How to Choose a Bank That’s Right for You
You might not realize that selecting a bank is one of the most important financial decisions you’ll ever make. Banks can avail you of financial opportunities like high interest savings accounts and free checks, or they can cost you money and inconvenience you in a myriad of ways from monthly maintenance fees to limited ATM availability.
Picking the right one can help your life run smoothly, while picking the wrong one can be frustrating and take time away from the things that are most important to you.
There are four main types of bank to choose from. Consider the strengths and weaknesses of each type to find the bank that best suits your needs.
These are the big names you have heard of, such as Chase Bank, Bank of America, and Citigroup, and they run national marketing campaigns on television and radio to attract large customer bases. These banks have physical branch locations and ATMs across the country for customer convenience.
Online banks are very different from multi-national banks for a reason. These banks drastically cut overhead costs by not having to build, lease, and staff brick-and-mortar locations. They pass some of this cost savings on to their customers in the form of higher interest rates on checking and saving accounts, and better customer service. Popular online banks include ING Direct and Ally Bank.
If you are a fan of localized customer service and an institution that is invested in your area, a community bank is for you. These banks are usually much smaller than their national brethren, but are not necessarily limited to just having a handful of branches. Some community banks have grown to have a significant presence in their local region.
Interest rates and products vary from bank to bank, but all community banks offer basic accounts, such as checking and savings, and attach a “we know your name” factor to their brand of service.
Credit unions are similar to community banks. They are invested in their communities and, generally, do not have locations in multiple states. However, the structure of a credit union is different, which is what gives this type of bank unique advantages over the previous three options.
Credit unions are owned and operated by their members. In other words, if you become a member, you actually have some say in management decisions. In fact, this is why they have membership requirements in order to open an account. Requirements can be as stringent as having to work for a specific employer or as lenient as living, working, or shopping in the area the credit union serves.
There are many factors to consider when selecting a bank and the array of options can be confusing. Here’s a checklist to guide you through the process.
Never do business with a bank or credit union that does not offer deposit insurance, or carry the FDIC or NCUA symbol. This insurance covers your deposits up to a total of $250,000 should the institution fail. There are two types of deposit insurance: Bank deposits are insured by the Federal Deposit Insurance Corporation (FDIC) while credit union deposits are insured by the National Credit Union Association (NCUA).
If a bank fails, the deposit insurance organization steps in and takes over. This normally happens on a Friday to give regulators the weekend to make sure everything runs smoothly the following week. The institution opens as normal the next week and customers are allowed to withdraw funds up to the deposit insurance limit.
Banking without deposit insurance is financial folly. It costs customers nothing and going without it can result in the loss of every dollar you have deposited. The best bank is one that has deposit insurance, but is healthy enough so that you will never need to use it. Unfortunately, bank failures happen, so be sure to read up on how to react when your bank fails or when your bank goes through a merger or acquisition.
Fees are a huge factor to consider. Since fees often depend on your banking habits, it pays to be aware of these habits in addition to static fees the bank charges. For example, know what balance you’re likely to maintain, how many ATM withdrawals you’ll make and where you’re likely to make them, how many checks you’ll write, and if you’ll have a savings account, how much you’re likely to keep in it.
For example, one person could have a no-fee checking account because they maintain a minimum of $100 within it, while another person could pay hefty fees on the same checking account because they can’t maintain the minimum balance. Remember, banks like to collect fees from their customers, so read the fine print.
Some fees to consider:
As mentioned above, some banks have minimum balance requirements that can trigger fees. There are three primary types of balance requirements:
Some banks will not have these balance requirements or you may be able to negotiate out of them. Whatever the case, make sure that any balance requirement suits your needs and won’t put you in a financial bind.
Another factor to consider is how much interest you can earn on deposits, or will be charged on loans. Ideally, you are looking to generate high interest income through saving accounts and certificates of deposit, even though you may have to give up other benefits to find this.
