How to Choose the Right Bank?

Tommy

Just a Millennial living in the real world...

There are thousands of financial institutions in the U.S. offering a wide variety of banking products and services and choosing the right one can be overwhelming. There are national banks, credit unions, community banks, and now there are a number of online banks. So how do you choose the right one? Let’s take a look at the things you should look for when choosing a bank.

Products Offered

The financial institution of your choosing should have a wide range of financial products and services. Must have products include checking accounts, savings accounts, money market savings accounts (MMSA), certificate of deposits (CD), retirement accounts, credit cards, mortgages, auto loans, etc.

Since there are so many options, you have the choice to keep all of your accounts at one financial institution or you can open up accounts at different places to find the best offers on rates and fees. I tend to stay at one place as I am a believer in customer loyalty and the convenience that comes with having everything at one place. But I always try to find the best products for me and be diverse. For example, my financial institution is Navy Federal Credit Union, my credit cards are with Chase, American Express, and Capital One, my insurance products are with USAA and Northwestern Mutual, and my investments are with TD Ameritrade and Charles Schwab.

Fees & Rates & Restrictions

Fees are one of my biggest pet peeves in life so I try to avoid them at all costs. I’ve only been charged one NSF fee in my lifetime, which was a mistake, and I was able to get it waived. Not all financial institutions are equal when it comes to fees. Typical fees include monthly maintenance fees, ATM fees, non-sufficient funds (NSF) fees, outgoing wire transfer fees, stop payment fees, paper statement fees, and many more. Some financial institutions have cheaper fees or don’t charge for certain things. The fees may not sound expensive, but they can add up quickly. For example, if you overdraw your account 3 times within a day and have a $34 NSF fee per item, then you will be charged $102 for that day. Yes, those fees add up very quickly…

Interest rates are another thing to consider when looking into accounts. Some checking accounts earn interest and all savings accounts, MMSAs, and CDs earn interest. The higher the interest rate the better. High-yield savings accounts are relatively new, but offer the highest interest rates in the nation. The reason they can offer high interest rates is because they are online banks with no/minimal brick & motor branches.

One thing to keep in mind with savings accounts is they usually limit the number of withdrawals you can make to 6. If it is less then that then watch out because they will charge you fees if you go above the limit. Sometimes checking accounts have a limit on the number of transactions you can have per month and is something to watch out for as well.

Branches & ATMs

The number of branches and ATMs is important because you have to have a way to access your money and deposit your money. Nowadays these online banks are great, but it is very hard to deposit cash and that is a problem that I run into. There are very few ATMs that allow cash deposits so that is why I am mostly cashless. The national banks like Chase, Bank of America, Citigroup, and Wells Fargo will have the most branches and ATMs as they are the largest banks in the U.S. Credit unions are usually apart of an ATM network like CO-OP or Allpoint. Community banks usually have a few branches in the community and sometimes are a part of an ATM network.

Think about your lifestyle and what you like at a financial institution. Do you prefer online and mobile banking? Or do you prefer to walk into a branch and make financial transactions? If you are like me and your transactions are mostly digital, then look into an online bank. If you make lots of cash transactions then it would be better for you to find a place with a lot of branches or an institution with a convenient branch for you.

Technology & Safety

I am all about online and mobile banking. It’s super easy for me to check my accounts, pay bills, and make deposits using online/mobile banking so having a good platform is important to me. You also want to make sure that the technology is safe so it will protect against fraud. Transfer times is another thing to take into consideration and it shouldn’t take more than 2 business days to transfer funds to external accounts. National banks and bigger financial institutions will have better technology as they have more resources. Community banks may offer this technology, but it might be pretty bare bones.

Is your money safe? You should find a financial institution that is insured to protect you if they end up failing. Banks are typically insured by the Federal Deposit Insurance Corp. (FDIC) and credit unions are insured by the National Credit Union Administration (NCUA). Both for up to $250,000 in deposits. So if a bank or credit union ever goes bankrupt, then you are insured for up to that amount. If you are a high net worth individual and hold more than $250,000 in deposits at a financial institution, then you should open up accounts at another financial institution and spread out your money because of this rule. If a financial institution fails then any amounts over $250,000 are not covered. So you really give yourself a little bit of a buffer.

Customer Service

Customer service is important to me because I want to be treated with respect and kindness. If I have a problem, I would like to be able to speak with a representative instead of wasting time using a machine. If I walk into a branch, I would like to be greeted by my name and have a positive experience. Good customer service goes a long way to maintain customer loyalty and establish a good brand.

How to choose the right bank account?

Most people opt to have a checking and savings account, which is a good rule of thumb to live by. Your checking account is used for day to day transactions like depositing/withdrawing money and paying bills. So you should look for accounts that offer unlimited monthly transactions and low fees. If your checking account earns interest then that is just a cherry on top. Most national banks do not offer interest on checking accounts, but credit unions and community banks might.

My parent’s opened up a savings account for me when I was 5 with Navy Federal Credit Union and I have been a customer ever since. Savings accounts earn interest and the national average is about 0.06%. They are typically limited to 6 withdrawals per month and have a low minimum balance requirement to earn interest. So you should look for a savings account with a high interest rate, low minimum balance requirement to earn interest, and the number of withdrawals per month.

