Finances

Selecting the Right Bank for Your Needs

October 13, 2023
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Selecting the Right Bank for Your Needs

In the world of finance, banks offer a multitude of services, ranging from simple functions like providing a secure place to store your money to more complex services such as loans, retirement planning, and investment advice. Choosing the right bank is crucial, and it primarily depends on your specific financial requirements. This article serves as a guide to help you navigate the selection process, ensuring that you find the perfect banking fit.

Identify the Type of Account You Require

The best banks typically provide a variety of accounts, each with different prerequisites and associated fees. Some of these accounts may accrue interest, while others may not. Your first step in the bank selection process is determining the type of account that aligns with your financial goals. It’s common to end up opening multiple account types to address both your short-term and long-term objectives.

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Here are some of the most common types of accounts offered by banks:

Savings Accounts

Savings accounts are designed for storing money securely while also earning interest, often referred to as an annual percentage yield (APY). This interest helps your money grow over time. Opening balance requirements for savings accounts are usually quite low, making them accessible to many. However, some savings accounts have limitations on certain types of withdrawals, typically capped at six per month (with ATM and teller withdrawals exempt). If you need frequent access to your funds, an account with such restrictions may not be practical.

You may come across different variants of savings accounts at the same bank, with some being standard savings accounts and others identified as high-yield accounts. High-yield savings accounts typically offer a higher APY compared to regular savings accounts.

Money Market Accounts

Money market accounts are a subtype of savings accounts that generally offer a higher APY compared to standard savings accounts. Many money market accounts also offer the convenience of writing checks or accessing funds via ATMs or debit cards. Like savings accounts, there are withdrawal limitations, and the opening balance requirement for money market accounts might be higher than for regular savings accounts.

Certificates of Deposit (CDs)

Certificates of Deposit, often referred to as CDs, are another form of savings account. With a CD, you commit to locking in a fixed sum of money for a specified period, which can range from three months to several years. CDs usually offer higher interest rates compared to regular savings accounts, making them an excellent choice for individuals looking to build savings for future significant expenses.

It’s important to note that you can’t access your money until the CD matures, unless you’re willing to incur an early withdrawal penalty. The nature of this penalty varies depending on the bank and might involve the forfeiture of interest or a percentage of the CD amount.

Checking Accounts

Checking accounts are primarily used for everyday banking activities, allowing you to pay bills by writing checks, transferring funds, or setting up automated payments. Most checking accounts come with an ATM or debit card, facilitating easy access to your funds and offering checkless payment options. However, it’s worth mentioning that most banks do not pay interest on checking accounts. The few that do generally offer minimal APYs, which are significantly lower than the interest rates provided by savings accounts.

Find the Right Bank(s)

Just as there are various account types, there are also different types of banks. When searching for the ideal bank, it’s essential to keep an open mind and consider a range of financial institutions. You don’t need to open all your accounts at a single bank if one institution cannot fulfill all your requirements. It’s perfectly acceptable to mix and match, taking advantage of the strengths of different banks, as long as it makes financial sense.

National Banks

National banks operate extensive networks of physical branches across the United States. Most, if not all, also offer online and mobile banking, along with a diverse array of products, including loans, credit cards, and, in some instances, investment and retirement accounts. These banks typically have their ATM networks as well. However, national banks tend to offer lower APYs on savings and checking accounts compared to online banks and credit unions. They also often have higher fees and minimum balance requirements. Nonetheless, their in-person service can be invaluable when dealing with issues.

Online Banks

Online banks, as the name suggests, exist solely on the Internet and have no physical branches. While this means you won’t have face-to-face interactions with bank representatives, their lower overhead costs usually translate to lower fees and higher interest rates on deposit accounts compared to traditional brick-and-mortar banks. Some online banks offer the same range of services as national banks, while others may have a more limited product line. They often have substantial ATM networks to compensate for the absence of physical branches. However, it’s typically impossible to make cash deposits at online banks, necessitating the use of wire transfers, direct deposits, and mobile check deposits.

Credit Unions

Credit unions are nonprofit, member-owned financial cooperatives, primarily serving specific geographical areas. They offer many of the same products as online and national banks and provide access to both physical branches and online/mobile banking. Due to their nonprofit status, credit unions tend to offer higher APYs and lower fees than traditional banks. Becoming a member of a credit union is usually straightforward, requiring something as simple as opening a savings account with a minimal deposit or affiliating with a specific charity. Some credit unions limit membership to people residing or working in certain areas or employees of affiliated companies.

Compare Features and Fees

When selecting a bank or credit union, it’s essential to examine the features they offer and understand the associated fees. Your choice should ideally provide you with a combination of features and fees that align with your financial needs.

Let’s explore some common features and fees associated with banks and credit unions:

Bank Features

APY: Interest rates on savings accounts, CDs, and money market accounts tend to be higher at online banks and credit unions. However, most checking accounts do not earn interest, and if they do, it’s usually at a nominal rate.

ATM Network: Convenient access to your money is crucial. ATM networks connected to national banks are generally located at their branches and may not be as extensive as those offered by online banks and credit unions.

Perks: Some banks and credit unions offer various perks to attract customers, such as sign-up bonuses, waived fees, or higher interest rates.

Insurance: Ensure that your money is protected. Deposits in most national and online banks are insured by the Federal Deposit Insurance Corporation (FDIC) up to a maximum of $250,000 per account. Online and mobile banking are also common features offered by brick-and-mortar banks and credit unions. This provides a convenient way to manage your finances whenever you desire.

Personal Safety Features: With the rise of online and mobile banking, many banks and credit unions offer enhanced safety features to protect your accounts from unauthorized access. These features can include biometric identification like fingerprint or facial recognition login, two-factor authentication, and password protection.

Bank Fees

Minimum Opening Balance: Some banks require a minimum deposit to open a checking or savings account, while others do not. If you choose an account with no minimum opening balance, keep in mind that you will usually need to fund it within a set timeframe, often around 60 days, to avoid account closure. Most online banks do not have a minimum

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