How to Choose a Bank Account That’s Right for You

May 31, 2021 Annie Hanson

I always hated going to the bank.

One of the most magical inventions of the last 20 years for me has been mobile check deposits. I LOVE it.

When I first learned it was a thing, I was like “so you’re telling me that I can spend approximately 58 seconds on my phone instead of driving to the bank, sitting in my car, waiting in line, and waiting while they processed my check?” SIGN. ME. UP.

This is definitely one of those things where I have about 2,347,083,487 things that I’d rather be doing. Online banking has freed up so much time. In fact, unless you’re dealing with cash on a regular basis, there’s no need to have a physical bank location at all!

So how do figure out which banking option is best for you?

There are four primary things to consider: fees, interest rates, convenience, and safety.

Fees

You should not be paying fees for a personal bank account. Not ever.

The only reason you should be paying fees is if you feel sorry for the bank and want to give it more of your hard-earned money. That’s not you? Okay, proceed to the next step.

You can avoid bank fees in one of three ways:

Jump through all the hoops to get rid of the fees. This is easy enough for people who have a regular paycheck directly deposited and keep a large enough balance. If that’s not you, or you just don’t want to have to worry about losing your job and suddenly having to start pay banking fees, you might just want to find an account with no fees.
Call your bank and try to negotiate for fees to be removed. Ramit Sethi has some great tips and scripts for this.
Find a bank account with no fees. The online banking world has exploded in the last decade and it is easier than ever to find completely free checking accounts. Even brick and mortar banks and credit unions are starting to offer free services in order to compete with online-only banks.

Interest Rates

Banks are always doing two activities: holding your money and giving loans. In order to make money, banks lend money to borrowers. The money that they lend has to come from somewhere, which is why banks want people to keep their money with the bank for as long as possible.

Although it is not quite this simple, banks are essentially borrowing money from you to lend to others. Don’t worry, this is highly regulated and your money is insured by the Federal Deposit Insurance Corporation (FDIC). This is why we no longer have a “run on the banks” where everyone freaks out and tries to remove their money from the bank only to find the bank doesn’t have enough money. (Keep reading for more on security.)

Banks pay you interest as an incentive to get you to keep your money with them. A checking account often does not pay interest because often the money is going in and out so frequently that the banks can’t rely on it to back their loans to others.

Two Types of Savings Accounts

1. Regular Savings Accounts

Regular savings accounts pay a very low-interest rate. If you’ve ever paid attention to the interest you earn in your regular savings account, you know it’s something really pathetic like .01%. That means that for every $1000 in your account, you earn $.10 PER YEAR. Yep, that’s ten cents. Not worth talking about.

2. High Yield Savings Account (HYSA)

HYSAs, on the other hand, pay at least 20x that amount. Although rates fluctuate, it’s not hard to find an account that will offer you .2%. So on that $1000, you’d get...$2 per year. That’s also pretty pathetic.

Should I switch to an HYSA right now?

Here’s the thing: a few years ago, HYSAs were offering 2% or more. Even when I checked a few months ago, they were still at .5%. Now is just not a good time for earning interest on money you need to keep safe for your emergency fund and short-term needs.

At this point, you certainly can look for an account with a higher interest rate. However, you need to decide if a few dollars is worth the time it takes to open an account and transfer money.

In the meantime, focus your energy on areas where you can make a bigger difference, like finding a cheaper cell phone plan, searching for less expensive insurance, or reducing fees in your retirement and investment accounts.

That said, keep an eye out for HYSAs. If/when interest rates go back up, an HYSA can definitely make a difference.

Convenience

I’m a huge fan of online banking. I’m not talking about banks that have online options; I’m talking about banks that have no physical location to visit‒the ones that you can only access online.

These bank accounts usually offer no-fee accounts and higher interest rates on savings accounts. And, to make up for the lack of physical locations, many of them will reimburse you for ATM fees when you use another bank’s ATM.

The only real benefit of a traditional bank (or credit union) is the physical location. Why would you want a “brick and mortar” bank? One reason would be that you have a lot of cash that you need to deposit. Another reason might be that you like going to your local branch and chatting with (or getting help from) the people who work there. That’s about it.

So you can decide whether an online or physical location best fits your needs and lifestyle.

Safety

I know many people feel uncomfortable with online-only banks. The internet is full of scams and it is wise to be suspicious. Luckily, we have an independent government agency that will tell us if a bank is safe or not: the FDIC.

Always choose a bank that is FDIC insured, which means that any amount you have at that bank, up to $250,000, is “backed by the full faith and credit of the United States government.” This means that if the bank does have a problem, you’ll get your money back. In addition, the FDIC supervises banks to make sure that the public can trust banks to keep their money safe.

If the FDIC collapsed it would be for something so catastrophic that none of this would even matter—like maybe if an asteroid hit the earth or something.

And, of course, you can also check online reviews and talk to other bank customers. Bankrate.com, Nerdwallet, and others are great places to check ratings, interest rates, etc.

Other Considerations

While I’ve listed the main things to consider when choosing a bank account, the choice can end up being highly personal. Perhaps you want to choose a bank that invests in your community or supports certain causes. Many people look for good customer service or prefer the way a local credit union is run.

These are all completely valid reasons to choose one bank or credit union over another.

Making the right choice for you

In the end, there’s no one right bank account for everybody. If the choices feel overwhelming, it’s totally okay to choose whatever seems the easiest to you. Think about what aspect is most important to you, whether it is the interest rate, the customer service, the convenience, etc and make your decision based on that.

There’s no right or wrong answer, only the answer that’s right for you.