Thinking Of Making A Banking Change? Here’s How To Compare Competing Bank Accounts

Recently, I’ve received emails from people asking me what I think of various checking accounts, such as ING’s Electric Orange or EverBank. I realized that time and time again I used the same criteria to compare various checking and savings accounts, and thus I thought I would share these criteria with you.

I rank these criteria in the order I value them; thus, a winner in the first two criteria will overcome another bank that wins in everything else, for example. If you want to “score” banks, give 4 points to the first criteria’s winner, 3 to the second, 2 to the third, and 1 to the fourth.

1. FDIC insured accounts. If a bank’s accounts are not FDIC insured, I won’t bank there, period. FDIC insurance guarantees you up to $100,000 of your money back in the event of a collapse of your bank. Most young people aren’t aware that banks are businesses and they indeed do go out of business, so this insurance means that the federal government is insuring you against the event of a bank collapse. As a depositor, this is essential, because in the event of another savings and loan crisis, you have a huge risk of losing everything. Thankfully, almost all banks today are FDIC insured. If you don’t know, check with them.

2. Fees. Fees trump almost everything else about an account, and it doesn’t take much at all to make one bank a huge clear winner over another bank. Here are some common bank fees to look out for; if you’re comparing accounts, make sure you know what these fees are going to be for each account and also have a good idea of how often you’ll be dinged for them:

Overdraft fees
ATM fees
Out-of-network ATM fees
Transaction fees
Maintenance fees
Online banking fees
Online bill pay fees
Minimum balance fees

Before you even consider opening a new checking or savings account, be aware of all of the fees you may be charged with. This is especially true if you’re being tempted to jump to a different account because of a higher interest rate, because if they charge more fees, you’ll end up losing ground overall.

3. Customer service. Many people undervalue this, particularly for savings accounts, but customer service makes a huge amount of difference when you’re trying to execute transactions. Are transactions easy to execute? Are they immediate, or is there a delay? Is it easy to talk to a customer service representative on the phone? Customer service is a huge advantage that brick and mortar banks generally have over online banks, as you can simply stop by a branch and have your questions answered and issues resolved, which is particularly important if you have documents to sign, change to sort, or other such service needs.

4. Interest rates. Interest rates matter, but they are completely trumped by fees and partially trumped by customer service. Take, for example, EverBank. Their checking account interest rate of 6.01% APY is stellar. However, they have no ATMs of their own, which means you get dinged with a $1-$3 ATM fee every time you withdraw cash. They will reimburse you up to $6 each month to cover part of this, but this recurring fee basically eliminates the interest rate advantage that their accounts offer in my situation. If you are in a situation where you never use an ATM at all, then this fee is negligible, but it’s easy to see why fees trump interest rates.

If you’re considering switching, be sure to compare all of your options using the above criteria. More than anything, though, don’t overvalue the interest rate. You should be quite willing to accept multiple points lower in interest rate in order to minimize fees and maximize customer service.

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  1. Martin says:

    This works for some people, but it really does not work for me. I agree with the FDIC issued bank as the first criteria for the stated reasons. My second most important thing is the interest rate. My high-yield savings account is used just for that, the high-yield. I put my emergency fund in it. This being an emergency fund, I do not need to take money out of it very often. The only thing I really use it for is to put money in (knock on wood). If I do need money, I most certainly have enough time to request a check or transfer the money to my everyday checking. The fees are kind of important, but I start with the highest interest rate, then go down the list based on fees. Yes, you should try to avoid fees at all cost, but if the interest out weighs the once a year fee for whatever, then you are all set. Customer Service is not even on my list as I have absolutely no contact with the bank. I set it up, give them my money, and collect the interest.

    I like the list, but when I think high-yield savings account, I think of something completely different.

  2. Trent Trent says:

    Actually, Martin, you’re doing the exact thing I describe above. If you think you aren’t, you must have just skimmed the highlights.

    First of all, fees. Would you accept a 5.50% savings account if they dinged you $10 a month in maintenance fees, or would you take a 5.00% savings account? Obviously, unless your balance is HUGE, you choose an account where there are no fees, or only small annual ones. This is exactly what you’re saying above. Thus, the fees are “equal” for the banks you compare.

