Since the advent of online banks, checking and savings options have become increasingly diverse in their benefits, fees and other features. As a result, it can be difficult to know which one is the right fit for you.
While there's no single best bank account out there for everyone, knowing your financial needs, goals and preferences can help you determine which one is the right fit for you. Here's a step-by-step guide to choosing a bank account.
1. Review the Types of Bank Accounts
There are a handful of different types of bank accounts, each with its own set of features and purpose. Depending on your needs, it's a good idea to know which type of account will best serve them.
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. Some checking accounts may charge monthly fees, but you can often get them waived with certain activities.
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.
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—and easily accessible.
Traditional savings accounts offer interest on your deposits, but they typically don't offer high yields. Most savings accounts don't charge monthly fees, but some do unless you meet certain requirements. Some banks and credit unions may limit your withdrawals and transfers from your savings account to six per month.
High-Yield Savings Account
Some banks and credit unions offer high-yield savings accounts that provide much higher interest rates than the average savings account. These are often offered by online banks and credit unions, but may be available with some traditional banks. They usually don't charge monthly service fees.
Some banks and credit unions may limit your withdrawals and transfers from your savings account to six per month.
Find High-Yield Savings Accounts
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.
Certificate of Deposit
Certificates of deposit (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. Some CDs may offer no-penalty withdrawals or the chance to increase your interest rate or balance during your term.
2. Decide Between a Brick-and-Mortar Bank, Online Bank and Credit Union
Historically, brick-and-mortar banks and credit unions were the only options. But in the past two decades, online banks have become more popular. Here's a quick summary of each and their pros and cons.
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 physical branches, which are good if you use cash often or prefer in-person service.
However, they typically don't offer as many valuable features as credit unions and online banks, and they're more likely to charge fees.
Online banks don't have the overhead costs of brick-and-mortar banks, so 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 and even checking accounts
That said, these banks usually have few or even no physical branches, making it difficult or impossible to deposit cash or get in-person help.
Credit unions are not-for-profit organizations owned by their members. 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.
3. Understand the Fees
There are few, if any, bank accounts that are truly fee-free. Even if you get the main costs waived, you may still incur a charge if you send a wire transfer, request a stop payment on a check or use your debit card abroad.
However, there are some fees that used to be standard that some banks and credit unions—even some traditional banks—no longer charge. As you compare your options, pay particular attention to the following fees:
- Monthly service fee: If there is one, check how easy it is to get it waived.
- Overdraft fee: Determine whether the bank truly charges no overdraft fees, or if it requires you to transfer money from a linked account to avoid a fee.
- ATM fees: You typically won't have to pay a fee if you use the financial institution's ATM network, but some banks and credit unions are offering reimbursement for out-of-network ATM fees as well.
- Excessive withdrawal fee: The federal government no longer requires banks to limit withdrawals from savings and money market accounts to six per month, but some still have this limit and may charge you a fee if you exceed it.
4. Consider Other Features and Perks
Depending on the bank and the account, you may come across other valuable features that can add value to your banking experience. Here are just a few to keep in mind as you shop around:
- Introductory bonuses: Some financial institutions offer bank account bonuses, allowing you to get hundreds of dollars in some cases when you meet certain requirements, such as receiving a minimum amount of direct deposits, maintaining a minimum balance or making a certain number of debit card transactions.
- Rewards: Some accounts offer cash back or points on your debit card purchases, but make sure you understand potential requirements to qualify for rewards and also limits on how much you can earn.
- Money management tools: Some banks and credit unions may offer tools to help you better manage your money. Potential features may include access to your credit score, budgeting software, spending insights, automatic savings transfers and more.
Again, make sure you understand your needs and preferences to determine which account will give you the most value overall.
Having Multiple Bank Accounts Can Help Maximize Their Value
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.