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You need an everyday place to manage your household bills, and a checking account lets you do just that. But with all the different banks and credit unions out there to choose from, there are several questions you need to ask before you open a checking account.
To find the best checking account for your needs, ask these 10 questions to help match you with the perfect balance of fees and features.
1. Do You Need a Physical Branch Location?
The bank or credit union around the corner isn’t your only banking choice anymore. With the rise of online banks, you have quite a few options for where to open an account.
A bank with a physical branch may make sense if the in-person banking experience still wins you over. From the drive-through to the teller who knows you by name, those are features you generally won’t find at an online bank (and for logical reasons).
However, if you’re a digital native of someone who already does pretty much everything online, an online bank could be a perfect fit. With their robust online tools and savvy mobile apps, online banks cater to those who like to bank on the go and don’t need a physical branch for reassurance.
2. Do You Want Rewards or Cash Back?
Different banks offer different checking account features, including various incentive programs like loyalty rewards and cash back options. If these features are important to you, you’ll want to look for a bank that offers the type of incentive program that helps you make the most of your checking account.
Banks like Discover Bank, Axos Bank and LendingClub Bank all offer cash back checking account options, including debit cards with reward features. Some regional and national banks provide various cash back, bonus and rewards programs as well. Be sure to review how any cash back is accumulated, and read the fine print to learn about fees or requirements to activate bonuses or other rewards.
3. What Kind of Checking Account Do You Need?
Before you open your account, you need to know what type of checking account you need. This will help you compare features between banks on the same type of account:
- An individual checking account is a type of personal account where you will be the sole account holder.
- A joint checking account is shared by two or more people—usually by spouses, partners, children and their elderly parents or parents and their minor children (in which case it’s often called a custodial account).
- A business checking account is specifically for a business—whether doing business as a sole proprietor, corporation, partnership or limited liability company (LLC).
Interest rates are one of the most distinguishing features of high-yield checking accounts and they can vary widely. While many national brick-and-mortar banks offer nominal interest on personal checking accounts, online banks typically offer more competitive interest rates.
Pay attention to the different interest rate tiers banks offer and any requirements you’ll need to meet to earn those yields. You may have to fulfill specific requirements each month to earn the highest yields on a checking account, like receiving direct deposits or making a certain number of debit card transactions.
5. What Are the Minimum Balance Requirements?
Some checking accounts not only have a minimum opening deposit but a minimum monthly balance requirement as well. You’ll have to meet the minimum to avoid a monthly account fee.
Sometimes banks will waive the minimum balance requirement if you meet certain qualifications each month—such as opting to receive your paycheck via direct deposit. Be sure to read the fine print to make sure you’re not opening a checking account with balance requirements that you can’t meet.
6. What About ATM Fees?
Here’s where the competition gets stiff between brick-and-mortar banks and online banks: ATM fees.
If you use an ATM that’s in your bank’s ATM network (you can usually locate these in your bank’s mobile banking app or via the bank’s website), you can likely avoid fees when you make ATM withdrawals. However, when you need money in a pinch, how will your bank charge you for using an out-of-network ATM?
When you use an ATM outside of your bank’s network, it’s common to be charged by the bank that owns the ATM, and you may also get charged by your bank. So, you could get hit with fees twice. However, some banks offer ATM fee rebates to help ease the stress of needing to find an ATM on the bank’s network.
Banks including Axos Bank, LendingClub Bank and Charles Schwab Bank offer unlimited out-of-network ATM fee reimbursement for their checking customers. Other banks may offer to refund a certain dollar amount per month. At worst, you’re stuck with the fees. If you use a lot of cash, you’ll want a bank with friendly ATM fee policies.
7. What’s the App Like?
From mobile check deposits to making sure your paycheck hits your account, a user-friendly mobile app can make all the difference when choosing a checking account.
Even if you won’t be doing all your banking from your mobile device, it pays to get a look at the app’s functionality. Don’t be shy about digging through bank and credit union websites to see if you can sneak a peek at the different features their mobile banking apps offer. If you’re looking for specific features in the mobile banking app, you can always call the bank’s customer service line or chat with their customer service team on their website.
