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:
Out-of-network ATM 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.