Which Bank Is Right for Me?

Banks operate to make money — including credit unions, which are non-profit. They earn it in a few ways. They borrow money using your deposit at low cost and lend it out at a higher interest rate; the difference, less any bad loans, is their main source of profit. The second source is fees. Every bank has a long fee schedule. The most common are a monthly account-maintenance fee, ATM fees, overdraft or NSF fees, wire fees, and more.

A desirable customer for the bank is someone who deposits a large amount of money, or someone who uses a lot of services and triggers a lot of fees. One of the largest fee incomes for banks is the overdraft fee — and 80% of it is paid by the poorest 20% of customers. So you may be a desirable customer not because you're rich, but because they can charge you a lot of fees.

Many of these fees are waived if you keep a large balance in your account. For everyone else who doesn't have thousands in spare cash sitting in the bank, you'll be charged one fee or another.

Questions to ask yourself first

• Would this be my main bank to receive wages and pay all expenses?
• How often will I have less than $500 in my account?
• How often do I use an ATM for cash withdrawals?
• Do I need to write a physical check?
• What banks are close to me?
• Does my employer offer direct deposit?
• Am I going to use a debit card as my main way to pay expenses?

Fees to avoid: out-of-network ATM fees

This fee is charged when you use an ATM owned by a different bank or a private operator — like the small ATM in a convenience store. Bank-owned ATMs charge $2.50 to $3.00 per transaction. Private ATMs charge even more. The average out-of-network ATM fee in 2023 was $4.73 — the highest ever. When you take $20 out of one of these ATMs, you just paid $25 for it.

Always take your cash out from your own bank's ATM to avoid these fees.

Debit resequencing: how banks charge multiple overdraft fees in one day

"If you have, say, $100 in your account and a few checks you've written — one for $75, one for $125, and one for $25 — the bank will look at those three charges hitting your account and order them in a way that maximizes the overdraft fees."

Here's how that plays out. There's $100 in your account, with charges for $75, $25, and $125 all coming through on the same day, in that order. If the $75 and $25 charges clear first, your balance hits $0 and you only overdraft when the $125 charge lands — one overdraft fee. But if the bank reshuffles so the $125 charge hits first, your account immediately goes negative, and the remaining two transactions ($75 and $25) both incur overdraft fees.

Say your bank charges $35 per overdraft. In the original order, you pay a single $35 fee. In the resequenced order, those fees jump to $105.

How to protect yourself from overdraft fees

1. Don't "opt in" to debit-card overdraft coverage. Your bank or credit union can't charge you an overdraft fee on a debit-card or ATM transaction unless you opt in to coverage for these.
2. Link your checking account to a savings or money-market account. If you run out of money in checking, the bank pulls from the linked account to cover the transaction. Many institutions charge a fee for this transfer, but it's generally lower than a per-item overdraft or NSF fee.
3. Track your balance closely. If your bank offers them, sign up for low-balance alerts so you know when you're at risk of overdrawing.
4. Switch to a checking or prepaid account that doesn't authorize overdrafts. Note that some no-overdraft accounts still charge NSF fees for returned checks and electronic (ACH) payment attempts.