I opened one of my first bank accounts because they were giving away a free casserole dish. I didn’t need a casserole dish but I figured why not? Funny thing is, I actually use that dish now, but canceled the checking account years ago when the friendly neighborhood bank was taken over by one of the national chains. What should you consider when opening an account or changing banks?
Type of bank
Whether you’re looking for a checking or savings account, CD, auto loan, or mortgage, you can easily find them at traditional banks, credit unions, and online banks.
Traditional banks – Traditional banks are (often) the large companies like Wells Fargo or Bank of America. They provide pretty much everything you’d need from a bank, including savings and checking accounts, credit cards, loans, CDs, etc. Their ATMs are scattered throughout a town (and often across the country), making it easy to access your money. Plus, if something happens and you need to talk to someone in person, they have salespeople ready to assist you.
Being a larger bank means customer service may suffer, or you may be working through lots of corporate regulations if you have a problem. Similarly, these banks may charge more or higher fees and pay you low rates on your deposits.
Some traditional banks are smaller, often one- or two-branch operations. They may offer the same breadth of products as the big boys while providing better customer service. However, free ATM access may be limited.
Credit unions – Credit unions used to be much more select in their clientele. You had to work for an airline or a specific industry to be allowed to join. Now many credit unions are open to anyone. They offer the same types of products as banks – checking and savings accounts, credit cards, loans, etc. One benefit of a credit union is they usually have lower interest rates, especially on car loans.
Quite often credit unions have only a few locations. If you work or live near one, that may not matter to you. Additionally, you won’t find credit union ATMs spread across the country. But many offer free ATM transactions through a national network (such as Plus or Allpoint). These transactions may be limited to a few per month though, so make sure you understand any limitations.
Online banks – Online banks had a bumpy start but over time have rounded out the rough edges. As online banks have grown in popularity, traditional banks and credit unions have had to up their online presence to compete. Similar to traditional banks, you can open savings or checking accounts, get a credit card, open a CD, or take a loan. The biggest difference is that you can’t walk into a bank if there’s a problem or you need to talk to someone. Additionally, depositing cash is very difficult unless the bank accepts deposits through member ATMs.
Speaking of ATMs, many online banks allow you to withdraw money at any ATM with no fee. The best even rebate the fee that the ATM charges. For instance, when I use my online bank ATM card at a Wells Fargo machine, Wells Fargo charges a $3 fee for me to access my money. My bank rebates those fees at the end of the month.
One other thing to know with online banks: opening an account can be a headache. While you can take your driver’s license and opening funds to a brick-and-mortar building, you will have to scan and send in your proof of ID to the online bank. Also, your opening funds may need to be in the form of a mailed check and may not be available for you to access for a week or longer.
One specific type of online bank is the app-based bank (like Chime or Simple). These can vary from savings-account-only banks to full-fledged banks with CDs and checking accounts. They often come with low or no fees and provide the ability to track your spending in real time. Like other banks without a physical presence, opening an account may be a challenge, as will depositing cash. Make sure you read the fine print and reviews before moving all your money into these accounts.
What’s important to you?
When deciding on a bank, it really comes down to what’s important to you. With the advent of Venmo and Zelle, proximity to ATMs may not be important. Similarly, if you never use cash, the idea of walking into a bank at all may seem foreign. However, many people like personal support and would rather stand in line than sit on the phone hearing “your call is very important to us.” Here are some other things to consider.
Fees. Unless you are in a very small town or don’t have a computer, there’s no reason to pay for a checking account. Make sure you aren’t paying ATM fees, overdraft fees, or anything else for the bank to warehouse your money. It doesn’t hurt to comparison shop periodically if you find you’re paying more in fees than you want.
You will get a lot of paperwork when you open a new account. Pay particular attention to the fee disclosure. Make sure you understand all fees and ask questions if you don’t. Surprise fees will quickly end the honeymoon period you experience with your new bank.
ATMs. At some point you probably will need cash. Make sure the bank you choose either has ATMs where you need them or rebates ATM charges. While you’re at it, look for nearby branch locations if going into the bank is important to you.
Read the reviews. Large banks can be difficult to work with. Instead of being able to make a decision on the fly, their first response is to go back to the company rules and regulations. There’s nothing wrong with that – that’s probably how the bank became so huge in the first place. But reading the reviews for any prospective bank will prepare you for its shortcomings.
Look at their online presence. I pay all my bills online. I’ve been surprised recently with the differences between my two banks. My gas company address isn’t listed on one bank, so it requires a mailed check. Yet the other bank has 10 different addresses for my gas company, and the payment goes in two days. Not every online experience will be the same.
While you’re at it – download the bank’s app. You should be able to pay bills, check your account balance, sign up for notifications, and deposit checks easily through their app.
Minimum balance for free checking. Minimums will differ among banks. One of my checking accounts has no limits for free checking. The other requires $1,500. Both are free with direct deposit. If you have a small amount of cash with which to open the account, find a bank that offers free checking with that amount or a bank that will offer a free account when your paycheck is directly deposited.
Wild-card bonus offers. When I was researching checking accounts, I was amazed at the number of offers for cash if you open an account. I guess my casserole dish has been replaced with hard currency. If you’re looking at several and one offers $200 to open and maintain an account, all else being equal grab the cash. Just make sure you read the fine print so you actually receive that money.
Money is insured. Make sure your bank has FDIC insurance; if a credit union, NCUA insurance. This should be a given, but it always pays to check.
What should you choose?
After you’ve decided what you need from the bank, compare several in your city along with the top online contenders (if you’re comfortable with online banking) on fees, reviews, proximity, etc. However, this isn’t a permanent relationship. If you don’t like the account or get hit with fees, find another one.
Additionally, there’s no reason to just have one account. I’ve purchased two cars with a local credit union and bought our last car with another credit union. Basically, I had to open a savings account (with $50) to become a member so I could get the lower interest rate. Once the loan is paid off, I close the account.
Similarly, over the last ten years I’ve tried several online accounts. The first was a fiasco, but my current one offers free ATM transactions (even overseas) and ties into a brokerage account. Yet I still haven’t closed my old traditional account. It’s something of a pain to have two accounts, but until I’m sure I can do everything I want with the online account, I’m happy to deal with both.
Photo by Museums Victoria