Takeaways
- The three bank categories are traditional banks, credit unions, and online banks.
- Popular bank differentiators are mobile apps, interest rates, and credit products.
- You can optimize your personal finances by holding accounts at different banks.
- Closing a bank account can be easy and streamline your personal finances.
- Choose a bank that suits your long-term financial needs and gives you access to credit and savings products that optimize your finances.
What Is a Bank?
A bank is a financial institution that provides a safe place for individuals and businesses to deposit money, access credit products, and manage their personal finances. Banks are essential to the credit and capital markets, offering account holders access to checking and savings accounts, business loans, credit cards, and investment products, like certificates of deposit. Banks allow money to flow throughout the economy, secure transactions, and promote economic stability.
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Types of Banks
When it comes to banking, there is no one-size-fits-all solution. The best bank for you and your finances will depend on your lifestyle, financial goals, and service preferences. Here are the three primary types of banks you should consider, each with advantages and disadvantages. Here are the three to know:
1. Traditional Banks
Traditional banks are the most prominent and familiar type of financial institution. These banks have historically operated through physical branch locations and offered face-to-face customer service. They typically provide a full range of financial products, including checking and savings accounts, mortgages, car loans, and investment services. Many traditional banks are part of an extensive national network of ATMs and branches.
To keep up with the changing landscape of technology and account holder preferences, these banks have started offering sleek websites and mobile apps. The competitive edge these banks once held has dissipated over the last several decades with the proliferation of competitive credit unions and online banks.
>> Need access to cash? Read about How an ATM Works
Smart Tip:
When choosing a bank, make sure it is insured by the Federal Deposit Insurance Corporation (FDIC). Why? Your funds are covered up to $250,000 per eligible account.[1]
2. Credit Unions
Credit unions are member-owned financial cooperatives that operate on a not-for-profit basis. They should be considered when choosing a bank. Because they are not-for-profit, they don’t try to maximize profit for shareholders. Instead, credit unions pass savings to their members through reduced fees, which members love.
Credit unions can be the perfect fit for your finances, especially if you want competitive financial products. Credit unions often offer better interest rates on loans and lower fees on accounts. Membership may be limited to specific groups, such as employees of a particular company, residents of a certain area, or members of a specific organization.[2]
If you want to be a member of a financial institution that serves and gives back to its community, a credit union could be the right fit for you. You can choose a credit union that supports a local cause, community, or university.
Smart Tip:
Want to sign up for a credit union? Make sure it is insured by the National Credit Union Administration (NCUA) because your funds are covered up to $250,000 per eligible account.[3]
3. Online Banks
Online banks operate entirely through digital platforms and do not have physical brick-and-mortar locations. These banks have shed the traditional real estate and offices used by conventional banks and passed those savings onto account holders.
Due to reduced overhead costs, online banks often offer higher interest rates on deposits and lower fees. They attract account holders who have “on-the-go” lifestyles or genuinely prefer frictionless banking.
Online banks are ideal if you prefer managing your finances digitally and do not need in-person banking. While you may not have access to in-person service, many online banks provide 24/7 customer support through chat, phone, or email. However, as your finances get more complex, this can frustrate account holders. Some account holders use online banks to access the best high-yield savings accounts.
7 Steps to Choose the Best Bank
Selecting the best bank for your needs requires thoughtful consideration. Here are seven steps and filtering criteria you should use as you make your decision:
1. Use FDIC-Insured Banks
Always check that the bank you sign up for is insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) if it is a credit union.
You don’t want to be in a state of panic if the bank has an issue and runs out of cash. If, for whatever reason, the bank or credit union fails, the FDIC or NCUA insurance protects your deposits up to $250,000 per depositor, per institution. Spreading your holding account to multiple accounts and banks can be a smart money move.
>> Do you have complicated finances? Learn how to Automate Your Finances in 7 Steps
2. Read Online Reviews
Before committing to a bank, read online reviews to see what current and past customers have to say. You can use websites like the Better Business Bureau, Trustpilot, and Google Reviews to give you insights into other customers’ experiences.
You might quickly notice red flags or glowing recommendations. Either way, you should source internet reviews and feedback on the bank or credit union and its products.
