions (look for the word “Federal” in the name) are insured by the National Credit Union Administration, which offers insurance essentially identical to that of the FDIC.
Some credit unions may be insured by state agencies or private companies. If you’re considering a credit union, find out who insures their deposits and what losses are covered.
10. Size does matter
Bigger banking chains may have more features or easier access to ATMs, but they can also be more difficult to deal with if problems arise.
When PNC took over BBVA Compass in 2021, some customers were left for up to three weeks without access to their money. Hold times when trying to call PNC were long and inconvenient, particularly for people who were worried about being unable to pay their bills and didn’t understand why their checks and automatic payments were bouncing. When you consider that almost a quarter of Americans have no emergency savings, that kind of banking error can be catastrophic. It can also rack up hundreds of dollars in late fees and overdraft fees.
When banking with a small local company or credit union, the hold times are usually shorter, or you can drive to the nearest branch to solve the problem. In the case of the PNC issue, the employees of Texas branches worked for BBVA Compass, and were unfamiliar with PNC processes.
11. Do you have a small business?
Businesses have different banking needs, and if you have a small business or you’re considering opening one, you should look for a business-friendly bank. Remember that your business may increase in size!
Look for banks that offer business loans and have systems that can be integrated with your business accounting software.
If you have a side hustle or are working remotely as an independent contractor, remember that you are effectively running a small business and will need an appropriate bank!
12. Other things to consider
A few other factors to consider before making your choice.
- Bonuses. Some banks offer cash or other perks as a new-customer bonus.
- Rewards. Some banks offer special deals for students, kids, senior citizens, or other groups.
- Reputation. Always check online reviews and see how the bank handles customer service and customer problems. If something goes wrong, you want to be sure you can fix it. There will always be some negative reviews, but a persistent pattern of bad reviews is a red flag.
- Zelle transfers. Banks that are members of the Zelle network allow fast, free transfers to and from accounts at other member banks.
- Loyalty perks. Does the bank offer higher interest rates if you have multiple accounts? Lower rates on loans for established customers?
- The fine print. Always read every word. Look for account limitations, extra fees, or anything else the bank doesn’t want you to read.
Banks often advertise special perks or programs designed to attract new customers. There’s nothing wrong with taking advantage of those, but don’t give them too much attention. A promotional offer might be designed to distract you from fees or other issues. Focus on what you get and what you pay!
Look for the personal touch
Once you’ve narrowed your choices down to a few options, visit the local branch of the bank you’re considering. Talk to the new accounts staff and ask questions. Do you feel like you’re getting stock responses from a bored employee, or are the staff attentive and trying to address your personal concerns?
You want a bank where you feel comfortable. That’s not something that breaks down to numbers, but it’s still essential! After all, you may turn to these people when you’re facing an emergency medical expense or trying to buy a home.
Banking is an important part of our personal finances. Check out this video to learn why banking and credit is so important:
The bottom line
The banking landscape can seem impossibly complicated, with dozens of banks competing for your business, online and physical, national and local, banks and credit unions.
If you approach the “how to choose a bank” question methodically, it doesn’t have to be intimidating. It’s all about realistically defining your needs, knowing what features are important to you, and finding the institutions that best match your requirements. Break it down step by step and you’ll find the right bank for you!
Bank of America stopped offering free checking accounts in 2018. All their checking accounts now have fees unless you’re under 18 or a student under 25. These fees can be waived if you meet specific criteria, such as a minimum balance or a preferred rewards program enrollment.
The same way you choose a personal bank. Define your needs, look for banks that meet them, and compare interest rates, fees, branch and ATM availability, mobile banking, and other features. Look for features like business loans and integration with your accounting software.
Credit-builder loans place the sum you borrow in a locked account. Your monthly payments are reported to the credit bureaus, and the total sum is released to you when the loan is paid. Lenders face little risk, so they offer these loans to people with bad credit or no credit. Ask your bank or credit union about credit builder loans, or try national providers like Self or Credit Strong.