All about banking
What are the benefits of putting money in the bank?
- In the bank, your money is protected from theft, loss, or fire- unlike the money under your mattress.
- You can easily access your cash when it is kept in a bank by visiting an ATM, getting cash back from a retailer, or by making a withdrawal at a bank branch.
- You can set up your paychecks to be direct deposited into your account, which means you will have access to money you earn faster.
- With a bank, you can pay your bills with checks or your debit card. Some banks even offer a service that allows you to pay your bills directly through their online system. Using a bank to pay bills is generally a cheaper option than purchasing money orders. You should never send cash in the mail as it is not protected from theft or loss.
- Depending on the type of account you have and your financial institution, you may be able to earn interest on your savings.
- The Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insures most bank deposits up to an amount specified by law (currently as much as $250,000) which means in the event that the bank went out of business and could not give your money back, the FDIC or NCUA would return the money to you. Look for the FDIC or NCUA logo at your bank to make sure your deposits are insured.
- Banks tend to have lower or no fees for cashing checks, unlike using a check cashing service.
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Types of financial institutions
A bank is a financial institution that accepts deposit and makes loans (such as home loans, car loans, education loans, small business loans, etc). Banks must operate under state and federal regulations.
A credit union is a non-profit organization owned by the group of people it serves. Credit unions accept deposits from members and make loans at low interest rates to those members. Members typically have something in common: they may have the same employer or are members of the same organization. Often times, your savings can earn a higher rate of return at a credit union than at a bank.
Savings & Loan
These organizations are very similar to banks but must have a certain percentage of their assets in home loans since they were initially created to promote home ownership.
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Opening a bank account
To open a bank account, you must go through a process called account verification. The financial institution will ask for basic background information, such as your name, address, contact information, Social Security number and date of birth. This will help the bank identify who you are so expect them to ask for identification, such as a driver’s license, passport, Social Security card or student ID. You can ask the bank which forms of ID they require to open an account before you go.
Once the bank has verified your identity, you may be required to make a deposit to open an account.
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Types of banking accounts
So what type of bank account should you open? There are two major types that you may want to get started with: a checking account and a savings account. Short descriptions of other types of bank accounts are also included below.
A checking account is often the best option for managing your daily finances. With a checking account, you make deposits and use those deposits to easily and safely make purchases or payments with a debit card or by writing a check. You can also quickly access your cash at an ATM, bank branch, or through a retailer. Generally, you do not earn interest on funds in a checking account.
Before opening a checking account, make sure you understand what fees the bank charges. You may want to ask the bank if they offer a checking account for students, as the fees may be lower. Compare the fees at different banks to decide which option is best for you. Some common checking account fees are:
- Monthly maintenance fee
- Minimum balance fee
- Overdraft fee - Occurs when you withdraw more money than you have in your account. Once your account is in overdraft, you may be charged an additional daily fee until your account has a positive balance again.
- Bounced check fee – Charged when you write a check for an amount greater than the amount in your account. The bounced check is returned to the person/business you wrote it out to and not paid. Many businesses will charge you an additional fee for a returned check.
- Teller fee – If you have an electronic checking account, you may be charged a fee to use a teller.
- Check fee – Your bank may put a limit on how many checks you can write per month or may charge a fee for each check you write.
- ATM transaction fee – A fee charged by your bank when you use an ATM at a bank other than your own. You may also be charged a fee by the bank whose ATM you used.
- Stop payment fee – If you lose a check or need to make sure one is not paid for some reason, you can ask your bank to stop payment on that check. Usually, your bank will charge you a fee to do this.
With your check book, you will receive a check register. You should log all purchases, withdrawals, checks, and deposits into your check register to keep track of your funds. By writing down all of your purchases in your check register, you can also can monitor where you are spending your money and what you are spending your money on. This can help you create a personal budget and make adjustments where necessary.
Example check register
Your bank will provide you with a monthly statement outlining all of the transactions you made during a particular month. You should check the statement against your check register to make sure there aren’t any errors on your account or that you didn’t forget to write down a transaction. This is called balancing your check book.
A savings account also allows you to make deposits and withdrawals, although your bank may impose a limit on how often you can do this per month. With a savings account, you can usually access your money or make a deposit at an ATM or bank branch. However, you will generally not have the option to use checks with your savings account. Many banks require that you maintain a minimum balance in your savings account and you may be charged a fee if you go below that amount.
With a savings account, your balance will typically earn interest. Ask the bank if there is a minimum balance necessary for you to earn interest.
With a money market account, you will usually be able to earn a higher rate of interest than a traditional savings account. The bank may require that you maintain a minimum balance on your account, typically higher than the minimum balance on a checking or savings account. Unlike with a traditional savings account, with a money market account you will receive checks to make periodic withdrawals. However, you are limited to a certain number of transactions per month, as determined by the bank.
Certificate of Deposit (CD)
A CD, also referred to as a time deposit, requires that you make a deposit and agree to leave it in your account for specific period of time – anywhere from a few months to several years. The last day of this term is referred to as the account maturity date. In exchange for agreeing to leave your money in the bank for longer than you would have to through a regular savings account or a money market account, your account usually earns a higher rate of interest. If you withdraw your funds from the account prior to the maturity date, you may be charged a penalty fee. If you decide to open a CD, make sure you understand the terms and penalties.
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Be responsible with your bank account:
- Checks may take several days to clear at the bank of the person/business who wrote the check. Make sure any checks you deposit clear before you spend them when possible.
- Only use ATMs at your own bank to avoid fees.
- Log all withdrawals and deposits into your check register. This will help you to keep track of your funds and make sure your account is in balance. This is an important step even if you have access to view your account details online.
- Don’t assume the amount on your ATM receipt or your online account balance is the amount of money you actually have in your account. There still may be purchases you made with your debit card that haven’t shown up or a check may not have cleared yet.
- Balance your check register on a monthly basis. You should verify what you have logged in your register against your monthly bank statements to make sure you didn’t forget to write something down and to ensure there are no errors on your account.
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