Why You Need a Bank and How to Choose the Best One
Advertiser Disclosure: Our first priority is to provide valuable information to help our readers gain insight into financial topics. Although we receive compensation from some of the brands listed on our site, we only highlight companies we believe can benefit our readers and their financial situations.
Six percent of adults didn’t have a bank account in 2022. If you’re one of the people in this group, the prospect of opening and managing a bank account probably feels intimidating and maybe even unnecessary.
But the alternative—not having a bank account at all—is often much worse.
According to a survey from the Federal Reserve, people who don’t have a bank account are more likely to use risky and expensive services like Buy Now, Pay Later (BNPL) loans and money orders. On top of that, not having a bank makes sending and receiving payments (including your paycheck) a major hassle.
Reasons You Need a Bank
Even if you have mixed feelings about banks, the services they provide are fundamental to managing money. By opening just one checking account, you get the following benefits:
Insurance and Fraud Protection
Most banks and credit unions offer FDIC or NCUA insurance on your accounts, which means you won’t lose your money if the bank fails. By contrast, you may not recover any cash if your money isit’s stolen, lost or burnt in a house fire.
Plus, unlike with cryptocurrency and payment apps, banks are legally required to refund you for account errors and fraudulent activity. Most bank accounts also allow you to set up alerts for suspicious activity, and many offer complimentary credit score monitoring.
More for Your Money: Say no to monthly fees.
Convenience and Cost Savings
If you have a bank account, you can have your paycheck deposited directly to the account, make electronic payments from the account and set up recurring, automatic payments for your bills. That means no more having to visit check-cashing stores, hand over cash or checks in person, or pay to send money orders.
As an added benefit, bank accounts typically reward you for doing business with them by paying you interest on the cash you deposit.
Access to Financial Products:
You might have trouble getting approved for a loan without a bank account. While it can be easier to get a credit card with no bank, it’s difficult to make credit card payments without an account to send the money from. In other words, you’ll have an extra roadblock to getting financial products, making on-time payments and building credit.
Main Features to Look for in a Bank
There are so many banks and credit unions to choose from that you might find the decision overwhelming. You can narrow down your options by looking for a bank that offers the following:
- FDIC insurance (or NCUA insurance, for credit unions)
- Minimal account fees, including ATM fees and monthly maintenance fees
- Low or no minimum balance requirements
- High interest rates (in comparison to other banks) on the accounts you want
- Accessible locations and business hours
- Positive online reviews from customers
- Membership requirements you qualify for (for credit unions)
Categories of Banks
There are a handful of different types of banks to choose from. What makes each type different is generally the services they offer and whether their purpose is to earn money for a group of shareholders or for their members.
Finding a local credit union is a fairly popular choice, since credit unions are built to serve members. These financial institutions generally offer higher savings rates, lower fees and lower interest rates on loans than banks do. However, you’ll have to check and see if you meet the credit union’s requirements for membership based on your job, where you live or another affiliation.
You might choose a traditional, in-person bank if you don’t qualify for credit union membership, or if you find a bank that offers the account features you want.
There are also online-only banks, which have some significant differences compared to traditional banks. They don’t have physical bank branches, which means you can’t do things like directly depositing cash, but they typically offer lower fees and higher interest rates than in-person banks.
What to Watch Out For With Banks
Many people report having very little trust in banks, and it’s not without good reason. In an era of major bank collapses and data breaches, it’s healthy to practice caution about where you keep your money.
When you’re looking for a bank, these are some red flags to search for up-front:
- Difficulty finding details about account fees and deposit requirements.
- Inability to get in touch with a bank representative, whether via chat, over the phone or in person.
- Poor ratings with the Better Business Bureau and/or a high incidence of customer complaints compared to other banks.
- Recent class-action lawsuits against the bank, or issues with the Consumer Financial Protection Bureau (CFPB) or other regulatory agencies.
More for Your Money: Say no to monthly fees.
Learn How the Pros Invest
Resolve Unpaid Taxes
Use Motley Fool's Stock Advisor To Invest
- Over 100 Stock Picks with 100%+ Return
- Averaged Stock Pick Return over 350% (vs. 120% for the S&P)1
- 2 New Stock Picks Every Month
- Investment Community With 700,000+ Loyal Members
- 30-Day Membership-Fee-Back Guarantee
- Joy Wallet Reader Deal: The Motley Fool is offering its top stock-picking service for $79 for new members (Limited Time)2
Get started with invested with the platform trusted by the pros
Main Types of Bank Accounts
If you’re searching for a bank for the first time, you probably don’t need any big bells and whistles. A checking account, and ideally a separate savings account, are enough to get your finances on a better path.
But understanding the differences between common types of bank accounts can help you maximize bank services if/when you’re ready. Here’s what most banks offer:
- Checking Accounts: Easily accessible accounts that earn very little interest but are good for receiving payments and making everyday transactions
- Savings Accounts: Meant for funds you’ll need access to in the future, such as your emergency savings or a down payment on a car. Interest rates are generally higher than on checking accounts, especially if you open a high-yield savings account (HYSA).
- Money Market Accounts: Similar to savings accounts but often with additional requirements and features, including a minimum required deposit and tiered interest rates based on the amount you keep on deposit.
- Certificates of Deposit (CDs): Account-holders must agree to leave their money in a CD for a set period of time, ranging from several months to several years. Generally, the longer the term of the CD, the higher interest rate you’ll earn on your deposit.
In addition to these accounts, banks typically offer a range of financial products, including various loans and credit cards. If you’re looking for a product that can help you start building credit from scratch, consider applying for a secured credit card at your bank or credit union, since you don’t need good credit to qualify. Instead, you qualify by making a cash deposit with the bank.
Sign Up To Gain Insight On Other Financial Topics