Also, take a look at the bank’s mobile app star rating on the App Store or Google Play.
8. Does the Account Come With Bill Pay?
Bill payment features through your bank can help you stick to a budget, automate bill payments and avoid late fees. Because this is a popular feature with checking accounts, you have options when it comes to bill pay features.
Many banks have digital partnerships with popular credit card companies and utility providers (like cable and electric companies) and can send digital payments directly from your account. Other banks only send paper checks and you’ll have to make sure you set your bill payment date enough in advance of your due date for the payment to arrive on time.
9. What Kind of Overdraft Protection Does the Account Offer?
The last thing you want to do is bounce a check, but even the most diligent people hit a financial hiccup at times. That’s why you want to compare each bank’s features for protecting you should you overdraw your account.
Overdraft protection on your checking account can come in many forms. Some banks offer to make an automatic transfer from a savings account held at the same institution to cover the transaction. Others provide a grace period so you can make a deposit to cover the shortfall.
10. What Are the Account Fees?
While a no-fee checking account is ideal, there are plenty of potential fees you could incur as a matter of doing business with your checking account. Knowing how the banks you’re considering assess fees can help you make a more apples-to-apples comparison between checking accounts.
Some common fees for checking accounts are:
- ATM fees for using an out-of-network ATM
- Cashier’s check fees
- Check reorder fees
- Foreign transaction fees
- Minimum balance fees
- Monthly maintenance fees
- Overdraft fees
- NSF (non-sufficient funds) fees
- Wire transfer fees (incoming and/or outgoing)
Many online banks are super savvy and keep their fees to a minimum to entice you to open a checking account. Don’t be shy about speaking with a human being regarding any questions you may have about checking account fees. It’s better that you’re well-informed before you open your account.
Bottom Line
The 10 questions above can help you narrow down your options to identify the best checking accounts for your financial goals and lifestyle. A checking account is just one part of your overall financial relationship. Be sure to look at savings account options with the same bank and how the bank’s other services will complement future financial goals like buying a home and saving for retirement.
Choosing a financial institution to look after your money is one of the most important financial decisions you can make. Different banks offer widely different levels of service, charge different levels of fees, and will pay you significantly different amounts of interest on your money.
In practice, this means that choosing the best bank for you is rarely a one-off process. The best bank for you will likely change throughout your lifetime as your financial and investment goals evolve. For that reason, one piece of useful advice is to remember that there is no limit to the number of bank accounts you can hold, nor how frequently you swap one bank for another.
Diversifying your bank accounts—just as you do your investments—can allow you to get the most from your money. In this guide, we’ll look at the three most important factors in choosing a bank for checking and savings accounts: the type of bank, the rates and fees it charges, and the extra features it offers.
- There are three main types of financial institution that can reasonably be referred to as a bank: traditional brick-and-mortar banks, online banks, and credit unions.
- Take a look beyond all the marketing hype, and you’ll see that most bank accounts can be distinguished by the fees they charge and the interest rates they pay.
- Peace of mind is arguably the most important service offered by any bank and should be an important part of your choice.
Investopedia / Ellen Lindner
The first and most fundamental factor in choosing a bank is the type of institution that is right for you. There are at least three distinct types of financial institution that can reasonably be referred to as a bank, each of them offering a unique set of advantages and disadvantages,
Traditional banks are what most people think of when they think of a bank. These banks offer services to their customers largely through a network of brick-and-mortar offices and provide ATMs to both their own customers and those of other banks. Many have also started offering online banking services for paying bills and making deposits.
Although these banks have been around the longest, today there are fewer reasons to choose a traditional bank over its online competitors or credit unions. As we’ll see, both of these institutions offer lower fees than traditional banks do.
That said, you may prefer to do your banking in person. If you have a question or a problem, you can go into your local branch and talk to someone about it. This could make a traditional bank the right choice for you. But it’s still worthwhile checking out the other options that are available to you.
Online banks were relatively rare 20 years ago, but their popularity has grown over time, making them direct competitors for traditional banks today. Because online banks have fewer or no physical branches, their overhead costs are far lower than those of traditional banks, and that means their fees are typically far lower, too.
