People often select their banks based on things like the nearest branches, national market presence, or the number of nearby ATMs. The only thing some folks need is a branch in the neighborhood. That's why big national companies such as Bank of America (NYSE:BAC), Wachovia (NYSE:WB), and Wells Fargo (NYSE:WFC) still spend money building new branches.

But if you just pick the closest bank, you might be paying more for some services than you think -- and some of the alternatives may have surprising benefits.

Let's consider checking accounts. Most of us don't think much about them, and since nearly all banks seem to offer some form of "free checking," there doesn't seem to be much need to comparison-shop.

"Free checking" isn't
But here's a shocker: There's no such thing as a free lunch! One way or another, whether the bank is paying you little or no interest or charging hidden fees, the bank is making money on that "free" checking account. As the Fool's banking primer points out, nearly all individual checking accounts, no matter their name, fall into one of three basic categories:

  • An account that requires a fairly high minimum balance, pays no interest, and offers low fees, usually called something like "economy checking."
  • An account with a lower monthly balance, designed for low-income earners, that also pays no interest and offers low fees -- unless you dip below the minimum monthly balance, at which point the fees go up, usually referred to as something like "basic checking."
  • An account that pays a very low rate of interest, charges low monthly fees but high fees for your mistakes ($35 or more per bounced check, for instance), and requires a high minimum balance, usually billed as "high-interest checking," "checking plus," or something similar.

The surprise here is that the high-feature interest-bearing account usually isn't worth it. For instance, Wachovia's "Crown Banking" checking account requires a minimum $4,000 balance just to avoid fees -- and currently pays an underwhelming 0.05% interest rate on that balance. No, that's not a typo, that's really one-twentieth of one percent. If you go below the $4,000 minimum, you have to pay a $20 monthly service charge -- and you don't earn interest. As I pointed out a few weeks ago, there are plenty of risk-free ways to earn 4% or more on that $4,000.

See what I mean about "free" checking? For most Fools, the no-interest "economy" accounts may be the best bets overall.

Checking out alternatives
Before you go down to the local big-name branch, consider some smaller local banks, credit unions, and even Internet-based banks. I'm a big fan of credit unions, which can offer higher rates and lower fees because of their nonprofit status and often have friendlier service, too. For instance, my favorite local credit union's "Dividend Checking" package requires a minimum balance of $2,500 (with an $8 monthly fee if you go below the minimum) and pays 0.25% interest. That's still lousy interest, but it's five times what Wachovia is offering -- with much lower fees and minimums! What's more, I can quickly get an actual human on the phone if I have questions -- often a big time-saving benefit.

Internet-based banks can be a boon if you already use personal-finance software such as Quicken or Microsoft Money. While many bricks-and-mortar banks and credit unions offer online banking with similar features, banks that are purely Internet-based can (theoretically) offer strong interest rates with very low fees, together with a solid range of services.

If you are interested in exploring the online route further, check out's listings of the banks with the best rates, and check the fees carefully before signing up-- Internet banking fees have been on the rise in recent years, even as bricks-and-mortar bank fees have been trending downward.

There may be no free lunches, but you can still find some good bargains if you look closely enough.

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Fool contributor John Rosevear's wife talked him into joining her credit union when they started dating, and he's never looked back. He doesn't own shares of the companies mentioned in this article. Bank of America is an Income Investor recommendation. The Motley Fool's disclosure policy pays the highest rate of interest in the disclosure-policy industry.