Here’s How to Choose a Bank Based on Your Needs

A woman carries her baby into the bank while she makes a bank transaction with the bank teller.
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Over the last several decades, technological advances have revolutionized the way we bank. There are more options for where to do your banking now than ever before.

If you are just now breaking away from your parents’ bank account or are considering leaving your current financial institution, the options for opening a new account can be overwhelming.

But, if you know the type of bank that suits your specific needs — and the bank features that are most important to you — you’ll have a much easier time during the selection process.

Understand the Types of Banks

There are three main types of financial institutions that handle personal banking. These include traditional banks, credit unions and online banks.

“Bank” is often used as a blanket term for these three institutions, but there are key differences between traditional banks and credit unions (which are not banks). The advent of online banks has further complicated the term.

Traditional Banks

Traditional banks are the most common, and typically the largest, of the three types of institutions. Think Chase, Wells Fargo, Bank of America, Citibank and PNC.

Pros of Traditional Banks

  • Large portfolio: People frequently choose a traditional bank because they offer a wide variety of financial products, like checking and savings accounts, credit cards, money market accounts, loans and certificates of deposit.
  • More locations: Traditional banks generally have more brick-and-mortar locations and ATMs nationally (or even globally).
  • Help when and how you need it: Traditional bank customers often like their banks because they have easy access to in-person help when they need it, but they also have the option of user-friendly websites and technology when they’d rather figure things out on their own.

Cons of Traditional Banks

  • Poor customer service: Due to the sheer size of some banks, the level of customer service may not always be top-notch.
  • More fees and lower rates: Larger banks have more overhead with physical locations and full-time staff. This can mean a higher number of (and sometimes hidden) fees and lower interest rates.
A picture of a credit union
Chris Zuppa/The Penny Hoarder

Credit Unions

Though credit unions may seem similar to banks in principle — you go in, you hand over your money and then you take some back when you need it — the two types of organizations are entirely different.

Credit unions are member-owned nonprofits. That means when the credit union does well, so do its members.

Pros of Credit Unions

  • Dividends: Credit unions share their success with their members. For example, I bank with a credit union and just enjoyed a nice split of the $8.6 million special patronage dividend at the beginning of this year.
  • Mid-range fees and rates: Credit unions can also offer lower fees and interest rates on loans and pay higher interest on savings and checking accounts than traditional banks. However, they are typically not as competitive as online banks.
  • A voice: Credit union members also get voting privileges to determine who makes decisions about how the money is used. If we don’t like the way the board is running our credit union, we can vote them out. Though full disclosure, in my 10 years as a credit union member, I’ve never participated in an election, and I couldn’t tell you the name of a single board member. Whoops.
  • Customer service: Because of their smaller size, credit unions are often credited (zing!) with offering superior customer service.

Cons of Credit Unions

  • Fewer locations: Finding a nearby location or ATM can be more challenging with a credit union, especially if yours does not participate in shared branches or an ATM network. My credit union is regional, so I don’t have access to a physical branch when out of town.
  • Poor technology: I love my credit union’s website and mobile app, but after opening a credit card with Capital One and getting a car loan with Chase, even I have to admit that national banks (which typically have more money for web development) have faster, more appealing user experiences on their websites and apps.
A woman types on a laptop
Carmen Mandato/The Penny Hoarder

Online Banks

Online banks are the newest type of financial institution to join the world of banking. These banks appeal to those who prefer to handle all customer service issues over the phone or online.

If you prefer the physical ability to go in and get money help, you should go with a brick-and-mortar banking institution.

Pros of Online Banks

  • High rates: The biggest benefit to online banks? They have such low overhead from having fewer employees and no physical branches that they can offer very competitive interest rates on checking and savings accounts.
  • Low or no fees: The best online accounts should be fee-free — no monthly maintenance fees, no overdraft fees, no foreign transaction fees and no ATM fees.

Cons of Online Banks

  • No in-person help: The concept of an online bank is that everything is conducted, well, online. But if you run into trouble and would like to talk to someone in person, you’re out of luck.
  • Cash depositing: Depositing cash can be a challenge if your online bank doesn’t have an arrangement with a specific network of ATMs.

Your Needs

Ultimately, the type of bank you choose should reflect your needs. Are you looking for a simple place to start savings and checking accounts? Will you need a car loan or mortgage? Is easy access to ATMs important? Are you interested in investment accounts?

