Many Americans don't so much choose a bank as they simply end up with one, either because there happens to be a branch nearby or because they haven't bothered to change since they first opened an account. But your banking relationship is fundamental to almost everything you do financially, so it is important to make a conscious decision about where you bank. Unfortunately, the failure to make an active, informed decision could cost you in terms of lost interest and inconvenience.
If you haven't shopped for a bank lately, now is a great time to do so. After years in a stagnant rate environment, interest rates are now rising fairly rapidly, and some banks are particularly keen to compete by offering high rates. Beyond this dynamic rate environment, banks are also completely re-imagining their products and services as new technologies emerge.
Online banking has vastly increased the number of choices you have while making branch locations less relevant. Mobile apps and ATMs mean you can bank at your convenience rather than being limited to the hours your bank chooses to be open.
Changing banks may seem like a hassle, but the advantages are real given how dramatically banking has changed. If it's time to re-evaluate your banking relationship, the process outlined below is designed to help you identify the services you need and evaluate them using more relevant criteria.
This guide breaks down both general and product-specific decision rules so you can find the best CDs, savings accounts and money market accounts that are available.
How to find a better bank
1. Decide which banking services you need
Banks have different strengths and weaknesses, so start your search by deciding what your needs are. That way you can focus your effort on the things that matter most to you. Here are some questions to ask yourself:
- What type of account do you want?
A bank with a great checking account won't necessarily have the highest savings account rates. Focus your search on the characteristics of the type of account you need.
- How will you use this account?
What sort of balance will you maintain? Will you need to visit a branch regularly? What about ATM usage? These are things that can impact what terms might be available to you and how convenient you'll find a bank.
- Which accounts need to be linked?
It may be helpful to have your savings and checking accounts at the same bank so you can easily transfer money between the two. However, since CDs are locked up for a specified period, it is less important to have them be at the same bank as other accounts. That makes it easier to have a CD at a different bank if it means getting a better rate.
- Will you be over the limit?
If you want multiple accounts at the same bank, keep in mind that the $250,000 FDIC insurance limit (or $500,000 for joint accounts) applies to the total value of all the accounts you have at any one bank.
>> Should you have One Bank or Multiple Banks - Which is Better?
2. Apply general decision rules to find the right bank
Regardless of what type of account you want, here are some rules that apply in all cases:
- Confirm FDIC insurance
The FDIC's BankFind tool allows you to search for whether a given bank has FDIC deposit insurance. All FDIC-member banks must display the official FDIC sign at each teller window and on their websites.
- Decide when location does - and doesn't - matter
Location matters more for accounts that you intend to access frequently, as opposed to a multi-year CD that you are probably not going to touch until it matures. In any case, if you choose to bank online, branch locations won't be very important to you, although ATM locations may be.
- Consider online banking
Online banks often offer better terms than traditional, branch-based banks. Even some traditional banks with extensive branch networks may offer special terms if you agree to do your banking online.
- Check the tech
If you like doing business via your computer or phone, be sure to see what the bank's website or mobile app is like.
- Weigh access and responsiveness
Customer care is another factor to consider when looking at a new bank. Are representatives available 24/7 or just during limited hours? When you call the bank, do you get a human response or do you have to go through a tedious phone tree? Do they offer live, online chat and do you get a timely response when you initiate a chat?
3. Apply product-specific rules to find the best rates
Once you determine the general characteristics of the bank, you can focus on the product-specific terms of the type of account you need.
Shopping for savings accounts and money market accounts
Savings and money market accounts are interest-bearing accounts designed for immediate access but not for frequent transactions. From the customer's point of view, savings and money market accounts are fairly similar to each other, so the following guidelines apply to shopping for either type of account:
- Rates need to be competitive, but not necessarily the highest
Some banks compete by offering higher rates, and finding one of these banks can make a big difference. The most recent MoneyRates America's Best Rates survey found that the top ten savings accounts were all offering rates that were more than a full percentage point over the industry average.
While rates can change any time, the list of banks that lead the quarterly America's Best Rates surveys has been fairly consistent over time. The point being that, once you find a top-performing bank, chances are it will be good enough to keep your rate near the top of the pack for some time to come, even if a few rates are slightly higher from time to time.
- Watch out for "teaser rates"
Some banks offer special promotional rates that expire after a limited time, often somewhere between 30 and 90 days. When you compare rates, do so on the basis of the ongoing rate rather than any temporary teaser rate because, in the long run, earning a little extra interest for a couple months is not going to make a big difference.
- Pay attention to how rates change for larger account balances
Some banks offer different savings rates and money market rates depending on the size of your account. Make sure you check the rate for the account size you intend to open.
Shopping for CDs
If you don't expect to need access to your money any time soon, you should be able to earn a higher rate by committing to a certificate of deposit. Since these deposit products typically lock in a rate for the specified term of the CD, shopping for them is a little different from shopping for a savings or money market account.
- Finding the highest CD rate is critical
As noted above, for savings and money market accounts, you only need to focus on getting a reasonably competitive rate because the absolute top rate is going to change from time to time. However, that is not the case for CDs, where you lock into a rate for a specified term. Finding the absolute top rate at the time you open your new CD account is the critical factor that pays benefits over the life of the CD.
- Focus your search on the length you need
CD terms can be as little as one month or as long as several years, and different banks may be more competitive at different CD lengths. Focus your rate comparisons on the length of the term you need.
- Find out about early withdrawal penalties
There is a penalty for accessing money in a CD before it matures, and you should compare these penalties when deciding which bank to choose. While a high rate is most important, the penalty might be the tie breaker when choosing between two similar rates. After all, not only do unexpected needs for cash sometimes arise, but a rapidly rising rate environment might also make it worth paying the penalty to terminate your current CD in favor of opening a new one at a higher rate. This is easier to do if the penalty is relatively modest.
Following these steps should help you find a bank with competitive offerings that are well suited to your needs. That's a choice that can pay off for you every day for years to come.
More resources on minimizing bank fees
Need a break from rising checking account fees? See our latest Checking Account Fee Survey
More resources on finding the best rates
Read: 7 steps to finding the best CD rates on our Best CD Rates page