With so many options available, it can be overwhelming to find the right bank to open an account with. Many people stick with the banks they already have, even if other banks may be able to provide better services. The bank(s) you choose should align with your needs. Understanding what you need from a bank account and what’s typically offered can help you through the process.
This article digs into the ins and outs of choosing a bank account. We’ll cover the different types of bank accounts available, bank features to consider, and 3 ways to approach researching banks so you can feel better informed about opening your next bank account.
Types of Bank Accounts
It’s important to understand the different types of accounts available. You can think of different bank account types as different financial products that have their own features. Based on what your banking needs are, you can decide which financial product works best for you. The four most common types of bank accounts are below.
Checking Accounts
Checking accounts are transactional accounts that hold your money and allow you to deposit and withdraw money from them on a daily basis. Typically these accounts come with a debit card and checks so that you can access your money relatively easily. Checking accounts are usually used for day-to-day expenses and immediate needs such as food, rent, bills, and other expenses. Checking accounts may charge a fee or have specific requirements (such as a minimum balance in the account) that can help you waive the fee.
Savings Accounts
Savings accounts are accounts that hold your money and allow you to earn interest on them. These accounts are meant to help you save money. Because they often have withdrawal limitations, savings accounts are best used for long-term savings goals that don’t require you to move money in and out on a daily basis. Savings accounts may have fees and requirements for keeping an account open.
Money Market Accounts
Money market accounts are deposit accounts offered by banks and other financial institutions that usually pay higher interest rates than traditional savings accounts. They are designed to provide customers with a safe place to save and also grow their money. Money market accounts usually require a minimum balance to open and keep the account. Similar to savings accounts, they may have limits on the number of withdrawals or transfers that can be made each month.
Certificates of Deposit (CDs)
Certificates of deposit, also referred to as CDs, are a type of savings account that holds a fixed amount of money for a specified amount of time. The timeframes can vary, such as 3 months, 6 months, 1 year, or longer. In exchange for keeping your money in the account for the agreed term (the maturity date), the bank pays you interest.
In addition to these bank account types, banks may offer other financial products, services and account types. For purposes of storing your money in a relatively safer account, these 4 types are the most common.
What to Look For In A Bank Account
Understanding different types of bank accounts allows you to narrow down the kind of account that fits your needs. Once you know the type of account you’d like to open, the next step is deciding where to open the account. Before choosing a bank, there are various features you might want to consider that can vary between banks. Let’s cover some of the features you can consider when choosing a bank.
Fees
Many banks and financial institutions charge fees for various services and transactions associated with their banking products. Common fees are monthly maintenance fees, ATM fees, wire transfer fees, and overdraft fees. Fees can vary widely depending on the bank and type of account. Make sure to look for bank accounts with low or no fees, or at least be aware of the fees associated with your account to avoid paying unnecessary charges. Bonus tip: Learn your bank’s fee-waiving policy, if any, to understand how you might be able to negotiate in the event you trigger a fee.
FDIC Insurance
For bank accounts in the U.S., look for banks that offer (Federal Deposit Insurance Corporation) FDIC Insurance. FDIC Insurance provides insurance to depositors in case their bank fails. If a bank fails, the FDIC guarantees to depositors up to $250,000 per depositor per account ownership type. It covers deposits in savings accounts, checking accounts, certificates of deposit (CDs), and money market accounts. Essentially, having FDIC Insured accounts will give you the peace of mind that you’ll get your money even if your bank goes out of business.
Note: If you choose to bank at a credit union, similar insurance is provided by the National Credit Union Administration (NCUA). Look for credit unions that offer NCUA insurance.
Minimum Balance Requirements
Some bank accounts require that you keep a minimum balance in order to avoid fees. Banks may charge a monthly maintenance fee if this requirement isn’t met on a monthly basis. Before you open an account, make sure you can consistently and comfortably meet the minimum balance requirements to avoid this fee.
Interest Rates
For savings accounts, money market accounts, and CDs, try to find accounts with high-interest rates. Rates may be similar across banks and move in similar directions, but either way, higher rates will allow you to earn more money on your savings over time.
ATM Access
If you plan to use automated teller machines (ATMs) frequently, you might want to consider a bank with a large network of ATMs. This will allow you more access to your money without using out-of-network ATMs, which typically have fees associated with them. There are also some banks that may allow you to use out-of-network ATMs without a fee, or with the ability to get ATM fees reimbursed.
Online Banking Features
Nowadays, many banks offer online banking features such as online banking through their websites, mobile banking, account alerts, mobile deposit functionality, and bill pay services. If any of these features matter to you, look for banks that offer these features. Additionally, you may care about banks that offer a good user interface (UI) and easy-to-navigate apps.
Transfer Limits
Transfer limits refer to the maximum amount of money that can be transferred out of a bank account whether in a single transaction or within a certain time period. These limits are usually set by the bank to prevent fraudulent activity. Specific transfer limits vary by bank and by account.
Related, some bank accounts may have limits on the number of withdrawals and transfers that can be made on a monthly basis. If this set amount is exceeded, a bank may charge an excessive withdrawal fee. As you select a bank and bank products, be aware of any transfer limits and restrictions to avoid unexpected fees or transaction denials.
Customer Service
If the ability to speak to customer service online, on the phone, or in person is important to you, it’s worth checking a bank’s availability for customer support. Some banks are only available on weekdays, while others may have 24-hour support.
Research Banks and Open An Account
Now that you know what features to look for in a bank, it may feel overwhelming to kick off the process of selecting one. There are indeed a lot of things to consider. It’s key to make an informed decision without overcomplicating it! Here are 3 ways you can research banks before opening one:
- Online research: Nowadays, many banks have websites that clearly describe their banking products and the features associated with them. Search for 3-4 banks and explore their websites to make your own comparisons.
- Reviews: There are also many websites that provide reviews and ratings of banks and bank products. Some of these include NerdWallet and WalletHub. These websites make it easy to compare banks and remove much of the leg work in researching. Pro tip: Use these websites as a starting point in creating a short list of banks to check out, as opposed to taking them completely at face value. Sometimes they are affiliated with the companies they promote, but this should be disclosed on their website!
- Ask for Recommendations: Ask your friends and family members about where they bank & why they like or don’t like it. By gathering information about their experiences, you can further narrow down what features and services you care about the most. Additionally, you can refer to financial professionals to get their input as well.
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While this article is intended to be informative, the point is not to scare you. Make an informed decision, then go ahead and open that new account! In the worst-case scenario, and you end up not liking the account you opened, you can close it and find a better one later. Unlike credit cards, you won’t harm your credit score if you end up closing a bank account. The reason most people don’t close accounts more often is usually due to comfort and convenience.
As you decide where to open a bank account, simply focus on the features most important to you and the goals of creating your new account in the first place.
