One of the most important aspects of being financially successful is learning how to properly manage your wealth. Perhaps the most crucial consideration when managing your wealth – especially at a younger age – is knowing where you should hold your money. If it’s your first time opening a bank account, or if you’re switching banks, you should first familiarize yourself with the five major factors that will most impact your banking experience. It’s crucial to research your options when searching for a suitable banking institution – because they’re betting you won’t.
1. Solid Interest on Savings
There are many different types of banks, ranging from the traditional brick-and-mortar establishments to credit institutions to online-only banks. Typically, with a brick-and-mortar institution, you might earn around .01% in interest on your savings account, if you’re lucky. However, investing in a higher yield savings account, such as those offered by online banks and credit institutions, leads to much higher returns. Compared to brick-and-mortar institutions, online banks in particular can give you an annual percentage yield (APY) of 1.5-2%.
For example, say you were to invest $1,000 into a typical savings account. Over the course of the year, you may have a few cents or even a few dollars returned to you. Scale that up to 2% with an online bank, you would have $20 returned to you in a year’s time. Although that may not sound like a huge return, a savings account that generates more money is very helpful in the long run.
When opening a new bank account, it’s important to consider the fact that interest rates do fluctuate. This is true even with more stable options such as online banks. Interest rates on savings accounts are currently decreasing; however, as they are responsive to the financial market, they will rebound again when the market does. While an average APY of 2% won’t make you rich on the average person’s income, it can help you make a few extra dollars on top of your savings.
2. Free Checking
Why should you have to pay a fee just for a bank to hold your money in a checking account? While an overdraft fee may be reasonable, often time banks charge a “maintenance fee” on your account for not meeting certain criteria. These criteria may include:
- Maintaining a set minimum amount in your account
- Having a minimum direct deposit per check
- Requiring or restricting a set number of debit transactions
It is critical that you watch out for these hidden fees. If left unattended, they can really start to pile up.
Banks do not always take into account your particular financial situation. It’s common for financial institutions to try to squeeze as much as they can out of you through hidden fees. (After all, banks are still a business with the goal to generate profit.)
One way they do so is exploiting unknowing customers through so-called “maintenance fees.” If your bank charges you to use your checking account, it’s probably time to find a new bank.
3. Free ATMs
If you make a lot of cash-based transactions, one of the most important factors to consider when opening a bank account is ATM withdrawal fees. Some banks charge a fee, typically ranging from $1-$4, for every withdrawal transaction at an ATM. With ATMs being the easiest way to access your cash, it is important that you find a bank that will let you handle these transactions at little to no cost.
If you’re considering making the move to an online bank, ATM fees are less of a worry. This is especially true now, much more so than it was several years ago. Many online banks, as well as credit unions, now come with access to tens of thousands of ATMs across the country.
This is possible through the Co-op ATM program which allows users of various financial and banking institutions to access a network of ATMs. This network is comprised of ATMS belonging to a wide variety of different organizations that allow consumers access to withdrawals at no surcharge.
However, if you cannot find a suitable bank that does not offer free ATM withdrawals, you should consider how often you would like to withdrawal and look for a bank that offers the lowest withdrawal fee. A smaller bank with a smaller network may charge smaller fees in-network and are often very convenient. In fact, some smaller institutions offer perks such as reimbursement of fees some ATM fee charges. Financially speaking, a total of $10 per month in withdrawal fees is where you should set your limit.
The following institutions offer ATM withdrawals free of charge:
- Axos Bank
- Radius Bank
- Alliant Credit Union
- Charles Schwabb Bank
- PNC bank
These institutions not only let you use their machines for free, but they will reimburse you for any ATM fees incurred on out-of-network ATMs.
4. Online Access
In addition to having physical access to your funds, it is very beneficial when you can have access to your account at any place or time. Nowadays, almost all banks and credit institutions have an online website where customers can easily view their financial information. Most also allow users to perform simple financial transactions, such as making and scheduling account transfers.
Online transfers take under ten seconds and are free to set up. In some cases, the rules of in-person banking may apply. If this is the case, then your funds may not be accessible for 24 hours or more. It’s important to know your bank’s policies on transfers before opening a new bank account, regardless of the specific institution.
