The vast majority of consumers in the United States have at least one bank account, according to research from the FDIC which showed that in 2019 only 5.4% of households in the United States were “unbanked”. Having access to a bank account has become a basic amenity as it is very difficult to be an active participant in the economy without one. Aside from needing a place to store your money, the role banks play has grown over time.
For example, most employers choose to pay their employees by direct deposit which requires the employees to have bank accounts. Similarly, many services such as utilities and cable require payment electronically which again means that consumers must have an active bank account to be able to facilitate the payment. It is very difficult to function in modern society without having an active bank account. But with there being over 4,000 banks in the United States, how does one go about deciding which bank to choose? We think consumers should prioritize 3 categories.
Find Bank Account Options with The Lowest Monthly Fees
Most banks will charge a monthly maintenance fee for their checking and savings accounts. This fee varies widely and can be as little as $5 and as high as $50. Usually, banks will waive these fees if consumers maintain a balance above a certain threshold, which is measured daily. However, even if you happen to maintain a balance above the limit for 90% of the statement period, you will still get charged a monthly maintenance fee because the balance must always be maintained.
To illustrate the point: if you have $1,000 stored in a bank account that charges a monthly maintenance fee of $10, over the course of a year you would pay $120 or 12% of your bank balance just in fees! There are many bank account options that have no monthly maintenance fees or very low fees, and that have no required minimums. These are the types of accounts you should look for when choosing a bank.
Choose Banks with High Accessibility and Great Technology
Selecting banks that have both extensive ATM networks and excellent online capabilities is also recommended. A large ATM network reduces the odds that you end up having to pay fees when you withdraw cash at ATM machines that are outside of your bank’s network. These fees are typically $3.00 per instance and are easily avoidable. In addition, you should prioritize banks that have strong online and mobile banking capabilities and that are partnered with services such as Zelle. This is important as being able to check your balance online and to perform transfers online saves both time and money. Zelle is a particularly effective way of sending and receiving money given its speed, its scale (the Zelle banks list now exceeds a thousand banks) and the fact that it is completely free.
Select Banks with Lenient Overdraft Policies
Overdraft fees occur when you don’t have sufficient funds in your bank account to cover pending transactions resulting in your bank account balance becoming negative. Generally, banks will charge their customers a fee per item (typically $35) that makes their bank account balance negative. For example, if you had $100 in your bank account and made a $110 purchase with your debit card, your account would be overdrawn by $10 as a result. The average bank in the United States would charge you $35, which when you consider the fact that you were overdrawn by just $10, is quite absurd.
Because these charges are on a per item basis, they can quickly add up to significant amounts if you continue making transactions and your account goes further into the red. How banks handle overdrafts varies and over the past year several banks (e.g. Citibank) have enacted policies to either reduce or eliminate overdraft fees entirely. Selecting banks and bank accounts with lower overdraft or no overdraft fees is a good idea.
Selecting a bank and bank account can often be overwhelming given the seemingly endless options available in the market. At the end of the day the objective is to have a safe place to store your money and that you can use to facilitate day to day transactions. You should prioritize banks that allow you to do this while charging you the least amount in fees.