By Alicia Donner
The Pittsburgh Financial Empowerment Center, like all Financial Empowerment Centers across the country, focuses on the four pillars of financial empowerment:
The PGH FEC has many banked clients: 95% of clients who came to the FEC since our beginning in 2019 had some sort of bank account, and only 1 in 10 said they 9were unsatisfied with their accounts. But, if I may dip into some anecdotal waters, lots of the clients I serve have not really questioned if their bank is what they need – or can afford. So, even though many of our clients may not think they need to reconsider their bank, it’s always worth a look over! (And this is a great reason to schedule an appointment with an FEC counselor.)
Which brings us to this question: how do you decide what kind of bank account makes sense for you?
Like so much in this work, it’s personal. Some people prefer going to an in-person teller weekly, where others are okay doing their banking completely online. Some people will choose a big-name bank with a nationwide presence while others want to work with a local credit union. All of these are valid reasons! But it’s also important to understand that having a bank account – like a credit card – is a contractual agreement. And, as with any contract, you must read that fine print! Here are some things we encourage people to be aware of as they shop around for a bank account that best fits their needs:
1. Location, location, location: brick-and-mortar or online only?
Going into a physical bank is comforting for some but may mean losing out on the better interest you can earn with online-only high yield savings products. However, there’s nothing wrong with having multiple bank accounts! This is especially a good idea for a savings account if you struggle with saving in general: keeping it “out of sight, out of mind” allows you to actually build up savings to have when you need it.
2. Type of Institution: Bank or Credit Union? Or neobank?
Some FinTech (short for “financial technology”) companies might offer products that are considered neo- or challenger banks: think Chime, Varo, or Current. (Simple, acquired by BBVA in 2021, w as also a neobank.) It is important to make sure that, if you do decide to put your money in one of these products, it has deposit insurance itself or is partnered with a larger bank that has the insurance.
3. Compare Products: how do you need to access your money?
Key starter products: Checking Accounts vs. aving Accounts
|Checking Accounts||Saving Accounts|
4. Read the Fine Print: Minimize fees and be aware of rates
|Common Fees Associated with Bank Accounts|
|Account Closing||Minimum Balance||Overdraft|
|Inactivity||Monthly Maintenance||Paper Statement|
|Insufficient Funds||Out of Network ATM||Wire Transfer|
Luckily there are ways to avoid fees!
There are two rates to keep an eye on, both of which are mentioned above: annual percentage rate (APR) and annual percentage yield (APY). APR is the interest you pay to a lender when you borrow money, and APY is the interest you earn by having an account with a bank or credit union and allowing them to loan it out to other consumers.
As I mentioned above, this decision is personal. The best bank for you might not be the best option for me. Which is why it’s important to go with your gut: how was the customer service? The online interface? Other pros/cons? Further, it’s important to remember that you can always change your mind! It might take a bit of leg work to switch your automatic bill pay, but, as you should be hyper aware of those transactions via tracking, it’s not an impossible task! And you can always talk over your options with an FEC counselor. Good luck!