How to Choose a Bank Account That Makes Sense for YOU!

By Alicia Donner

The Pittsburgh Financial Empowerment Center, like all Financial Empowerment Centers across the country, focuses on the four pillars of financial empowerment:

  • Access to safe and affordable banking,
  • Building and improving credit,
  • Reducing debt, and
  • Increasing savings.

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?

Banks Credit Unions
  • For profit: businesses, looking to make a profit they can pass on to shareholders
  • Open to anyone; at a bank you’re a customer
  • Tend to be larger, offer a larger suite of products due to size and capacity
  • Tend to have worse rates: lower APYs on savings products, higher APRs on lending vehicles – looking to pass on profit to their shareholders
  • Tend to have higher fees and/or higher required minimum balances
  • Often have mobile apps, robust online banking, and broader ATM access
  • FDIC Insured
  • Not for profit: member owned, not seeking a profit
  • Must qualify for membership: geographically, by school or workplace, by membership in another organization
  • Often smaller, with more limited product choices
  • Tend to have better rates: higher APYs on savings vehicles, lower APRs on lending products – aren't profit motivated, so they pass those savings onto their members
  • Might not have as robust online and app services or access to ATMs
  • FNCUA Insured

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
  • Designed to be used frequently, with many transactions out
  • Common benefits: online bill pay, checks (either personal or the bank may send them on your behalf), debit cards, ATM access.
  • Low to no APY (the good type of interest)
  • Designed to have more frequent transactions in, few out – this is sometimes limited to a small amount per month
  • Great for: parking an emergency fund, building up funds for a big purchase.
  • Tend to have higher APYs than checking accounts
  • Think you might be interested in other banking products in the future? See if the bank you’re looking at has them!
    • These include credit cards, mortgages, car loans, retirement products, etc.
  • Make sure the product fits your needs! Which brings us to our next point...

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!

  • Had issues with overdraft fees in the past? Consider switching to a Bank On certified account! A list of accounts available with financial institutions in Allegheny County can be found here.
  • Further, many big banks or eliminating or significantly reducing overdraft fees in 2022!
  • Have a surprise monthly maintenance or inactivity fee? Refer back to your account agreement and see if there are ways to waive these via a minimum number of transactions or deposit amount.
  • See if you can waive paper statement fees by switching to online or digital statements!

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!