That said, many people find the customer services offered by purely online banks frustrating. The industry is aware of this. The best online banks now offer extensive customer support options, but you still won’t be able to walk into a branch to talk to a bank employee in person.
In recent years, the dividing line between online banks and traditional banks has become increasingly blurred, as the digital services and tools offered by the latter have become more advanced. This means that it may be possible to enjoy the advantages of a traditional branch while still accessing the convenience of digital banking.
Credit unions are often overlooked as an alternative to traditional and online banks, but they have advantages that can make them a good choice.
First, credit unions are not-for-profit financial cooperatives. That means they are member-owned, so profits are returned to their members via lower fees and higher interest rates on deposit accounts. By contrast, publicly owned traditional banks must meet revenue goals and are beholden to shareholders.
And second, most credit unions maintain genuine relationships with their local communities. If you want a bank that gives something back to your community, a credit union may be the natural choice for you.
However, credit unions can have fairly stringent rules for members to access services, and not all of them offer features like online banking. This may make one a less-than-optimal choice for a checking account that you need to access and work with on a regular basis.
The next factor to consider in choosing where to bank is an institution's fees and the interest rates it offers. Most people will have two basic accounts: a checking account and a savings account. The features you need for each type of account will vary, and very often it makes sense to have these accounts at different institutions.
Most banks will charge a monthly fee to maintain a checking account, but these fees can vary widely. And a bank may waive or lower them if you meet certain criteria, such as meeting and maintaining a minimum balance requirement or setting up direct deposit for your paychecks.
To keep these fees to a minimum, it's important to understand what a bank will actually charge you for using a checking account. Ask about its common charges, which may include:
- Monthly maintenance fees
- Overdraft fees
- Statement fees
- Stop payment fees
- Returned check fees
- Wire transfer fees
- Cashier’s check fees
- Certified check fees
- Out-of-network ATM fees
Fees are by far the largest distinguishing factor among checking accounts. All else being equal, you should choose the checking account with the lowest charges.
For your savings account, look for a different set of features. You shouldn't need to access a savings account as frequently as you do a checking account, so it’s unlikely that you will need app or online banking services. And as long as you don't make frequent withdrawals, most savings accounts don’t come with high fees.
Instead, the primary way that these deposit accounts differ is in the interest rates they pay. These can vary widely, and the best rates are often those offered by credit unions or online banks. Shop around to find the best interest rate for your savings.
The two factors we’ve considered so far—the type of institution you choose and the amount it will cost you in fees or lost interest—are the most fundamental aspects of choosing a bank. However, most banks will also offer a range of other services, discounts, or features that may be crucial for you.
Because everyone’s needs are different, take some time to think about how you use the accounts you currently have and where you are losing money in fees or time. Then look for a bank that's a better fit. Important factors might include:
- Online and app-based banking. Most banks now offer these options. If you are using your account a lot—particularly for setting up new payments or managing standing orders—a full-featured online service can save you a lot of time.
- Local branches and ATMs. Even if you deal with your bank primarily online, there may still be times when it's easier to visit a branch. For many people, having a local bank branch—at least for their checking account—is a must. Similarly, a network of ATM machines may be important to you—say, if you travel frequently and need ready access to cash while on the road.
- Security. Though most banks are insured against loss, they still vary when it comes to the level of security they offer for online services. A quick scan of the news to see which banks have recently experienced security breaches may help you rule out a bank in this regard.
This last point is related to another—that ultimately, the bank you choose should be one you trust. Many people still make their bank decision based on the company that their parents bank with, or merely because they trust the name and reputation of a large national bank. There is nothing wrong with that—peace of mind is arguably the most important service offered by any bank and should be part of your decision-making process.
The best way to choose a bank can be summed up pretty easily. A good bank is one that:
- Gives you easy access to your money
- Doesn’t charge exorbitant fees
- Offers a good interest rate on your savings
- Has great online and app-based banking services
- Provides excellent customer service
- Is trustworthy with your money
So make a list, rank some options against these criteria, and see which bank or credit union comes out on top. Just remember—you can always change your mind later or open a second account if your first choice ends up not being optimal for you.