Some banks even have their own mobile apps as well. Many now include the ability to remotely scan and upload a physical check into the app. After a hold period of 3-5 business days, your account will receive the funds without you ever having entered a bank.
Online access is particularly useful for account holders who like to keep a detailed log of their financial records. If you do not have that option to do so, it may make it more difficult to manage your finances.
5. Reasonable Overdraft Policies
If you’re floundering to gain financial footing, it’s imperative that you don’t let your institution kick you while you’re down. One of the easiest ways for a bank to take advantage of a struggling individual is to charge excessive overdraft fees.
Overdraft fees are fines that occur when you make a purchase or withdrawal greater than the amount of funds available in your account. As soon as the first penny crosses that from $0.00 to -$0.01, financial institutions will slap a fee down.
The average overdraft charge for a credit institution falls around $26. This is a small mercy compared to the average overdraft fee for a brick-and-mortar bank, which now sits at $35. In addition, banks often charge overdraft fees per transaction. This means that multiple transactions processed in a day results in multiple fees. Most of the time, banks won’t give you a chance to rectify the situation, either.
You should also beware of banks with a reputation of switching the order of your transactions. This is a move that some less scrupulous banks will make in order to charge accountholders extra fees.
For instance, if you have $50 in your account and make transactions in the order of $25, $25, and $50, you would receive one overdraft fee. However, your bank’s system automatically rearranges these transactions. In our example, your account would be charged $50, $25, and $25, resulting in two overdraft fees.
Three Ways to Avoid or Reduce Overdraft Fees
Link Your Accounts
Some banks allow customers to connect various accounts (such as savings to checking) in case you exceed your available balance. This feature is free at some institutions, while others charge a transfer fee around $10. While it’s still a cost, it’s much cheaper than paying multiple fees for in a day. (It should be noted that if the backup source of funds is a line of credit, then customers will have to pay interest on the funds.)
Opt Out of Overdraft Coverage
Financial institutions often require that you sign up for overdraft protection when you open an account. Banks have these regulations in place to prevent those embarrassing moments of your card declining in public – but also so they can collect their fees. However, it’s possible to decline overdraft coverage. While this means you may experience having your card rejected in a crowded grocery store, you won’t have to worry about paying extra fees.
It’s important to note that if you write a check that overdrafts your account, you can still be charged a nonsufficient funds fee even if the check is returned by the accepting business.
Consider Banks That Don’t Offer Overdraft
While you can always opt out of an overdraft program at a financial institution, you also have the option to completely avoid overdraft fees completely.
As previously noted, any debit transaction in which you do not have sufficient funds for the purchase will be automatically declined.
Generally speaking, some banks have policies that limit the number of overdraft fees they will charge a customer per day. Others do not have overdraft programs and will not charge any overdraft fees at all.
What You Need to Open a Bank Account
Once you’ve found a bank account that seems to suit your needs, it’s time to actually sign up. While every bank has its own requirements on what you’ll need to bring with you to open a new account, some of the most common are listed below:
- A government ID, such as a driver’s license, passport, or nondriver’s ID
- Social security card/number or tax ID number
- For some banks, an initial deposit
- A co-owner, if you’re under 18
- Proof of geographic location or community membership for credit unions
All that’s left to do to activate your account is take your materials to a (gasp! people!) branch of your chosen bank and fill out the application. Some banks will allow you to apply online if you can provide the required resources.
After Opening Your New Bank Account…
Applying for a new account doesn’t take too long, but there are a few things to do after opening a new account:
- Close out any old, unwanted accounts
- Provide your new account information to your employer for direct deposit
- Redirect automatic bill payments
- Download any mobile apps and accept email alerts
- Destroy any old cards or paper checks
- Move any items in your old bank’s safe deposit box to your new bank, if you choose a brick-and-mortar location
- Get a written statement from your old bank that your account has been closed and ask about re-opening policies, as some banks will reopen your old accounts to honor automatic payments, thus incurring sneaky fees