How to pick a bank, in 7 steps

Picking a bank for everyday finance — think checking and savings accounts, not brokerages — is one of those life choices where there are just too many options. There are the huge national banks: Bank of America, Wells Fargo, Chase, etc. There are the sundry credit unions and local savings and loans in your area. There are novel online banks with only a handful of physical branches. It's all a bit overwhelming. To that end, here are a few questions to ask yourself when trying to narrow the options down.

How much do you worry about inflation?

Children use worthless German Marks as building blocks in the Weimar Republic, 1923. (Universal History Archive/Getty Images)

Money you put in a checking account is almost certainly going to lose value over time due to inflation, and at the present moment yields from savings accounts are low enough that the same is true there. That being said, there's a lot of variation in bank interest rates, and some are going to be worse deals than others.

Case in point: while most banks offer no interest on checking, there are a few, especially online-focused banks, that offer a modest yield. According to Nerdwallet, Bank5 Connect currently has the highest interest rate of any online bank at 0.76 percent. You need a minimum of $100 to get that APY, but FNBO Direct will offer you 0.65 percent interest on balances as low as $1. Local banks may also be able to beat national offerings. Cardinal Bank, which operates in the DC area, offers checking yields as high as 1.01 percent.

Now, that isn't very high at all, and not enough to surpass inflation, and there's a danger, as with credit card rewards, that the psychological effect of getting money back from the bank will spur enough new spending to wipe out any gains. There's a case you shouldn't care about interest when it comes to checking at all, just because it's such a trivial amount. But especially for savings accounts, where you're generally not spending much at all, it doesn't hurt to maximize your yield. Here are the top savings yields at the moment, according to Nerdwallet.

How much do you use cash?

How often do you find yourself needing vast piles of $100 bills? (Karen Bleier/AFP/Getty Images)

One big advantage that large, traditional, national banks have over internet banks or local credit unions is national networks of ATMs that members can use for free. While a credit union member may find a decent number of ATMs in their area, they'll likely have to pay an ATM fee if they find themselves halfway across the country on a business trip.

But some banks offer an even better option than a large physical network of ATMs: an ATM fee allowance. These banks typically don't have much of an ATM network themselves, but to compensate, they'll pay for fees incurred when using ATMs from other banks. This is a huge advantage over even a national bank with lots of ATMs, like Bank of America. Even if you're in a city with a lot of Bank of America branches, you have to go out of your way to use BOA ATMs and not Wells Fargo or Chase or Citi. With an ATM allowance, you can just use whatever ATM is closest. If you're at a cash-only bar with a single ATM that you're going to need to use to drink there, it's better to know you'll get the fee back than to hope and pray the machine happens to be in your network.

Now, most banks offering ATM fee refunds have an upper limit. USAA, for instance, only pays for the first $15 in ATM fees you incur. But assuming you don't use an ATM more than five times in a month, that ought to be plenty.

What are the fees?

The fee pay section of the Three Rivers National Petroglyph Site. (Shutterstock)

This is related to the ATM point, but it's always a good idea to check carefully to see if there are non-obvious fees banks impose. For example, most banks charge some kind of overdraft fee, but those range widely in size. Some involve interest payments on the amount overdrawn, which can really add up. Look for a bank to enables you to easily link your accounts, so that money is automatically pulled from one in case of an overdraft in the other. Some might charge fees for this, which are generally worth it, but finding a bank that does it for free is ideal.

Another common fee to avoid are minimum balance charges, incurred when your balance dips below a certain threshold. If an account is solid otherwise, and you're confident you can keep above that balance, that might be worth tolerating, but it's something to look out for. Internet banks and local banks generally feature lower balance requirements than national banks for the same reason the latter generally offer lower interest back: keeping up a national, physical network of banks is expensive, and requires the bank to make it up through lower interest and more fees.

Is the bill pay system solid?

Most good banks will offer some kind of online mechanism for automating regular payments for things like rent, mortgage payments, phone payments, utilities, etc. Most do it by just mailing checks for you, which works perfectly well. This isn't a big thing to worry about, but if you somehow stumble on a bank without this feature, look elsewhere.

What's the customer service like?

A good sign of an excellent customer service team is unnerving, unceasing smiles. (Shutterstock)

Stuff is inevitably going to go wrong with your account. You'll get a fee you think you don't deserve, there will be payments that look suspicious to the bank, etc. And when something does go wrong, you're going to have to deal with the bank's customer service reps. This is a much harder thing to compare than fee policies and interest rates, but there are wide reputational disparities between banks on this point. USAA, for instance, is famously responsive and helpful with customers, whereas Bank of America has a … different reputation. J.D. Power and Associates' annual customer satisfaction rankings and American Banker's survey of bank reputations are helpful here.

How do you get paid?

That is a weird looking pen cover. (Shutterstock)

Perhaps the thing Internet banks are worst at is check depositing. Most have smartphone apps enabling you to take a picture to deposit it, and some have arrangements with partners like the UPS Store to enable deposits, but if you don't have a smartphone, or it doesn't recognize your handwriting, you're going to need to mail the check in and wait a long time for the money to appear.

That isn't a huge problem for a lot of people. If you get your paycheck direct deposited, you don't need to worry about cashing it, and if you get most of your other money from friends or odd jobs or whatever through cash or Venmo rather than checks, that shouldn't be an issue either. But if you do make a lot of your money from checks, it's really valuable to have a physical branch around, or at least ATMs that enable check depositing.

Need more advice?

This is pretty well-trod ground for personal finance writers. The Wall Street Journal, Marketwatch, Money Magazine, Mellory Hobson, and Forbes all have good guides that are worth checking out as well. For direct, quantitative comparisons of different bank offerings, Nerdwallet is my favorite source, but Bankrate and FindaBetterBank are good too.

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