I generally use a 2.5 inch folded in half with a 3/8" seam allowance. You want to have your binding a little wider in the back to cover your stitching. If you want the wider part in the front then stitch it on to the back first and then hand stitch it to the front.
Things to consider: If you use a border then the width of your seam allowance can be varied. If you don't have a " border and you are applying the binding next to a block then you have to go with 1/4" seam allowance so your block won't be off and you won't lose points etc.
When you are mitering your corners remember to stop the distance of your seam allowance. If you use 1/4" seam allowance you stop 1/4" from the end. If you are using a 3/8" seam allowance however you will stop 3/8" from the corner; 1/2" seam allowance, 1/2" from the corner.
You want your binding to be full - in other words the batting needs to fill the width of the binding. If you use 1/4" seam allowance and a wider binding then your binding won't be full to the fold.
Hope this all makes sense...