How to choose a bank: Why bigger isn’t always better

When you think about the banks you have to choose from, there are probably about half a dozen names that first come to mind. These are likely to be the large, major banks that advertise the most and have names you’ve grown up hearing about.

Those big banks may be very fine institutions, but they’re not always the best choice for your needs. In fact, the biggest banks often charge the highest fees and offer the lowest interest rates on deposit products. So your search for a bank shouldn’t be limited to a handful of banking giants.

You might be surprised at how much choice you actually have. While large banks have the vast majority of customer deposits, there are actually more than 4,500 FDIC-insured banks in the United States. Many banks offer a variety of features, such as low-cost or no-fee accounts, different overdraft protections, and a range of account options to suit different financial needs.

Most of these are smaller regional and community banks, which are only available in some areas. Others are online banks, which can give you easy access without having local branches. Beyond banks, there are also credit unions, which provide banking-like services.

The point is, there are a great many choices beyond the most obvious ones. For consumers, a wider choice means more opportunity to find a better deal. Personal preferences play a key role in choosing the right bank, as the best option depends on your individual needs and lifestyle. Additionally, choosing a bank is an important part of personal finance management, so aligning your choice with your financial goals can help improve your overall financial well-being. It all boils down to knowing how to choose a bank or credit union.

Understanding the different types of banks

To give you a sense of the choices available, here’s a breakdown of the types of institutions that provide banking services:

National banks vs. community banks

National banks are those that do business in most or all states. Many of them have extensive branch networks. This means you can bank locally, but also find a branch of your bank in another part of the country when you travel. Branch access is a significant advantage for customers who require in-person services, as the widespread physical presence of branches makes it easier to handle banking needs wherever you are.

However, given their size, these banks often support the most overhead costs. That means they don’t always offer the best financial terms to consumers. It also means that customer service may be more institutional than personal.

In contrast, community banks do business in a limited geographic area. For example, a community bank may have just a dozen branches spread across a few cities and towns in a couple of adjoining counties.

Somewhere in between are regional banks. These banks do business in multiple states, but don’t cover most of the country. For example, you might find a regional bank with dozens of branches in New England, but nothing beyond that.

Online banks vs. traditional brick-and-mortar institutions

Most banks these days offer some version of online banking. However, some banks specialize in it. They don’t have branches for customers to visit. Instead, they concentrate their customer service efforts in providing the best online experience through their websites and apps. Online and mobile banking allow customers to manage their accounts from anywhere, offering convenience and flexibility. Mobile banking, in particular, enables users to access services directly from a mobile device, making it easy to transfer funds, pay bills, and monitor accounts on the go.

People who still like to do business in person may prefer having a physical branch they can visit for in-person banking. However, for people who like to be able to do their banking wherever and whenever it’s convenient, online banking often better meets those needs. Additionally, banks without branches often have lower overhead, allowing them to offer more favorable financial terms to their customers.

Credit unions

Credit unions provide many of the same products and services as banks. They also provide federal deposit insurance, only they do it through the National Credit Union Administration (NCUA) instead of through the Federal Deposit Insurance Corporation (FDIC).

Credit unions are not-for-profit organizations and are member-owned institutions. That means the people who bank with them share ownership in the credit union, and profits are returned to members in the form of better rates and lower fees. Credit unions offer a wide variety of financial products and services, including checking and savings accounts, loans, and credit cards. Because of their not-for-profit status, credit unions typically provide higher savings rates compared to traditional banks. Membership of a credit union has traditionally been limited to people who share a common attribute, such as living in the same area or military service. However, in many cases, these criteria have been broadened over the years, making credit unions widely available.

Essential financial factors to evaluate

Choosing a bank largely comes down to dollars and cents, but it’s also important to understand your financial needs and banking needs before making a decision. Make sure to align your choice with your financial goals, such as saving for emergencies or short-term objectives. Additionally, carefully evaluate the specific features offered by different banks to ensure they match your personal requirements.

How do you determine if a bank is a good choice?

Start by thinking about how you intend to use the bank. Ask yourself:

• Which account types do you need (e.g., checking, savings, money market)?
• How much are you likely to keep in your accounts, and will you meet the minimum balance requirements?
• Do you plan on keeping money in place for a long time, or do you need it to be available at any time?
• Do you tend to overdraft your checking account?

Knowing these things will help you evaluate how a bank’s fees and interest rates will affect you. When comparing different bank accounts, consider which bank account best fits your needs. Features and requirements can vary depending on the bank, so review each option carefully. Some banks will waive fees if you set up direct deposit or meet other requirements, such as maintaining a minimum balance or making regular direct deposits.

