How to Choose a Bank Account

How to Choose a Bank Account loading="lazy"

Picking the right bank account may not seem too important. Many banks and credit unions offer a lot of the same features, and for some, it may be easier to just stay with a financial institution they're familiar with.

But with online banks becoming more popular, there's an increasing number of features and services to consider before you plunk down your cash. When choosing a bank account, it's important to consider not only the fees but also the value you're getting, which can be in the form of interest, rewards, ATM fee reimbursements and more.

Here's how to determine which bank account you should choose based on your financial goals and preferences.

What Are the Different Types of Bank Accounts?

There are a handful of different types of bank accounts, each with its own purpose. As you consider a bank or credit union, it's important to look at all the products and services they offer.

Checking Account

A checking account is likely what most people picture when they think about bank accounts. It's designed for your everyday financial management, including deposits, withdrawals, bill payments and more.

A checking account is essentially the home base for your money. You can typically access the money in your checking account via your debit card, paper checks, electronic transfers and cash withdrawals at a bank branch or ATM. If you make electronic payments through apps such as PayPal or Zelle, you'll often connect to your checking account. Checking accounts don't usually pay much if any interest, but typically allow you to make as many deposits or withdrawals as you like.

While it's not the only type of bank account you'll want to consider when picking a financial institution, it's generally the most important—and a good place to start.

Savings Account

Savings accounts are generally used as a place to park your cash for future use. Whether it's an emergency fund, a down payment fund, a vacation fund or whatever else, a savings account is often the best place to put your short-term savings needs because it's safe (the FDIC insures savings accounts up to $250,000 per account owner) but also accessible.

Some banks and credit unions offer high-yield savings accounts that provide much higher interest rates than the average savings account. Choosing a good savings account is important, but may not be as important as picking the right checking account.

Money Market Account

Money market accounts function as a hybrid between a savings account and a checking account. Like savings accounts, they typically offer higher interest rates than what you'd get with a checking account, and they also limit your withdrawals every month. But they also allow you to access your money via paper checks.

Certificates of Deposit

Certificates of deposit, or CDs, typically offer higher interest rates than even high-yield savings accounts and money market accounts. In exchange, though, you typically have to tie up your money for a set amount of time, which can range from a few months to several years.

The longer you lock in your money, the higher your return will be. But if you need to access that money before the account's maturity date, you may face a penalty, which can include losing some or all the interest you've earned up to that point.

How to Decide Which Bank to Choose

It's generally easier to hold all of your bank accounts with the same financial institution. But in some cases, it may make sense to have, say, a checking account with one bank and a savings account with another one.

As you shop around, here are some things to keep in mind, so you can choose the best bank accounts for you.

The Type of Bank

There are a few different types of financial institutions from which you can choose:

  • Traditional banks: These institutions typically offer a lot of services in addition to banking, such as investments and loans. If you want to keep all of your finances in one place, these may be the best option. They also usually have brick-and-mortar branches, which are good if you use cash often or prefer in-person service.
  • Credit unions: Credit unions are not-for-profit organizations owned by their members. So instead of maximizing profits for investors, they return their profits to their customers in the form of lower fees and higher rates on deposit accounts. They also generally have physical branches, but their footprints are often limited to a local community, giving you fewer options if you take a trip out of state.
  • Online banks: Online banks have become increasingly popular because they tend to offer many valuable features. For example, some offer rewards when you use your debit card, ATM fee reimbursements when you use out-of-network machines for withdrawals, low or even no fees, early direct deposit, high-yield savings accounts and more. The only drawback is that these banks usually have few or even no physical branches, making it difficult or impossible to deposit cash or get in-person help.

Depending on your preferences with banking, one of these options may be better than the others. Consider the benefits and drawbacks of each to determine which is the best fit for you.

Features

While many bank accounts offer just the basic features you need to manage your money, some go above and beyond for an easier and more rewarding banking experience.

As mentioned above, those features can include rewards, higher interest rates, early direct deposit, incentives to save and more. Some banks even offer free access to your credit score and certain money management tools and resources to help you improve your financial health.

As you shop around, take your time to make sure you understand all the features you'll get with each bank account, then choose one based on how you plan to use the new account.

Fees

While some banks still charge monthly fees on even their basic accounts unless you meet certain deposit or balance requirements, that's no longer necessary. Most online banks and credit unions—and even some traditional banks—don't charge monthly fees to keep your money safe.

What's more, some online banks don't even charge an overdraft fee, which can be punitive if you accidentally overdraw your account balance. Also, consider how big the bank or credit union's ATM network is and what fees you'll be charged for out-of-network withdrawals—and also whether the bank will reimburse those charges.

Consider Multiple Accounts

It may be a bit more complicated to have more than one bank account with different institutions, but it can also help you take advantage of the best features that multiple accounts can offer. For example, you may choose to use an online bank account for most of your transactions, but keep a traditional bank or credit union account for cash deposits and in-person service when you need it.

Regardless of what you choose to do, take your time to carefully consider all of your options to find the best strategy for your needs.