Your Money_ The Missing Manual - J. D. Roth [65]
In this chapter, you'll learn how to find a bank and accounts that match your lifestyle. You'll also get tips for reducing fees and making the most of your accounts.
Choosing a Bank
Finding ways to increase your income can be exciting (see Chapter 6). You can even have fun looking for ways to cut your everyday expenses (Chapter 5), especially when you see the results in your bank account. But selecting the bank account itself? Boring, boring, boring. At least that's the conventional view. Actually, you can have fun banking.
Consider two things when choosing a financial institution: the bank itself and the accounts it offers. Banks are tools for building positive cash flow, and bank accounts can help guide you toward your financial goals (some are better suited for the job than others). This section covers the different types of banks out there, and the next section (Finding Accounts That Meet Your Needs) explains the various kinds of accounts you can choose from.
Types of Banks
People use the word "bank" to mean lots of different things, including commercial banks, retail banks, and investment banks (which are a different kind of bank entirely). When deciding where to open basic accounts like checking and savings, you only need to worry about three broad categories of banks: traditional banks, credit unions, and online banks. Keep reading to learn about each option.
Traditional banks
When most people think of a bank, they imagine a huge company with hundreds (or thousands) of branches spread across the country. Because these large banks have locations everywhere, having an account with one is convenient. And big banks generally offer a wider variety of products and services than smaller banks: They're one-stop shopping centers for your financial needs. Big banks have their place, but you have other options.
Lots of small, local banks have only a handful of branches (sometimes only one branch). These institutions don't offer the same convenience as the big boys, but they often make up for it in lower costs and better service. Small banks have other benefits, too. Many are active in their communities, and some are built on religious or political philosophies that appeal to certain customers. Community development banks, for example, are designed to serve residents and spur economic development in low- to moderate-income areas.
Note
For more on community development banks, visit www.communityinvest.org, which lets you search for organizations that share your values.
If you travel a lot and need access to branches across the country, a big bank may be right for you. On the other hand, if you stick close to home and there's a local bank with great service and values similar to yours, it may be your best bet. But be sure to check out your other options, explained next.
Credit unions
Unlike banks, credit unions are not-for-profit institutions. Because of that, they usually have better interest rates and lower fees than traditional banks. According to the National Credit Union Association (NCUA)—which is probably a bit biased—credit unions offer better rates on nearly every product, from credit cards to car loans to mortgages to savings accounts.
Note
Don't assume that a small bank or credit union will give you a less-polished experience than a bigger organization. When I switched to a local, four-branch credit union, I found it had better online features than the huge national bank I'd been using for years!
Another difference is that credit unions are member owned. In other words, if you have an account there, you're one of the owners. Members elect the board of directors, which sets interest rates and makes other important decisions.
Also, credit unions are more