>> Need more? Learn about the 6 Types of Checking Accounts
3. Consider Convenience
Banking convenience should be a significant consideration unless you want to build your day around going to the one ATM available. These days, convenience isn’t limited to brick-and-mortar locations but also to mobile use. Evaluate the following factors:
- ATM Locations: If you frequently withdraw cash, choose a bank with an extensive ATM network or one that reimburses you for out-of-network ATM fees.
- Branch Locations: Select a bank with branch locations near your home or office if you prefer in-person banking.
- Online Access: Look for a user-friendly website and online banking features that make transferring funds, paying bills, and monitoring account activity easy.
4. Compare Banking Products
Different banks offer different products, and the range of offerings can vary dramatically. When evaluating options, consider the full suite of services they provide:
- Checking Accounts: Compare fees, overdraft policies, and monthly maintenance requirements.
- Savings Accounts: Look at their accounts' annual percentage yield (APY), withdrawal limits, and minimum balance requirements.
- Credit Cards: Review what credit cards are offered and their associated reward programs, interest rates, and annual fees. (Read about our picks for the Best Credit Cards).
- Business Loans: If you want to start your own business or are a current business owner, check loan terms, approval processes, and customer service tailored to business banking. (Read about When to Set Up a Business Bank Account).
- Certificates of Deposit (CDs): Evaluate the interest rates and terms for fixed deposits if you want to grow your savings. Not all CDs are equal, so make sure you can easily access your funds once your term expires. (Read our picks for the Best Certificates of Deposits).
5. Referrals from Family and Friends
One of the best ways to find great banking solutions is to simply ask people you trust about what banks or credit unions they use.
Friends and family can point you to institutions providing outstanding customer service or share cautionary tales about poor service or hidden fees. There might be an excellent credit union or local bank that could service all your personal finance needs.
6. Mobile App and Website
You won't want to compromise on a bank's technology suite. A reliable mobile app and website are absolutely essential in today's economy.
Look for features like mobile check deposit, automatic bill pay, budgeting tools, and alerts. The bank's digital experience should be intuitive, secure, and functional across multiple devices.
7. Completing Your Due Diligence
Before opening an account, read the terms and conditions thoroughly associated with each banking product: savings account, checking account, CD, credit card, or personal loan.
Pay close attention to fees, account minimums, interest rates, and service limitations. Call or visit the bank to ask any remaining questions to prevent unwanted surprises later.
>> Ready to start? Read about how to Open a Savings Account in 6 Steps
Smart Summary
A bank is a financial institution where you can stash your cash. It provides access to business and traditional loans and offers a variety of financial planning services to help you manage your finances. Choosing the best bank for you depends on your personal preferences and financial goals. By carefully researching your options, you can find a bank that supports your financial needs and makes managing money easy.
Frequently Asked Questions
Analyzing a bank’s reputation is vital to choosing the best bank. Peruse customer reviews and ratings on third-party websites and check the bank’s financial statements. Reviewing a bank’s reputation can save you time and frustration and let you open an account with eyes wide open to potential bank deficiencies or customer service pitfalls.
Almost all traditional and online banks offer super-streamlined apps and websites. Online banks traditionally dominate the market when it comes to their technology suite–mobile apps, payment systems, and website design.
Banks offering promotions or special account features shouldn’t charge you fees (unless terms apply). Look at a bank’s fee structure and ask why and when fees are charged. You might incur fees by dipping below minimum account balances or exceeding maximum account transfers. Understand your bank’s fees before signing up. Read about How to Open a Checking Account.
Smart Money requires our expert writers to rely on trusted primary sources—academic research, government reports, expert interviews, original reporting, and peer-reviewed data—to deliver precise and up-to-date content. All of our content is thoroughly fact-checked. We also incorporate relevant research from reputable publishers when it aligns with our editorial focus. For a closer look at our rigorous journalistic standards, explore our editorial guidelines.
(1) Federal Deposit Insurance Corporation. Deposit Insurance FAQs. Last Accessed April 16, 2025.
(2) MyCreditUnion.gov. What is a Credit Union? Last Accessed April 16, 2025.
(3) National Credit Union Administration. Mission and Values. Last Accessed April 16, 2025.
