Banks are an essential tool in building, managing and safeguarding your money. But with so many to choose from, it’s important to consider your short- and long-term goals when selecting the bank that’s right for you.
How Do I Choose a Bank?
Convenience, expenses, and fees are the most important factors when choosing a bank. Most banks offer online and mobile banking services, as well as a network of ATMs, so their geographic location is not as important as in years past, but there are still banking services (e.g., cash transactions, loan applications, document notarization) you’ll need to conduct in person. Since most military installations have on-base banking facilities, your family should consider these for their banking needs when transferring to a new post.
You should also think about costs and fees when choosing a bank. Some accounts, such as a full-feature checking account, may have a monthly fee. Many offer free accounts to military families if you maintain a direct deposit or minimum balance. Be sure to watch out for other hidden costs, such as check return, insufficient funds, wire transfers, and out-of-network ATM fees. These can add up if used frequently.
What Types of Banks Are Out There?
There are five basic types of financial institutions that offer personal banking services:
- Commercial Banks
- Credit Unions
- Savings and Loan Banks
- Virtual Banks
- Brokerage Accounts
A commercial bank provides a wide range of services, but may charge higher fees. A credit union is a not-for-profit enterprise, so their fees are generally lower, but they may only offer access to a few ATMs or maintain limited banking hours. A traditional savings and loan bank offers more personal service and lower fees, but is normally regionally constrained and has fewer branches.
A new entry to the scene of banking is the virtual bank, which has no physical branches, so all transactions are accomplished online or through the mail. Virtual banks normally offer higher interest rates and will be available to you no matter where you are stationed. However, physical deposits must be mailed in or sent digitally. Virtual banks also have limited services for check cashing.
The final type of banking account to consider is a brokerage account. These are offered by investment companies, normally to customers who have other types of investments under management, such as an IRA or mutual fund account. Although a brokerage account offers a higher level of convenience when you invest other funds with the brokerage company, they may require higher minimum deposits and typically limit the availability of loans.
What Type of Banking Account Do I Need?
A checking account (or share draft account at a credit union) is probably the best account if you conduct multiple transactions on a monthly basis. Most checking accounts earn very little, or no interest, especially accounts with small balances. Some banks may charge a fee for each check written as well as monthly service fees. Many banks also now offer “bill pay” services that automatically send payments from your account to other businesses on a periodic basis.
A savings account is useful for families who do not need constant access to certain funds. These accounts are good for depositing funds for future purchases as part of your financial plan. A savings account is also the best place to start contributing toward an emergency fund. Savings accounts may also include a money market account or a certificate of deposit (CD) account, which generally offer better rates of return and lower risk for achieving short- to medium-term financial goals.
What is overdraft protection?
Military personnel should have overdraft protection as a feature of their checking accounts. Overdraft protection is an arrangement with the bank to link more than one account. This helps prevent penalties from writing a check from an account with insufficient funds by linking it to an account that has sufficient funds available. Writing a check against an account with insufficient funds (“bouncing”) is expensive. A bank typically charges anywhere from $25 to $50 in fees for each bounced check. A retailer who receives a bounced check will also charge an administrative “returned check” fee.
Which bank should I choose?
Shop around for a bank that offers free checking and overdraft protection for military families. Other features that may be beneficial to you include:
- Convenient access to ATMs without additional fees
- Convenient physical branches for making face-to-face transactions
- Locations near most major military installations
- Low fees and relatively higher interest rates for deposited funds
- Availability of consumer loans, auto loans, mortgages, and credit cards
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