Account fees and cost structures

When it comes to fees, savings accounts don’t generally have fees. Fees are more likely to come into play with checking accounts and certificates of deposit (CDs):

• The most important fee for checking accounts is the monthly maintenance fees. These fees are charged just for having the account, no matter how you use it. Several free checking accounts don’t charge monthly maintenance fees. Many waive the fees if you keep a certain minimum amount in the account. So, these fees can be avoided if you choose correctly. Another fee to look at is overdraft fees, if you’re the type of person who regularly has overdrafts. Some banks and credit unions offer low fees or lower fees compared to others, helping you save on unnecessary charges.
• For CDs, one consideration is the fee for early withdrawals. In most cases, this should be a lesser factor than the yield on the CD, especially if you plan your CD terms carefully. However, if the yields on two CDs of the same length are similar but one has a lower early withdrawal fee, that could be a deciding factor. A lower fee could give you more flexibility if something unexpected comes up. Some institutions also offer higher interest rates on CDs and savings accounts, which can increase your returns.

When considering ATM networks, keep in mind that atm fees can add up quickly, especially if you use out-of-network ATMs. Some banks and credit unions offer fee-free or low-cost ATM access, so it’s important to understand these costs when choosing a financial provider.

Interest rates and earning potential

For savings and CDs, the interest they pay should be a major factor in choosing an account. Some checking accounts also pay interest, but usually fees are a more important factor.

If you shop around for CDs and savings accounts, you can often find higher rates and higher savings rates at credit unions and online banks compared to traditional banks. These institutions often prioritize member benefits and offer better returns on your deposits. You can sometimes find rates that are more than twice as high as the national averages – and sometimes several times those averages.

When considering your savings goals, it’s important to choose the right account for short-term savings, such as high-yield savings accounts, which are ideal for funds you may need within a few years.

In addition to traditional savings accounts, money market accounts are another option to consider. They combine features of savings and checking accounts, often offer competitive interest earnings, and may provide check-writing privileges and debit or ATM card access, though they can have minimum balance requirements.

Finding a higher rate gives your deposits more earning potential.

Banking services and features to consider

Knowing what to look for in a bank goes beyond the financial characteristics of their products. You should also consider if the way they provide those products suits the way you like to bank.

What qualities should you look for when choosing a bank?

One of the primary things you should look for when choosing a bank is federal deposit insurance provided by the Federal Deposit Insurance Corp. FDIC insurance protects your deposits at member banks up to $250,000 per depositor, per ownership category. The ownership category—such as individual, joint, or retirement accounts—determines how much of your funds are insured, so it’s important to understand how your accounts are structured.

There are financial companies that offer products that seem like bank or credit union products, but those institutions don’t participate in federal deposit insurance programs. To protect your assets, avoid banks that lack FDIC insurance, as your deposits may not be secure in the event of a bank failure.

Before opening an account, see if the institution has this insurance. That means they should be an FDIC member if they are a bank, or a NCUA member if they are a credit union. Also, banks and credit unions may offer some products that are not eligible for deposit insurance, so confirm that the accounts you’re opening will be covered.

Digital banking capabilities

If you like banking online, consider a bank’s digital banking capabilities. Check out the features they offer via desktop or mobile app, whichever you prefer. Make sure the functionality and ease of use suit your needs, and see if the app allows for convenient services like check deposits.

Also consider how easy they make it to bank digitally. Consider the process and charges (if any) for making transfers, setting up automated payments, and sending deposits. Digital tools can also enhance personalized service by allowing you to receive tailored support and individual attention, similar to what you would expect from a community bank.

Branch and ATM accessibility

If you prefer to bank in person, the location of a bank’s local branch is important. Having branches near your home and workplace increases convenience for in-person banking. If you travel often, check whether the bank’s branch network extends to your frequent destinations. For many, access to a local branch and in-person services is a key factor in choosing a bank.

Whether you bank in person or online, a bank’s ATM network matters. Occasionally needing cash means using ATMs, and out-of-network ATM usage can incur high fees. Review the bank’s ATM locations and whether they reimburse fees for using other ATMs, as these fees can add significantly to your banking costs.

Additional financial products and services

Banks and credit unions may also offer a wide array of other financial products and services. These include things like brokerage accounts, financial planning, credit cards, and loans. When considering these options, be sure to evaluate the specific features, rates, fees, and service quality of each product to find the best fit for your needs.

Focus on those products that you’re likely to use. Remember, though, that while it may be convenient to get these other services from your bank, it’s not always necessary. You can also use different banks for different financial needs, opening accounts at multiple institutions to optimize your banking strategy based on your specific requirements.

Practical considerations for your banking relationships

Beyond products and services, there may also be some other things about a banking relationship that are important to you. Choosing the right bank is essential, as it should align with your financial goals, lifestyle, and preferences.

