Looking for a new bank? Here's what to ask
If you're among the many customers fed up with high bank fees, poor service or low interest rates, you may want to switch banks or trade your bank for a credit union.
"You used to just decide if you wanted to get a toaster or a microwave when you opened a new account, or go to the bank with the most convenient branch," says Mitchell Freedman, CEO of MFAC Financial Advisors Inc. in Westlake Village, Calif. "Today, bank fees can hit you in ways you never thought about, so you need to carefully compare your continuing costs of banking."
Making that comparison isn't so simple.
"Among the 12 largest banks, the median number of bank disclosure pages for checking account policies and fees is 69 pages. Believe it or not, that's an improvement over 2011, when the median was 111 pages. There's no way a consumer could wade through all that," says Susan Weinstock, project director for Safe Checking in the Electronic Age, a project by the Pew Center on the States in Washington, D.C.
The following seven questions can help you find the bank that fits your financial needs.
How large a balance is needed to avoid fees?
To make it easier for consumers to comparison shop, the Pew Center developed a simple disclosure form that five of the largest banks and three of the largest credit unions have adopted, Weinstock says. Consumers need to know the minimum deposit required to open an account and the minimum balance required to waive monthly bank fees.
"Be aware not only of the upfront price of opening an account but of continuing requirements," Freedman says. "Some accounts require a direct deposit or a recurring payment through their site to avoid monthly service fees."
In addition to the monthly service fees, you should check on other fees that you can be charged before you switch banks, such as a stop-payment fee, deposited item return fee, account closing fee and nonsufficient funds fee.
How high are the fees for out-of-network ATMs?
"Most banks and credit unions participate in a network of ATMs, but if you rely often on an ATM for withdrawals, you should check on the fee for using an out-of-network machine," Weinstock says. "Usually there's no fee for using one in your bank's network, but your bank or credit union should disclose the fee it charges for using another network. There's also a fee from the ATM owner, and that will be disclosed on the ATM itself."
Freedman says consumers who travel often may want to open an account with a national bank that offers ATMs around the country.
"ATM fees may be less important to people who don't use them a lot or who choose a bank or credit union with an ATM convenient to their work or home," Freedman says.
What are the overdraft protection options?
While you may hope you never have to rely on overdraft protection, you should make sure you understand your options and the cost of those options before you switch banks.
Weinstock says many consumers don't understand that not signing up for overdraft protection could be a good thing. Your debit card will be declined or your check will bounce without it, but there's no fee if you opt out of overdraft protection.
"If you opt in for protection, the cheapest way to do it is usually to have funds transferred from a savings account, a line of credit or a credit card. The median transfer fee is $12, and the median overdraft fee is $35 per transaction," Weinstock says.
Consumers should compare the transfer fee, overdraft penalty fee, maximum number of times an overdraft penalty fee is applied per day, minimum amount required to trigger an overdraft fee and extended overdraft penalty fee charged for each day the account is overdrawn.
"Overdraft protection is a double-edged sword," Freedman says. "It can be terrific and enable you to lower your risk of a bounced check, but you could end up paying a high transaction fee and a hefty interest rate if you sign up for a line of credit."
How soon are deposit funds available?
While some banks put a hold on certain types of deposits, Freedman says some deposits are instantly credited.
Weinstock says financial regulations require the first $200 of any deposit be available the next business day following a deposit, but banks vary in how soon the rest of the deposit is available.
"Fund availability is extremely important, especially for people living paycheck to paycheck," Weinstock says. "Some banks say the business day ends at 2 p.m., so you need to check that information in their disclosure boxes."
Weinstock says you also should find out the bank's process for handling deposits and withdrawals. Most banks process a deposit first and then the withdrawals from the same day, but others credit the deposit last.
"Some banks handle the largest withdrawals before smaller ones that come in on the same day, which can make it more likely that you'll overdraw multiple times," Weinstock says.
How much interest is paid on deposit accounts?
Interest rates on deposit accounts are so low that some consumers may be tempted to skip this step, but Weinstock says you should find out if your account pays interest or not.
"The problem is the interest rate changes often," Weinstock says.
You can ask how often interest rates are changed and whether there are minimum-balance or other requirements to earn interest before you switch banks.
Banks that try to attract more deposits will offer special, high-interest accounts to customers who meet certain usage requirements such as multiple debit card transactions and direct deposit.
"Credit unions have been proliferating in recent years and often have lower fees and higher interest rates for deposits," Freedman says.
Are mobile banking and online bill pay offered?
While most banks offer online bill-paying services, not all offer mobile banking options. You need to determine how you use your bank to decide which features matter most to you. Some customers need a bank with longer branch hours because they need in-person services. Others want the option of doing everything online, Freedman says.
"While technology has made banking convenient, there's also a higher risk of identity theft," Freedman says. "Part of being a wise shopper should be to ask about what protection is in place against fraud. Some financial institutions will alert you to unusual activity, but with others, you may not know anything is wrong until you receive your bank statement."
You may want to compare the mobile apps from one financial institution to another to see which ones are the most functional for your needs before you switch banks.
Are rewards programs offered?
Once you've compared the basics, such as how to avoid monthly bank fees, overdraft protection options and the availability of free ATMs, you may want to compare rewards programs available on some checking accounts and savings accounts. Some banks offer rewards only on their credit cards, while others also offer rewards to debit card users.
"You need to be honest with yourself as to what's important to you and how you use your bank accounts," Weinstock says. "Do you keep a cushion in your account or take it down to the last penny? Do you regularly have direct deposits made? These things will impact the type of account you choose and the financial institution you choose."
If you do qualify for a rewards program, Freedman recommends shopping for one that matches your interests before you switch banks.
"My wife loves cash-back rewards, but I am a fiend when it comes to accumulating airline miles," Freedman says.