Banking accounts add a high level of convenience for basic money management. Banks typically offer checking and savings accounts, credit cards, loans, mortgages and investments. They can be found online or in brick and mortar stores. Checking accounts offer a place to park your paycheck and a vehicle for paying bills and monitoring spending. Debit cards have made account access easy and convenient.
However, the trouble with banking in general, and checking account specifically, is that they come with lots of rules and regulations that can be confusing for the average consumer. To help you understand the ins and outs of checking accounts, here are 12 fundamental things you must know.
- Monthly Account Fees. All banks are not alike when it comes to checking account fees and stipulations. Most accounts come with minimum balance requirements that must be met, or significant account restrictions, in order to avoid a monthly fee. When selecting an account think about how the account will be used and whether or not you will be able to consistently meet the requirements to avoid the fee. Paying $15 to $20 a month for the privilege of having a checking account can add up to $200 or more per year, and is completely unnecessary. Some accounts require direct deposit, restrict teller usage, or limit the number of transactions that can be made for a free account. Others have balance requirements that can be either minimums or average balance, which can be met to establish a free account. For minimum balances, going under a single day will result in the fee being charged. Most account requirements can be met through a combination of accounts including savings, loan, or credit card.
- Understanding Overdraft Protection. New laws make it easier to avoid overdraft fees, by having transactions declined if there is not enough in the account. However, declines only apply to debit card purchases. Checks clearing and bill pay can result in overdraft fees from both the bank and the recipient. Having an overdraft account to draw from can prevent this from occurring, but if the overdraft account is short, a fee will still be charged. The average overdraft charge is $35 per transaction. Some banks offer free transfers from overdraft accounts, while others charge between $5 and $10 for the service. Overdraft accounts might include lines of credit, credit cards, or savings accounts.
- Know The Costs of Cash Advances. Using a credit card to access cash is expensive. There is the cash advance fee and the high interest rate to consider. Using a PIN number to access cash through an ATM or covering an overdraft will result in a cash advance rather than a purchase. Cash advances waive the interest grace period, and interest begins the day of the advance. A cash advance fee of 3% to 5% is typically charged with possibly a minimum of $10 for small advances. These transactions also come with a higher interest rate that ordinary purchases, making accessing cash through your credit card a very expensive alternative.
- There is a Difference Between NSF and Overdraft Fees. NSF stands for non-sufficient funds. This fee is charged when the bank declines the transaction. An overdraft fee is charged when the bank covers the difference and pays the transaction sending your account in the negative. While the bank fees are the same for both transactions, the recipient can charge an additional fee for NSF items. Banks used to put the highest dollar transactions through the account first, which led to multiple fees on smaller transactions. Now, they are required to submit items in the order they are received. This can result in lower overall fees. To avoid fees, pay close attention to your account, including holds that have not cleared, and have an overdraft account set up in the event of oversights.
- The Truth About Holds. When you do not watch your account closely, holds can result in overdrafts. Using a debit card almost always results in a hold which can last up to 3 days before the transaction clears. The trick is that some account holds like gas and restaurant purchases do not hold the full amount of the purchase. If you fail to keep a register, you may think you have more money in the account than you do. That $1 gas station hold will hit the account for the full amount of your purchase.
- Debit Purchases and Returns. Refunds can take up to a week for the money to be returned to your account. With a checking account, this factor ties up funds until the refund is complete.
- Savings Accounts Interest is Irrelevant. Accounts that pay 0.01 percentonly give you pennies in interest, even with large balances. Money market accounts have higher minimums but pay higher interest. This offers liquidity along with check writing privileges. They, like a savings account, restrict the number of withdrawals allowed on the account. For larger balances consider CD’s or money market mutual funds for better returns. Online banks also tend to offer higher rates.
- Banks Have Their Own Credit Bureau Called ChexSystems. Banks report account activity to ChexSystems and companies use the system to determine if your check is good, and whether to issue you a bank account. You are entitled to a free report just as you are with the credit bureaus. To obtain your report go to https://www.chexsystems.com.
- ATM Fees Are Avoidable. ATM fees are charged by both banks. With rates of $2 and $3 per transaction, it can leave you paying $6 to access your money at “foreign” bank. Smaller banks may offer fee waivers, however, they may only waive their fee and not the other banks. If you need funds with no bank close by, make a small purchase at a store offering cash back. Big box stores like Target, pharmacies like Walgreens, and most grocery stores give cash back on purchases.
- Choose Your PIN and Password Carefully. PIN numbers should easy for you to remember, but not easily guessed by those who know you, or in your wallet. Things like house numbers and birthdays should never be used. Passwords that have misspellings, use numbers and symbols, are more difficult to crack. Changing passwords is also a protection against identity theft.
- Debit and Credit Purchases Are Not the Same. They offer different protections against purchases and go through different systems. When you use your PIN the transaction is processed through the ATM system and does not offer the same liability protection against unauthorized purchases. Signature purchases go through the Visa and MasterCard system and limit your liability to $50 in the event of fraud. When a transaction asks for your PIN, hit cancel, and run it as a credit for the highest level of protection. The purchase will still go through your checking account.
- Apps and Online Features Are Replacing Branches. Phone or smart device apps are widely available and provide most of the same services a branch offers. These technological advancements such as the ability to deposit checks using the bank app and your device’s camera, have allowed online banks to compete with brick and mortar stores, and in many cases offer better rates and lower fees.