And remember: nothing says you have to do all your banking with a single institution. While some members appreciate the ease of managing their finances entirely with one bank or credit union, being flexible allows others to get the best rates or deals for each of their goals.

For example, I use my credit union for my standard checking and savings accounts. I had my first auto loan through the credit union without shopping around, but for my second car purchase, and with my mortgage last year, I took out loans with traditional banks.

I also researched credit cards thoroughly before landing on one not offered through my credit union, because it included cash-back rewards, a lower interest rate and a higher credit limit.

How to Choose a Bank: 9 Tips to Help

A bank, a credit union, and an online banking app are displayed in three separate images.
Chris Zuppa and Tina Russell/The Penny Hoarder

Knowing how to choose a bank or credit union that suits your needs is an important skill as you begin or continue your financial journey. Consider these nine tips when making the selection.

1. Make Sure Your Money Is Secure

Most banks are insured by the Federal Deposit Insurance Corporation (FDIC), and most credit unions are insured by the National Credit Union Administration (NCUA) — but don’t just assume yours is. Find an institution that can promise FDIC or NCUA insurance. These protect your money up to $250,000 if your bank or credit union fails.

2. Read the News and Reviews

Speaking of security, you should thoroughly research the top contenders on your list to see if any have been subject to major breaches in recent years.

In this digital age, finding a bank or credit union that prioritizes customer privacy and security is crucial. The FDIC and NCUA may protect your physical money, but the cost of having your personal data compromised or your identity stolen can be exorbitant.

You can also read online reviews to see what common complaints members lodge against their banks. But as with all user-generated content online, take reviews with a grain of salt.

3. Ask Family and Friends

When in doubt, crowdsource opinions from people you trust. Turn to family members, friends, co-workers and even connections on social media to get more personalized reviews about specific banks and credit unions.

4. Consider ATM Usage and Availability

How regularly do you need to take out cash? If the answer is often, find a national bank with an abundance of ATMs in your area (and areas where you frequently travel). Or just choose a bank that will waive ATM fees or refund any fees you incur.

Credit unions are more often locally or regionally based (meaning no out-of-state access to ATMs), but many are part of networks, including Star and Allpoint, that allow you to withdraw money from other network credit unions nationwide at no cost.

Instead of paying an ATM fee to get cash back, go to a nearby grocery store that offers cash back on debit card purchases and buy a pack of gum. The cost of the gum will be cheaper than the typical ATM fee (some exceed $3), and now you own a fresh pack of gum. Win-win.

5. Compare Rates and Fees.

Make your money grow when banking by choosing a credit union or bank with high-interest rates on checking and savings accounts. Again, these are often higher at credit unions and online banks.

However, you should also consider typical interest rates for loans and ATM fees, monthly maintenance fees and overdraft fees. You can sometimes get these fees waived, but if you can find a bank that does not charge you for monthly maintenance and overdrafts to start with, all the better.

6. Look for Versatility.

You should find a bank or credit union that works for you. For example, my credit union allows me to create “sub savings accounts” off my main savings account and name them how I see fit.

I have created these sub accounts for vacation savings, real estate savings (to start investing in rental properties), emergency savings and taxes (as a busy freelancer, I end up owing Uncle Sam a lot, so it pays to set that money aside). It is immensely helpful to be able to see those accounts separately and move money from each paycheck to those savings goals as budgeted each month.

7. Check Out the Mobile App.

Is mobile banking a priority for you? Check out the apps of the banks and credit unions you are considering, and read their reviews in your app store of choice.

Is it easy and secure to do a mobile check deposit? Can you see account balances easily? Can you make payments on credit cards and loans? Do they offer two-factor authentication for extra security? What about online bill pay?

8. Don’t Forget the Website.

For most bank members, online and physical bank locations are equally important. If you feel you can do without a functional mobile site and app, maybe a small-town bank will work for you. Or, if you don’t like to get help face to face, maybe online banking is the way to go.

9. Read the Fine Print.

Finally, don’t sign any dotted lines without reading all of the terms and conditions. Ask questions about monthly fees, interest rates, investments and more before handing over your money.

It’s OK to take time with this decision.

Timothy Moore covers banking and investing for The Penny Hoarder from his home base in Cincinnati. He has worked in editing and graphic design for a marketing agency, a global research firm and a major print publication. He covers a variety of other topics, including insurance, taxes, retirement and budgeting and has worked in the field since 2012. Reporting from former Penny Hoarder staff writer Stephanie Bolling is included in this report.