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Personal Finance 101: How to Choose Your Next Bank?

At some point in your life, most people will have to go bank shopping. Maybe you don’t have an account, you move somewhere where your current bank doesn’t have coverage, or you’re just not happy with the level of service at your current bank. Shopping for a bank can be incredibly difficult, but it doesn’t need to be. Here are some pointers to help you separate the wheat from the chaff on your search for the right bank.

Four Main Types of Banking Institutions

First, break down your search into the four main types of banking institutions available to consumers:

1. Big Commercial Banks: These are the banks that are household names: Citibank, Bank of America, Wells Fargo and the like. The up side is that you can find a location just about anywhere. The down side is that their size does not always incentivize the best products and services.

2. Community Banks: Community banks offer many of the same services as larger commercial banks, but with a local, hometown feel. The problem is that the services aren’t as varied as at the larger commercial banks. If you travel a lot, get used to paying ATM fees.

3. Online Banks: Online banks often offer more attractive rates and fees than traditional banks due to lower overhead. Of course, if you use ATMs a lot, you need to make sure that you live near one you can use without a fee.

4. Credit Unions: These nonprofit institutions are owned by the members and often boast better interest rates and lower fees than big commercial banks. Still, they lack the volume that the big commercial banks do and might not provide all the services that you need.

What Do You Really Need?

When shopping around for a new bank, ask yourself what services you need. The wide array of services offered by large commercial banks might not matter to someone who just needs a basic checking, savings, mortgage and car loan. On the other hand, if you want a nontraditional mortgage or more exotic banking products, you might find that the only bank that can meet your needs is a large, commercial bank. Make a list of all the services you need. Then shop around to see who has them and what their rates and fees are.

Other Factors

Rates and fees are only two of the biggest factors to consider when shopping for your next bank. Other things to consider include:

Location: A bank can have many ATMs, but if they aren’t located near where you live, work and shop, they won’t do you much good. Ditto on branch locations—even in our digital age, you’re going to have to hit up the local brick-and-mortar bank from time to time.

Balance Requirements: Many banks have some kind of balance requirement, be it an average balance, minimum balance or a minimum balance in a specific type of account, such as savings.

Customer Service:  When you use a bank, you’re a customer. The bank is using your deposits to invest in a variety of instruments that make the institution profitable if it’s a for-profit bank. If it just doesn’t “feel right” or you’re getting the cold shoulder, keep shopping—someone else offers the same products, with a level of service that will make you pleased to go there.

Secondary Services: Once you’ve found that your major needs—savings, checking and loans—are met, start taking a look at secondary services. This includes things like online banking, ATM fee refunds, direct deposit, automatic payments, wire transfers and the like. When two banks seem to be identical, these secondary services can make all the difference.

Don’t Fear Shopping Around for a Bank

Shopping around for a bank can frustrating, but the above tips can greatly truncate your search—getting you a far better product in the process.

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