For example, a bank may have the best customer service in the area, but if their interest rates are the lowest around, you may want to pass to find a better deal. Similarly, you might consider putting up with extra restrictions if it means you can earn a maximum level of interest on your deposits. That said, make sure that by tolerating restrictions or poor customer service, you won’t incur extra fees. Depending on your account balance, fees can quickly negate the amount of interest you’re likely to earn.
Ultimately, your bank should fit your current situation. For example, if you want to take out a loan, prioritize a bank that offers low loan rates. Then, once you are paid off and no longer need a loan, move to a bank that better suits your other banking needs.
Check to see if your bank offers the types of accounts you need. Here are four to consider:
There are two primary types of financial products available from most banks: loans and income generating assets. Larger banks will offer a wider array of each product type, but that doesn’t necessarily mean a better deal. Here are a few example products by type and what to look for.
Asset Growth Products:
With both sets of products, be aware of all fees and annual maintenance you will be charged or might be charged, as well as limits or restrictions you must comply with. Never assume you must stay with the same bank for every financial product you own. If you can get a better rate on a mortgage at another bank, do it. Don’t just stick with your bank because of the relationship you have with them.
Customer service can make or break your experience with a bank. Horrible service can drive you away from even the best of interest rates and cost you time as well as money. Search for reviews online and ask your friends if they have done business with the bank you’re interested in. If you start to see a trend in a negative direction, it might be best to look elsewhere.
A big contributor to good customer service is how accessible the representatives are. This is partially determined by the type of bank you are dealing with. A bank with one location in your area on the other side of town won’t be easy to get to, or getting through on the phone may be difficult. That said, while a bank on every corner may provide good customer service when you walk in, the service through their 1-800 number could be downright miserable. Consider whether you want “live” customer service that you drive to, or if you prefer to talk on the phone. Then, consider how accessible they are via either method.
If you are banking with an online bank or one that you cannot easily access, the service options available to you online or over the phone become critical. Are you going to be stuck in a phone tree for hours before someone answers your call, or do they pick up on the first ring? Also, how do you feel about outsourcing? Many larger banks and some online banks have outsourced their customer service to countries like India in order to save money. If you have a strong opinion about this, it’s best to find out before you open an account.
Outside of customer service, you need to know if a bank offers:
Most banks will offer most of the above options, but cost structures can vary greatly. A cashier’s check at a credit union, for example, might cost $4, but across the street at the national bank it costs $12. If you rarely use cashier’s checks, this difference is not a big deal, but if you use them regularly, the higher fees will quickly add up. Likewise, some bill pay systems are free to all customers, while others have a monthly charge or require you to have a premium account.
A big factor that is consistently played up in the media is bank security in regards to your personal information. It seems that every month, another bank’s technological infrastructure is compromised and thousands of customers’ personal information is stolen.
While the sophistication of a bank’s security is definitely important, don’t weigh this factor too heavily. The truth is that no bank is “hacker-proof.” Your personal information is constantly at risk, and at some point, one of the banks, retailers, or government entities you deal with is likely going to have data stolen.
What’s most important is how your bank reacts when personal information is stolen or otherwise compromised. Do they sit on the sidelines for a week while the media reports on the “disaster”? Or do they react quickly by closing accounts, shutting down unauthorized transactions, and issuing you a new account number? Moreover, do you get a call or text whenever something suspicious happens with your account?
The importance of choosing a bank should not be underestimated. But selecting the right one can have as much to do with your banking habits and personal preferences as it can with the bank’s individual attributes, such as low fees, great customer service, or high interest rates on accounts. First, identify what is most important to you regarding the types of accounts you want, products and level of service you need, and how you like to communicate with your bank. The points above can provide an outline for you to consider your own behavior as well as how a particular bank might fit it.
Once you’ve identified what you want in your bank, start reviewing your options. Visit bank websites, talk directly to a representative at each bank you’re considering, and go through your priorities with them. Then, after you’ve narrowed down this list even further, look to online reviews and ask friends or family if they have any experience with the banks in question. Follow this protocol to switch to a bank that will save you money and provide a headache-free experience.
What do you typically look for in a bank, and which one did you end up choosing?
How to Choose a Bank That’s Right for You
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