A bank is one of those things that should largely go unnoticed in your life. Once you find a good bank, you use it on a regular basis to park enough cash to cover your short-term needs and earn a little interest on top. You shouldn’t need to spend more than 5 minutes a year worrying about your bank. Your bank also shouldn’t be costing you any money. You are doing them a favor by letting them keep your money for you.
Unfortunately there are banks that have developed bad reputations, either for unscrupulous activity, bad customer service or high fees. If you are banking at a bank that is engaging in high pressure sales, relies on fees, or otherwise has a bad reputation, you may be wondering where to turn.
A good bank doesn’t need to charge you a fee since they will use your deposits to make money by investing them elsewhere. For example, you deposit $1,000 in a checking account. The bank pays you 1% annual interest on that deposit, but then turns around and lends $500 of that $1,000 out at a 4% interest rate. You get the security that the bank offers, the bank makes money off of the rate spread, and the borrower gets a loan from a reputable lender. This is a win-win-win.
Like any good business, a good bank relies on their reputation for honesty and good customer service to gain business. Of course, any good business can also advertise and market their products, but if the business is relying on high pressure or unscrupulous sales tactics, take your money elsewhere.
Of course interest rates are important in comparing bank accounts, but use these as secondary comparison. They are more of the icing on top. If you are trying to decide between two banks that both have a reputation for good customer service and offer fee-free banking, then you can certainly pick the one that offers a higher interest rate on your deposits. However, picking your bank solely based on interest rates will likely land you in a bank that will try to fleece you with fees or simply offer bad service.
Who to Choose
Two categories of banks that I have been happiest with are smaller local banks and online banks. Smaller local banks are typically privately owned, meaning that they are free from Wall-Street’s constant pressure to increase earnings. Smaller banks are often more in touch with their community and more mission driven.
True online banks don’t maintain physical branches, drastically cutting overhead costs. This increased efficiency allows them to easily offer fee-free accounts, free checks, ATM reimbursements, and good phone service. Of course, the downside of these is not being able to deposit cash, and relying on your smartphone to deposit checks. Huffington Post has a good rundown of the top online banks here.
Of course, there are still some bad apples among the online banks and local banks, and some good apples among the large nationwide banks. Banks typically publish a list of fees and account types on their website. If you’re looking at local banks, asking around the community will give you a good feel for a bank’s reputation.
I personally bank with Ally Bank. Ally is an online bank, which is fine with me, since I rarely use cash, and am comfortable depositing my checks with my phone (just requires taking a picture of the front and back of the check from your banking app). Ally does not charge any account maintenance fees, does not have account minimums, offers free checks refunds ATM fees, and typically has paid a higher than average interest rate. Ally’s customer service has also always been quick and responsive.
Bottom line (literally): spend a little research and thought in picking your bank, and don’t think about it again.
While I do strive to only write accurate information and dispense valuable advice, I am not a licensed financial adviser. All information is based solely on my personal experience and personal research and should be treated as such. Find out more.