Saturday, March 12, 2011

How to Choose a Bank Account

This is the 3rd post in the Bank Deposit Account 101 series. 

Opening up a checking or savings account is one of the most basic things you should do when you're working on building your wealth. Whether you're a student, a professional, a part time worker, etc., it is probably the most low risk option for storing your money and possibly earn some modest interest. Not only that, it should be an integral part of managing your finances by simplifying organization, and perhaps, curb your spending. I described the process of opening an account as well as the most common types of deposit accounts available in earlier posts. The following is a list of factors that play into the decision of selecting an account. Determine which of these are the most important to you in order to find an option that's fitting.

Note that this post applies to both bank and credit union accounts, but for the sake of simplicity, I'll collectively call them "bank."

Make sure your money’s safe. Safety first! The FDIC and the NCUA are government agencies that insure your money if the banking institution collapses. Currently the insured amount is up to $250,000 for members. Having this cushion means knowing that your money is protected. It's definitely better than hiding cash under a mattress!

Minimum balance. It's required by a lot of banks to open an account. If your balance falls below that amount, you'll be charged a penalty or a monthly maintenance fee. You should first determine how much money you have available to fund the account. Even if you have a large sum available, you might not want to put all of it in the same place. Once you decide on an amount you're comfortable with, eliminate all of the options that exceed it.

Be aware that some banks will require you to link checking and savings accounts. Both of which might require minimum balances. Take this into consideration so you don't go over your own limit.

ATM Fees. If you go to the ATM often, you'll need to know how big the ATM network for your bank is. Getting charged a few dollars to take out your own money is almost as wasteful as burning it. Some banks with very few locations will agree to reimburse you for a certain number of ATM transactions a month. If you travel often, choose a bank with a large network both in the U.S. and internationally.

Do your research on how well they keep their promise of reimbursement. I've seen customer complaining of having to repeatedly "remind" their bank to give them back the fee.

Other fees and trends. How likely are you to bounce checks? Do you make transfers often? How about overdrawing? Look up a complete fee schedule for each bank you're considering. Sort out the services that you are most likely to encounter and compare them between banks/accounts.

Don't forget to find out the bank's reputation and how their operation is changing. For example, some banking institutions (Bank of America, Chase, etc.) have been in the news a lot lately for getting rid of free checking accounts, raising card fees, and increasing account minimums. You might want to factor that into whether you want to establish a relationship with that bank or not. Remember, when you open an account, they reserve the right to change the rules, but you have the right to take your money and leave. Still be careful to prevent hassles and avoid getting hit by some mysterious penalty for closing your account.

Interest Rates. Rates are generally low these days, but you can still find large differences between accounts. I have a "high rate" account that pays me 0.02% interest, but I've also seen accounts that pay 2.00% (yes, they still exist). Shop around on websites like and or look up local banking institutions on a search engine.

Customer Service. When you have questions, you want the representatives to be knowledgeable enough to help you. The same goes with problems. If the bank makes a mistake or you have other issues with them, the last thing you want is to not be able to find anyone to resolve it. This is your money we're talking about! Check Consumer Reports, read reviews online, and ask current customers you know. Keep in mind that online reviews tend to include more negative experiences, though.

Proximity/ease of access. How often do you plan on going to the bank? Will you need to talk to representatives a lot? How about ATM's? If it's important to you to be able to access the branch, consider its location to your home or work. In addition, check hours of operation and whether they're open on the weekend or not.

Deposit processing time. Some banks are notorious for making their customers wait a very long time to access funds the customers deposited or transferred. If you tend to need to access recently deposited money quickly, avoid these institutions!

Rewards and Incentives. Are there incentives for new customers like the recent ones offered by Chase? What about rewards programs for using your debit card? Finding a great one means more bang for your buck!

Online banking. It's pretty standard these days for banks to offer online account management. But having it doesn't mean it's easy to use. If you do most of your banking through a computer or mobile device, it can be frustrating to end up with a bad interface. Ask a bank representative to show you what their software looks like or look online for reviews. If you're uncomfortable with doing things online, avoid banks that charge you for paper statements.

Other banking services. Opening and maintaining good standing of one account at a banking institution means easier access to other services such as loans, mortgages, credit cards, etc. offered by that organization. Consider banking products you might need to use down the line and how good those services are.

Finally, read the fine print! Don’t get caught off guard by fees and penalties. Like always, do as much research as possible before you proceed. Know what your financial personality is and pick accordingly. Happy banking!


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