I kept my savings account open, but I recently opened a Money Market Savings Account (MMSA) as it has a higher interest rate, A MMSA earns a higher interest rate and the national average is 0.08%. A MMSA is very similar to a savings account, but the minimum balance to earn interest is typically higher. Like a savings account, withdrawals are typically limited to 6 per month. So like a savings account, you should look for a high interest rate, low minimum balance requirement to earn interest, and the number of withdrawals per month.

Certificate of Deposits (CDs) are deposits where you promised to keep your money at a bank for a specific time period. Typical lengths of times are 1 month, 3 months, 6 months, 12 months, 5 years, and 10 years. The longer the time, the higher interest rate you earn. Once you own a CD, you lose access to that money until the time period expires. If you run into an emergency and you need to withdraw the money, then you will incur a fee. But CDs are very safe investments. A popular investment strategy is a CD Ladder Strategy, where you stack multiple CDs at staggered time intervals and it allows you to earn higher interest rates without completely sacrificing accessibility to your money. So when it comes to CDs, you should compare interest rates, minimum balances, and early withdrawal penalties.

Next Steps

Choosing the right bank is a personal choice and can take a lot of shopping around. Switching banks is a very tedious process and a pain in the butt, which is why about 96 million Americans have never switched banks. Once you found the bank of your choice, you can apply to open up an account. Most accounts can be opened online and the process doesn’t take too much time nowadays. The next step is to choose which accounts to open.

After you open your accounts, you have to make sure to update your direct deposit and switch all recurring bills from your old account(s) to your new accounts. It’s best to update your bills with your new account information as fast as possible so you can close your old account and fund your new account. This should all be done simultaneously and you run the risk for returned items/NSF fees in case you forget a recurring bill. So it’s important to keep track of all of your bills. That is why I separate expenses paid out of my checking account and expenses paid using a credit card on my cash flow template so I know which expenses I need to update.

My Recommendations

Navy Federal Credit Union (NFCU): This is where I have been banking for the past 25+ years. I have a checking account, savings account, and MMSA with them. NFCU is a large credit union with about $110 billion in assets and it was founded in 1933. They offer a wide range of financial products, low fees, amazing online/mobile banking, and exceptional customer service. In order to become a member, you or a member of your family or household members must have ties to the armed forces, DoD, or National Guard. For checking and savings accounts, they don’t have the best interest rates out there, but they are competitive. For checking accounts, you have access to 30,000 ATMs using the CO-OP network. There are no monthly service fees, no minimum balances, they reimburse you for non-NFCU ATM fees up to $10 per month, and they offer interest. For mortgages, they have some of the best rates and lowest fees I have seen in the market and when I go to buy a home, I plan on using Navy Federal.

USAA: Another financial institution where I have been a member for a very long time. USAA is best known for their home and auto insurance, but they have banking and personal investing lines of business. I have renter’s insurance, auto insurance, a checking account, and I opened up my first credit card with them back in 2008. USAA is open to current and former military and their spouses and children. They offer a wide range of banking products and are competitive, but NFCU is slightly better. NFCU has slightly cheaper fees and better interest rates. Their insurance is some of the best in the nation. For example, I had two people hit my car on two separate occasions while parked on the street in Wrigleyville (one a hit and run) and my car insurance premiums have never skyrocketed. USAA has some amazing customer service and their investing line of business is solid. USAA’s mobile banking app is a little clunky, but it does the job. Overall, USAA is another great option for banking.

Chase Bank: When I went away for college back in 2008, I opened up a checking account at Chase during my freshman year. Since there were no NFCU ATMs or branches near Purdue and at the time NFCU didn’t reimburse non-NFCU-ATM fees, I had to open up an account where I could access my money cheaply (free) being a poor college student. Chase is one of the big four national banks in the U.S. (About $2.6 trillion in assets) and offers a full suite of products. I chose Chase back in college as they have over 16,000 ATMs and 4,900 branches across the U.S. and are available in most major cities. Currently, I have 3 credit cards with them, the Chase Sapphire Reserve, Chase Freedom Unlimited, and the Chase Freedom to complete the Chase Trifecta, which is one of the most powerful credit card combinations in the market. In my opinion, they also have the best mobile banking app in the nation with NFCU being a close second. Their customer service is solid as I was able to get a NSF fee waived when I overdrew my account by accident. But their customer service isn’t as good as NFCU, USAA, American Express, or Capital One.

My two biggest beefs with Chase are their outlandish fees and low interest rates. For their Chase Total Checking account, they charge you a $12/month maintenance fee unless you set up a direct deposit of at least $500 (simplest way to waive fee) or keep a minimum balance of $1,500 each day or keep an average minimum daily balance of $5,000. The checking account doesn’t earn interest. Chase charges $2.50 every time you use a non-Chase ATM so you get double dinged, once by Chase and once by ATM. Also, all of their fees are on the higher end such as their NSF at $34. See their fees schedule here. Also, their savings account interest rates are abysmal at 0.01%.

Capital One: Capital One is known more for their credit cards, but they have been heavily advertising their banking division over the years. Capital One is an online bank, but they have been opening up Capital One Cafes in major cities. I don’t have any accounts at Capital One besides my Quicksilver and Venture One credit cards. But I have been thinking about opening up a 360 savings account as their interest rate is one of the highest in the nation at 0.80%. The only con I have heard about these high-yield savings accounts like Capital One and other online banks such as Synchrony is that mobile deposits and transfers to external accounts can take a long time sometimes up to 5 days instead of 1-2 days. It’s not that big of a deal if you don’t need the money immediately.

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