Banking and Savings 101
Banking and savings are an important aspect of personal finance that isn’t frequently talked about. While it falls under the area of personal finance, many of us assume that in this day and age that nearly everyone is part of a bank or credit union. Surprisingly, there are still large portions of the population that do not use banks. In fact, WorldBank reports that globally 1.7 billion adults remain unbanked, and in the U.S. alone, roughly 10 million households are unbanked.
We put together a few key points to guide you through the basics of banking and savings to eliminate any fear or misunderstanding that may prevent you from utilizing valuable financial services.
- The purpose of a bank: A bank provides various financial services to their customers. Its major function is to gather money from various people and to lend that money out to other people. One of the primary functions of a bank is to take deposits from customers and act as a place for them to store their money. For most people, keeping their money safe and accessible while giving them the ability to pay for good and services is the primary reason they open and maintain a bank account.
- The money you deposit into a bank account is protected: This may be the most important thing to understand about banks. Bank accounts are insured by the FDIC, and credit union accounts by the NCUA. Your money is safe in a bank. If you put money “in hiding” somewhere in your home, it can be stolen, lost, or burn in a fire.
- Compare your banking option: It’s important to comparison shop when it comes to banks and their perks. With a little bit of time and effort, you can find the perfect account and bank for your needs. Do your homework and pay attention to things like fees. In many cases you do pay for the convenience of a bank account, but fees can vary widely depending on many factors. You can compare fees, yields and deposit requirements nationwide. Sites like bankrate.com allow you to search and compare everything from the highest yields and lowest costs to the best loan rates available. You can even go as far as to research by region or location.
- Compare savings interest rates: In many cases, the interest rates for savings accounts paid by traditional banks are low. You may get a higher interest rate if you comparison shop and include online options. Online or internet banks provide you with the same level of FDIC protection, but because they don’t have the same overhead costs that banks with branch locations do, they are more likely to require less fees and provide accounts with no minimum balances and higher interest rates.
- Banks don’t use credit scores to open checking and savings accounts: The good news is that your credit score doesn’t factor into whether or not you can open a checking or savings account. There is, however, a type of credit bureau just for bank accounts that banks use to determine whether you qualify for an account. Typically, banks will review your ChexSystems record. If you don’t pay an overdraft fee or have negative account information (like bouncing checks), your name will end up on the list. This can keep you from opening accounts in the future. Just like with your credit score, you have a right to a free copy of your ChexSystems report every year.
- Watch out for ATM fees: Automatic Teller Machines (ATM) make it easy to withdraw cash from your account when you need it and a local branch of your bank isn’t open. As long as you use an ATM within your bank’s network, the fees to use an ATM are typically included with your account. But ATM fees can take a big bite out of your budget if you regularly withdraw cash at an ATM that isn’t part of your bank’s network. Banks often charge $2-3 to use a different bank’s ATM, then there is usually a separate transaction fee. Beware of those fees that can add up over the course of a year.
- Online Banking and bill payment are important: For many people, taking care of electronic payments through online banking and bill payment is the easiest way to manage monthly expenses. Electronic bill paying can help you not only with managing your bills, but you can also combine your bill payments with your budget and financial planning. Many banks include the ability to pay bills directly from your account with your checking account services.
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