Even if you’ve saved very little money, you need a basic checking and savings account. If nothing else, it will allow you to avoid the often steep fees that many banks charge to cash checks from non-customers as well as the hassle and expense of buying money orders to pay bills.
1. What are My Options?
Banks are for-profit businesses, and most communities have at least a couple of banks. Some are large regional or national banks with branches in many cities. Others are local community banks with only a few locations, while others are focused on commercial (business) customers.
Savings and loans (S&Ls) were originally started to help people who didn’t have a lot of money save to buy homes. These days most S&Ls offer services similar to banks.
Credit unions were also started with a similar goal of helping those who didn’t have much money get access to banking-type services. But instead of being for-profit businesses, they are non-profit cooperatives owned by their members. However, both S&Ls and credit unions may be small or large, depending on the community they serve.
2. What Type of Account(s) Do I Need?
- Checking Accounts allow you to write checks to access your funds. A checking account is convenient if you want to pay bills by mail or in person. It is usually cheaper than purchasing money orders to pay bills and is safer than carrying cash. You’ll find many options for free checking, but those accounts may require a minimum balance or charge service fees for certain types of transactions. Always review the list of fees before choosing a checking account.
- Savings Accounts often allow you to earn interest on the funds in your account. Maintaining a minimum balance in your savings account, if it is tied to your checking account, may help you meet minimum balance requirements for free checking.
- Tip: Compare your bank’s checking account interest rate to an Internet bank high-yield checking account, which can even be linked to your own bank’s checking account!
- ATM or debit cards allow you to withdraw cash from any Automatic Teller Machine (ATM), though fees may apply when you use “foreign” ATMs, ones that don’t belong to your bank. Many ATM cards also carry the MasterCard or Visa logo, which means they can be used to make purchases virtually anywhere those credit cards are accepted.
- Know the rules: Some merchants may require you to use a Personal Identification Number (PIN) when making a debit purchase. Some debit card issuers may charge fees for purchases where you use a PIN number versus those where you do not enter a PIN because the fees they receive from the merchant are lower on those transactions. You should also learn whether you will pay a transaction fee if you use your debit card to get cash back from a merchant.
3. Where is Most Convenient?
Many people choose a financial institution close to home or work. Others may choose to bank at the same financial institution where their paychecks come from (in order to get access to their money as quickly as possible).
Find out what the hours are at the banks or credit unions you’re considering. Do you need Saturday teller service or will an ATM work for you on the weekends? Do you travel frequently? If so, a bank with branches in multiple cities may be the most convenient.
ATM fees can quickly add up, so if you are likely to need access to cash during evenings and weekends, choose a bank with a large ATM network to avoid fees.
Tip: If you are thinking of joining a credit union, find out if it offers “shared branching.” With shared branching, you can use the more than 2500 member locations to cash checks, make deposits and withdrawals, make loan payments, transfer funds, etc. This means that even if your credit union isn’t in the most convenient location, a shared branch location may be.
4. Is My Money Safe?
You’ve probably seen those “FDIC-insured” stickers on bank doors or teller windows before, but you may not have understood entirely what they mean. The FDIC – short for the Federal Deposit Insurance Corporation – is an independent agency of the United States government. The FDIC protects you against the loss of your deposits if an FDIC-insured bank or savings association fails. Protection is usually available up to $100,000 per depositor, per bank, but higher coverage may be available for accounts that fall in different categories and for retirement accounts.
It’s important to understand that FDIC coverage only protects you if your bank fails, but not if you lose money due to investment choices.
To check whether your bank or savings association is insured by the FDIC, call toll-free 1-877-275-3342, use the FDIC Institution Directory or look for one of these signs where deposits are received. (For simplicity, the term “insured bank” is used to mean any bank or savings association that has FDIC insurance.)
If you belong to a credit union, the National Credit Union Administration offers similar coverage.
5. Will My Past be a Problem?
Some financial institutions will use organizations like ChexSystems or Telecheck to learn whether a potential customer has a history of bounced checks. Some will not allow you to open an account if you have any unresolved bills reported to one of these consumer bureaus, while others will not open an account if you have any negative history listed.
You can check whether you have a file with these companies for free (once each year) by going to Chexhelp.com and Telecheck’s website. If you have a consumer file with either agency, they will offer instructions for disputing mistakes. If the information is accurate, you will have to look for a financial institution that doesn’t check with those agencies.
6. What Happens if I Bounce a Check?
Americans bounced hundreds of millions of checks each year. Not only can a rubber check land you in ChexSystems or Telecheck’s databases, but it will also cost you a pretty penny. The average bounced check fee is over $27, and in most cases you will also pay a bounced check fee to the merchant, which can be $25 or more, depending on where you live.
Many companies now are using electronic check conversion to get paid when they receive a check. That means they can get the money from a check they receive within hours, instead of in a couple of days when the check clears. This also means that if you don’t have enough money in your account, you may not have time to make a deposit before the check is presented to your bank for payment.
While balancing your checkbook and keeping enough cash in the account to cover all your checks is the best way to prevent a bounced check, mistakes do happen. Find out what your bank’s policy is when this happens, and ask whether you can set up an overdraft line of credit to cover yourself. While overdraft lines are usually not cheap (they also carry fees and interest), it may be cheaper than an overdrawn account. If you have a savings account, you may be able to tie it to your checking account as a back up.
7. What’s In the Fine Print?
The saying “the devil is in the details” may be true, but more likely it’s in the fine print. Make sure you ask for:
- A complete written description of account fees.
- A description of ATM fees and information on locations where free access is available.
- Details for debit card fees if you plan to use your card to make purchases.
- How many free checks you can write each month and minimum balance requirements.
- Information on how to order copies of cancelled checks if you do not receive them with your statement. (You may be able to print copies for free online if you need them in the case of disputes, or to keep track of important payments like rent.)
- Information for contacting your financial institution if your ATM or debit card is stolen or if you suspect fraud with your account.
- The phone number to call the bank for questions about your account and the hours that service is available.
- How to access online banking and what the fees are.
Then start a file at home to keep information about your bank account handy!