Banks are an essential part of our economy.  For an individual, a bank will receive your pay deposits, allow you to make purchases through a checking or debit account, and provide a source of funds for a major purchase, such as a home mortgage or car loan.

How do I choose a bank?

Convenience, expenses, and fees are the most important factors when choosing a bank.  You would like to have access to your account and the bank’s services, and thus convenience is a major concern.  Most banks have online and mobile banking services and a network of ATMs.  Thus the geographic location of your bank is not as high a priority as in years past.  However, many banking services must be accomplished in person (cash transactions, loan applications, notarized documents).  Most military installations have on post banking facilities, and a family should consider these reliable locations for their banking needs when they transfer to a new post.

You should also consider costs and fees when deciding on a local bank.  Some accounts, such as a full-feature checking account may have a monthly fee.  Many banks offer free accounts to military families if a direct deposit or minimum balance is maintained.  Watch out for other hidden fees, 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 bank, credit union, savings and loan bank, virtual bank, and brokerage account.

A commercial bank provides a wide range of services, but may charge higher fees.  A credit union is a not for profit enterprise.  Thus, a credit union’s fees are generally lower, but they may only offer access to a few ATMs or limited banking hours.  A traditional savings and loan bank will offer more personal service and lower fees, but are normally regional constrained, so the number of branches will be limited.

A new entry to the scene of banking is the virtual bank.  A virtual bank has no physical branches, and thus 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.  The drawback is that physical deposits must be mailed in or an image sent.  Virtual banks 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 if other funds are invested with the brokerage company, higher minimum deposits may be required, and typically the availability of loans is limited.

 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 multiple transactions are conducted on a monthly frequency.  A checking account can earn interest, but more commonly earns very little to no interest for accounts with small balances. Some banks may charge a fee for each check written as well as monthly service fees.   Many banks 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 a good place to for depositing funds for future purchases as part of your financial plan.  A savings account is also the best place to start contributing towards an emergency fund (discussed in a later module).  Savings accounts may also include a money market account and/or a certificate of deposit (CD) account, which generally offer a better rate of return and are offer low risk for achieving short-term and medium-term financial goals.

What is overdraft protection?

Military personnel should have overdraft protections as a feature of their checking accounts. Overdraft protection is an arrangement with the bank to link more than one account to help prevent a check written from an account with insufficient funds when a linked account has the sufficient funds available.  Writing a check against an account with insufficient funds (“bouncing”) is expensive.  A bank typically charges from $25 to $50 in fees for each bounced check.  A retailer who receives a bounced check for a purchase will also charge an administrative fee.

What 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


For an individual consultation concerning your financial planning questions, contact a Member Services Advisor at AAFMAA at (800) 522-5221.

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