How to Choose a Bank: Our Ultimate Guide Including 5 Critical Tips

As a seasoned finance professional with years of experience in the finance and banking industry, I have come to understand the importance of choosing the right bank.

Your choice of bank can have a significant impact on your finances and your life, making it crucial to take the time to evaluate your options and make an informed decision.

In this article, I’ll share my insights on the key factors to consider when choosing a bank and provide practical tips on how to find the right bank for your needs.

Importance of Choosing the Right Bank

Your choice of bank is one of the most critical financial decisions you’ll make. A good bank can help you manage your finances effectively, offer competitive interest rates (on both the deposit and lending sides of things), and provide you with access to valuable financial tools and services.

On the other hand, a poor bank can be costly, frustrating, and even damaging to your financial well-being. Therefore, it’s essential to choose the right bank for your needs.

Factors to Consider When Choosing a Bank

After years of trying out and working for different banks and financial services firms, I’ve developed this simple framework for how to choose a bank. You could make it simpler and you could definitely make it a whole lot more complicated. But I think this strikes a nice balance and you can use it to make a decision within a couple of house of comparison shopping.

Ok, here are my 5 key factors to consider when choosing a bank:

1. Location and Accessibility

Your bank’s location and accessibility are critical considerations, particularly if you prefer to do your banking in person. Consider the bank’s proximity to your home or workplace and the availability of ATMs and branch locations in your area.

For many people, like me, who have completely migrated to online and mobile banking, this is less of a concern. I don’t think I’ve been to my bank’s physical location in years. But many people still crave the feeling that they can walk in and talk to someone if they really need to. 

If this isn’t important to you, you might want to consider one of the increasing numbers of online-only banks. They can sometimes offer better rates since they have a lower cost structure stemming from not needing to maintain a branch network. 

2. Account Fees and Minimum Balance Requirements

Bank fees and minimum balance requirements can eat into your savings and make it difficult to manage your finances effectively. Therefore, it’s important to choose a bank that offers reasonable fees and minimum balance requirements that fit your budget.

Unless you are just starting out or are in a very difficult paycheck-to-paycheck situation, it should be very easy for most people to find banks with favorable terms here. Today, it’s not hard to find checking about with no minimum (or a trivial minimum, like $5 or $100) and favorable and low fees, including no-fee overdraft protection up to a reasonable amount. 

Be wary of banks that have fees for basic services, like providing a checkbook, which many banks do for free. 

3. Interest Rates and APY

Interest rates and annual percentage yields (APY) can significantly impact your savings over time. Therefore, it’s crucial to choose a bank that offers competitive interest rates and APY on their savings and checking accounts.

It’s well known that we don’t like the savings account product. But if you’re going to have one, please don’t use one that is paying you a tiny, trivial amount! Many savings accounts pay less than 1%, at that point, you’re just giving your money away to inflation. 

Remember to check out rates on the lending side too, if you plan to use this bank to borrow at some point. While banks may offer many different types of loans, a quick and easy way to compare to other banks to see if they’re competitive on the lending side is to look at 3 products. 1) Personal loan rates, 2) mortgage rates, and 3) credit card interest rates.  

4. Online and Mobile Banking Services

With the rise of digital banking, online and mobile banking services have become essential features of modern banks. Therefore, it’s crucial to choose a bank that offers easy-to-use online and mobile banking services, including bill pay, mobile check deposit, and 24/7 customer support.

I like to look and see how modern and easy to use their online banking and mobile application is. You can also quickly check reviews of these systems, particularly apps, which are easy to compare. Most banking apps have a score of at least 4.6 out of 5, for example. If you see lower than this, it could indicate a problem. 

5. Customer Service and Support

Excellent customer service and support can make all the difference when you encounter issues with your bank. Therefore, it’s important to choose a bank that offers reliable customer service and support through multiple channels, including phone, email, and chat.

You can quickly get a feel for how strong a bank’s customer service is by rapidly checking its customer feedback reviews across a couple of different sites. I like to quickly look at the BBB, Yelp, WalletHub, Facebook, and Google Reviews. This lets me get a feel for how much their customers like them in 5 minutes or less. You will want to keep in mind that banks on average have lower ratings than many other businesses. 3 out of 5 stars is about average and if it has around 4 stars that is very strong for a bank. 

Additional Special Considerations That Might Apply to You

Apart from the above factors, special considerations may apply depending on your financial situation and needs. Here are a few examples:

Loan Options: If you’re planning to take out a loan in the future, it’s essential to choose a bank that offers competitive rates and terms for loans, such as personal loans, auto loans, and mortgages. If you’re thinking you may need a slightly more unusual loan, like an aircraft or boat loan, you should check to make sure the bank will offer that product. If you need a particular type of real estate loan, like a construction loan or rental portfolio asset line of credit, you’ll want to check on that upfront too. Some banks really lean into the real estate side of things and have entire departments dedicated to it, while others will only do plain vanilla single-family home mortgages.

Investment and Retirement Accounts: If you’re interested in investing or saving for retirement, consider choosing a bank that offers investment and retirement accounts, such as IRAs, 401(k)s, and brokerage accounts. Many smaller banks do not actually offer these services but will partner with a company like LPL Financial, which essentially white-label provides their investment solutions for small banking customers.

Small Business and Merchant Services: If you’re a small business owner, it’s crucial to choose a bank that offers small business and merchant services, such as business loans, merchant services, and business credit cards. This is something to review carefully, as there can be a wide variety of services at different price points offered. Additionally, if you’re business is growing, you may want to consider going with a slightly larger regional or nationwide bank that will be able to handle your increasingly complex needs. Many local or community banks only offer the most basic business services, like business checking accounts and credit cards.

International Banking Services: If you frequently travel or conduct business internationally, it’s important to choose a bank that offers international banking services, such as foreign currency exchange, wire transfers, and international debit and credit cards. If you’re business needs to handle foreign transactions or hedge foreign currency risk, this will be something to look closely at, as many small or even regional banks do not offer services here.

How to Choose the Right Bank for You

Now that you know the factors and special considerations to keep in mind when choosing a bank, here’s how to choose the right bank for you:

Assess Your Needs: Consider your financial goals, how you use your bank account, and the services you need. For example, if you travel frequently, you may want a bank that offers international banking services.

Research and Compare Options: Use online resources, such as Bankrate and NerdWallet, to compare bank fees, interest rates, and account options.

Consider your priorities: Depending on your financial goals, you may place more emphasis on certain factors over others. For example, if you’re someone who values convenience and accessibility, you may prioritize a bank with many physical locations and ATM access. On the other hand, if you’re someone who prioritizes earning interest on your savings, you may look for a bank with high-interest rates and APY.

Other factors to consider when assessing your priorities include the types of accounts you need, the level of customer service you expect, and any special services or benefits that are important to you. Take the time to think about what matters most to you and prioritize accordingly.

Make an Informed Decision: After assessing your needs, researching and comparing your options, and considering your priorities, it’s time to make an informed decision. Don’t rush into choosing a bank without carefully considering all the factors. Take your time to review the terms and conditions of each bank, including fees, interest rates, and minimum balance requirements.

Once you’ve made your decision, take the time to set up your accounts and familiarize yourself with the bank’s online and mobile banking services. Consider setting up alerts and notifications to stay on top of your account balances and transactions.