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Choosing the ideal bank and account type can feel overwhelming. With the banking failures of 2023, it’s more important than ever to bank wisely. Simplify your banking journey with our comprehensive guide. Learn how to choose a bank and account type tailored to your unique needs, all while being equipped to recognize potential red flags.
Choosing the Right Bank for You
There isn’t a one-size-fits-all bank. You need to consider your investment goals, risk level and budget when selecting a banking institution.
According to the Bank Administration Institute, growing deposits and new customer acquisition are the two main priorities for banks in 2024. This means banks are likely to promote new deals with minimal fees and higher rates.
It’s important to look beyond shiny deals and consider your unique needs. The first step is considering what type of banking institution works best for you.
The Three Bank Types
- Traditional Bank
- This type of banking institution is privately owned or publicly traded with physical branches and online services. Traditional banks usually have more services than online-only banks.
- If you’re looking for a broad range of services, with options to go to an in-person branch, a traditional bank could be a good option for you.
- Online Bank
- An online bank has no physical branches. This bank type probably won’t suit folks who value easier access to customer service. Online banks are known to have better interest rates, like with their high-yield savings accounts, compared to traditional banks.
- Those looking for high-interest rates, minimal services and online-only access may be a good fit for an online bank.
- Credit Union
- This type of bank is a nonprofit institution with physical branches and online services. Credit unions usually require memberships and have lower fees.
- If you meet eligibility requirements, and are looking for accounts with low-fees and personalized services, you may want to look into a credit union.
After 2023’s historic bank failures and skyrocketing inflation rates, it’s more important than ever to make well-informed decisions about where you place your hard-earned funds.
Luckily, inflation is expected to drop to 3.2% in 2024, according to the Federal Planning Bureau. Global banks’ outlooks will also remain steady for 2024, according to S&P Global’s 2024 Global Banks Outlook. This means more money back in your pocket to place into a secure bank.
However, this doesn’t mean every bank is a trustworthy institution. You should always do your due diligence and research before opening an account.
Banking Tips From a Financial Expert
Let’s say you’ve picked the type of bank you want. This doesn’t mean you should choose the first bank you find.
“You should call [at least] six financial institutions, ask the same questions and keep track of the answers,” Syble Solomon, founder of LifeWise Strategies, told InvestorPlace. “When you call the first few, you may feel uncertain. But by the sixth call, you’ll start learning new things and feel confident and well informed.”
When calling each bank, you should ask questions about interest rates paid on different types of accounts and potential fees.
Solomon suggests asking the following questions.
- What does your bank (or credit union) provide that makes it a better place for me to bank than if I go to your competitors?
- When I’m contacting other banks (or credit unions), what should I look out for?
Solomon also suggests being wary of choosing a bank based on the customer service representative you spoke to.
“Do not make your decision based on who was the nicest to you and who you liked talking with. Remember you are talking to someone who is paid to be nice to you because they want your business. Make your decision based on facts.”
Banking Red Flags
If you’re browsing the banks’ website and there’s a lack of transparency for fees, interest rates or APY, that’s a red flag. A lack of clarity could be a sign of dishonest business practices. You could face surprise fees, or find your rates changing unexpectedly.
Or, if a bank boasts deals that seem “too good to be true,” they probably are. For example, a bank advertising a certificate of deposit (CD) with a 9% APY likely isn’t credible. Realistic CD rates are currently hovering around the 4% to 5% range. Trust your gut, and consider speaking with a financial advisor before acting rashly.
Most banks and credit unions are FDIC- or NCUA-insured. Without FDIC or NCUA insurance, your funds can be at risk if the financial institution fails.
The FDIC has a BankFind Suite database that can help you confirm if your bank has FDIC insurance. To view a list of all insured credit unions, visit the NCUA agency website.
According to S&P Globals’ Bank Outlook for 2024, generative article intelligence (AI) is expected to start reshaping the banking industry. While this has pros and cons, there are a few red flags to be aware of. AI in banking can present security, privacy and control risks, as well as a potential increase in cyber risks. Ask the bank you’re considering if they plan on integrating AI into their framework, and how it could affect your account.
If the bank you’re considering seems credible, consider which account types you’d like to open.
Types of Bank Accounts
There are four main bank account types: checking accounts, savings accounts, money market accounts and certificates of deposit. Each has a different purpose, level of liquidity and growth potential.
To understand which type of account suits your needs, you need to understand the requirements to open the account and what your goals are.
Checking Accounts
Most checking accounts require an initial deposit between $25 to $100, according to the Consumer Financial Protection Bureau. However, there are some banks, like Discover and Ally Bank, that don’t require a minimum deposit.
Checking accounts are best for those wanting a secure spot to place funds for everyday spending. You have easy access to your funds, but you generally won’t earn interest. Many banks also offer a sign-up bonus when opening a new checking account.
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Savings Accounts
Savings accounts tend to require the same initial deposit of $25 to $100 to open an account. However, you don’t have the same easy access to your funds. You can usually only withdraw from your savings account six times per month without penalty.
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Money Market Accounts
Most money market accounts have a higher initial deposit requirement, usually between $500 to $2,500. Think of a money market account like a checking and savings account hybrid.
They have higher interest rates, like savings accounts, but they also come with checks or debit cards, which allows easier access to your funds.
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Certificates of Deposit (CDs)
Most CDs require a minimum deposit of $500 to $1,000. While this account type offers the highest interest rate, there is a catch. Funds placed in the CD cannot be taken out until the CD term ends. The term can last anywhere between five months to several years.
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Sources:
Federal Planning Bureau. (2024, January 9). Consumer Price Index – Inflation Forecasts. Retrieved from https://www.plan.be/databases/17-en-consumer_price_index_inflation_forecasts
Bank Administration Institute. (2023, December). 2024 Banking Outlook. Retrieved from https://info.bai.org/executive-report-2024-banking-outlook.html?
S&P Global. (2023, November 16), Global Banks Outlook 2024. Retrieved from https://www.spglobal.com/_assets/documents/ratings/research/101589447.pdf
Consumer Financial Protection Bureau. (2019, November). Opening a Checking or Savings Account Tool. Retrieved from https://files.consumerfinance.gov/f/documents/cfpb_your-money-your-goals_open-checking-savings_tool_2018-11.pdf