    Then you compare customer service. For your needs, customer service is merely the ability to deposit and withdrawal (you hope). Thus, customer service is “equal.”

    That leaves the final factor, interest rates, which is the criteria for you to use in your situation.

  3. Martin says:

    I see what you are saying. I guess I do take into account fees more than I thought.

    I guess I just don’t really understand the scoring system. I would just get all the banks (probably from bankrate.com), and order them by interest rate. Throw out all non-FDIC insured banks. Then start looking at the fees to see which one fits each person’s situation best.

    You might also want to throw in track record. I.E. What their interest rates have been in the past. Look at Citibank – they were 5%, now down to 4.75%, and they may go down again.

    Also, if you know of another place that lists all the banks and info about the banks, let me know. Thanks.

  4. MossySF says:

    http://bankdeals.blogspot.com/

    Constantly updates with who’s got the highest rates for savings and CDs.

    I’ve decided screw FDIC insurance. Vanguard Prime Money Market gets my money. If Vanguard blows up, this country has much bigger issues than my puny emergency. Not to mention they already have a ton of my money in their investment funds and will get a ton more in the future.

  5. TFB says:

    There’s another reason why you shouldn’t just look at the rate and fees even if a bank is FDIC insured.

    Does anyone know how FDIC insurance works? If a bank fails, do you get paid right away, or do you have to wait until everything is sorted out? For how long? How do you prove how much you had in your account if the bank’s computer is screwed up because the bank failed? The point of having an emergency fund is knowing you have access to the money when you need it. Having it tied up in the FDIC process is not ideal. So you have to look at the overall resources of a bank. An international bank that survived world wars like HSBC, ING or Citibank is much less likely to fail than a small bank new in the business. They are much more likely to have security and processes not to screw up.

    Vanguard money market fund, despite its lack of FDIC insurance, is actually as safe as or even safer than some of the FDIC insured deposits. The money market fund invests in short-term government bonds and commercial paper issued by many corporations. There is diversity in its holdings. Those holdings have value. A bank deposit on the other hand is an unsecured obligation of the bank.

    FDIC insurance is nice but you really don’t want to see yourself using it.

  6. Trent Trent says:

    “FDIC insurance is nice but…” … during the savings and loan crisis of the 1980s, lots of people thought their money was safely in a bank. They got some very quick introductions to the FDIC. Don’t think “it can’t happen now” if you’re looking to minimize risk, which is a big reason for keeping your money in cash.

  7. Dman says:

    Okay so who do you guys like for customer service then? I have found Washington Mutual to be very courteous,friendly, and helpful in the past. Their free checking account never surprised me with any hidden fees,and the people were nice,so I liked banking there.They do not have a branch in my new town though,so I am forced to hunt down a new bank.

    Our new town has TCF,Wells Fargo,B of A,Chase(yikes),Citi,American National, and several small credit unions. So far I haven’t been overly impressed with any of them. I would love to hear what people think of their own banking choices here in the west. (Colorado specifically)Who do you like? Who have you had problems wit? Etc…

    Interesting article. Thanks for the read.

  8. Wyon8ve says:

    For those with questions concerning the FDIC coverage of their qualified accounts.

    http://www.fdic.gov/consumers/consumer/news/cnspr06/leadstory.html

  9. Mike says:

    Dman: in Colorado I’ve been moving everything to Bellco Credit Union. I was with WaMu in college and even kept the account when I moved to CO. I had a Wells Fargo account for a while (when I first moved to CO), but got tired of the hassles and mistakes, even though they corrected them (after some considerable effort). Used the WaMu (direct deposit) as my primary until I opened my Compass accout. Shortly after I opened my Bellco Savings (got my mortgage with Bellco) I closed my WaMu (even though they now have branches in CO). About 6mo-1yr after I closed my WaMu account is when they had their “run” on the bank. I was glad I had already quit using them at that point ;) Always loved them when I was in Washington, but their CO branches were not the same some how…

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