Depending on your needs, you might prefer to manage all your accounts at one bank for simplicity, or you may choose to spread your finances across many banks to take advantage of different features, rates, or protections that various institutions offer.

Customer service approach and availability

Good customer service is hard to define, but you know it when you see it. If you’re considering a bank, try asking a customer service rep a couple of questions. See how responsive and knowledgeable they are.

Also, look at the different ways a bank provides service – live representatives, digital tools, chatbots, etc. Having choices for how to access help is good, and in particular, having the type of service you’re comfortable dealing with is key. Community banks often stand out by offering personalized service, giving you tailored customer care and individual attention that can enhance your banking experience.

If you’re interested in talking to live representatives, check what hours and days of the week they’re available.

Bank technology and innovation

If you like access to the latest technology, see how a bank stacks up in that department. Look at app interfaces and digital tools like savings calculators and budgeting functions. Many banks now offer a bank app that allows for mobile banking features such as fund transfers, bill payments, and check deposits, all accessible from your mobile device. You should evaluate a bank both on the current functionality of these tools as well as on whether their use of technology leans more towards the leading edge or falls behind the times.

Community involvement and social responsibility

Some banks make a particular effort to be part of their local community. They get involved in things like fundraisers and local training and hiring programs.

These factors are secondary to the main functions of a bank. However, they can give you a clue as to how committed a bank is to serving your community.

Step-by-step process for how to choose a bank

With all these aspects of banking in mind, here’s a step-by-step process for sorting through the information:

1. Assess your needs and priorities. With so much to consider, you need to focus on what’s important to you. Start by evaluating your financial goals and banking needs. Think of what products you’ll use, how you intend to access them, and which account types—such as checking, savings, or money market accounts—best fit your situation. Then consider features that directly impact those needs.
2. Research and compare your options. With thousands of banks to choose from, you can’t consider them all. Use banking review sites like ours that offer “best of” lists for products that interest you – for example, “best savings account rates.” Reading online reviews can also provide valuable insights into a bank’s customer service and reputation. Focus on the best-in-class banks available in your area to create a short list for more detailed examination.
3. Make your final decision. Once you have a shortlist of finalists, it’s time to dive into the details covered in this article. Compare how each bank measures up on key financial factors like fees, interest rates, and account features. Evaluate whether they offer your essential products and services, such as checking accounts with debit cards, savings accounts, or money market accounts. Also, consider intangible factors like customer service quality, ease of access to funds, and the overall banking experience they provide. This thorough comparison will help you identify the bank or credit union that best aligns with your financial needs and personal preferences.

Red flags to watch for when selecting a bank

Even when everything a bank presents about its products and services looks great, there may be problems behind the scenes. The federal government plays a crucial role in regulating banks and insuring deposits, helping to protect consumers through agencies like the FDIC. There are ways you can look for signs of trouble.

Warning signs of potential problems

The FDIC offers a couple of tools that might come in handy:

• The FDIC website has something called an “ED&O Search Form.” That stands for “Enforcement Decisions and Orders.” This allows you to search for any trouble a bank has had with the FDIC in the past. Some of these incidents may be minor, but if you see a bank has a pattern of frequent enforcement actions against it, that can be cause for concern.
• The FDIC also has a tool called “BankFind Suite: Find Events and Changes.” This allows you to enter a date range and choose from a menu of events to search for. The last choice on the list is “Branch Office Closings.” There is a general trend towards branch closings, so don’t be alarmed if you find some of these listed for a bank. However, if a bank has made a large number of branch closings within the past year, you might question whether the branch you were thinking of doing business at might be next. It might also be a sign of financial constraints or other upheaval within the organization.

How to research a bank’s reputation

Reputation can be hard to pin down, but there are some things you can do to get a sense of how a bank is viewed:

• Check your local Better Business Bureau for complaints
• Look at user reviews online — but be sure to assess how credible and balanced they are before relying on them
• Search for news articles to see if a bank has generated negative headlines

Any business is likely to have one or two bad marks, and larger institutions are likely to be more prone to negative publicity. However, when you consider both the nature and frequency of any complaints or incidents, you can decide whether you’d be comfortable doing business with that institution.

Bottom line on choosing a bank

Choosing a bank is about trust, convenience, and maximizing the value you get from your money. In other words, there’s a lot at stake.

It’s important to look beyond catchy ads and focus on what truly matters. Begin by identifying the products and services you need most. Use bank review sites to explore top institutions in those categories, then narrow your options by carefully evaluating the factors discussed throughout this article. Selecting the right bank or credit union is a personal decision that should align with your financial goals, lifestyle, and preferences. By thoughtfully considering these elements, you can find a financial institution that not only meets your needs but also supports your path toward greater financial well-being.