Taking a Look At Your Bank Accounts
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This is the continuation of the previous article on Striking a balance between lifestyle and finances.
In this Blog Post:
• Shopping around for the best bank bargains
• The big three: banks, credit unions, and savings and loans
• Balancing interest rates with bank fees
• Cutting costs when using the ATM
Do You Have the Accounts You Need?
Chances are pretty good that you already have savings and checking accounts. You’ve probably been writing checks for years for things such as books and rent, and you probably use a debit card, too. There’s also a good chance that you’ve had a savings account since before you were even old enough to know what it was. Many parents open savings accounts in their children’s names and use the accounts as a place to save the money the child gets at birthdays and holidays.
Of course, there’s the possibility that you’ve managed to get through life so far without checking and savings accounts. If that’s the case, it’s time to get them established. If you already have accounts, it’s time to take a good look at them to see if you’re getting the best deal on them that you can.
Checking Accounts
The concept of a checking account is simple. You keep money in an account and write checks (or use a debit card) from that account instead of paying with cash. Using checks eliminates the need to carry large amounts of cash or send cash through the mail to pay bills.
Most banks pay you no or minimal interest on the money in checking accounts, but nearly all banks impose fees and conditions on checking accounts. It pays to look at some different banks when you’re considering opening or changing a checking account, because the difference in fees and conditions imposed can be significant. You might be getting a good deal on a savings account at a particular bank, but losing money on your checking account. We’ll talk more about credit unions a little later in this chapter, but don’t overlook them when shopping for a place to open a checking account.
There are various kinds of checking accounts. Some pay interest (although none pay very much), and others charge you a monthly fee if your balance falls below a minimum amount. Some charge you fees to open the account. Some charge you for each check you write, and others charge you if you write more than a certain number of checks each month. You get the idea.
Most of us don’t think too much about our checking accounts. But by looking around and getting the best deal you can, you could save hundreds of dollars over the next few years. Of course, contacting 8 or 10 different banks and trying to compare every aspect of their when you open several accounts checking accounts would be a daunting task, to say the least. But you do want to shop around. Be sure to consider the deals offered by 3 or 4 different banks before making a decision.
What you’ll need to do first is figure out your habits as they relate to your checking account, and then find the plan that best suits your habits at the lowest price available. For instance, if you write only three checks a month-one to your landlord, one to pay your Visa bill, and one for your college loan-you may do well to consider an account that includes a charge for each check written. Your fee would be minimal, and there could be benefits elsewhere that offset the per-check fee. Many financial institutions provide extra services or fee waving for minimum deposits in several accounts. Check this out. You can save money. On the other hand, if you carry your checkbook with you and write checks for everything from groceries to haircuts and shoes, then you want to at all costs avoid a bank that charges for every check you write.
If you always have a lot of money in your checking account or a corresponding savings account, the bank might waive monthly fees. But if your account balance varies, or you don’t keep much money in it, look out. An annoying thing that some banks do is to impose a fee if the balance of your checking account falls below a certain amount even for one day.
Suppose you have $1,000 in your checking account all month long, and now it’s time to pay the bills. You write checks for the rent, the electricity, the phone, and your credit card bill. By the time you’ve finished, your checking account is down to $225. You’re not worried though, because Friday is payday, and you’ll be depositing more money in the account. Aren’t you surprised when your next bank statement comes, and you’ve been charged $10 for a low minimum balance. It was only a couple of days between the time you paid your bills and deposited more money, but wham! your bank got you.
A better way to go is with a bank that uses an average daily balance system. That way, as long as your account balance stays above $250 (or whatever) for the month, you’re not penalized. Unless you keep a ton of money in your checking account, which isn’t a great idea, you probably will do better with the average daily balance system.
Be sure you find out some basic information about checking accounts from every bank you query. When you get the information, write it down carefully, and keep track of which banks have given you particular information. Things can get pretty confusing if you don’t keep your information in some kind of order. Some things to ask about include the following:
- • How much money do I need to open the account?
• Does the account pay interest?
• Is it compound or simple interest?
• How often is the interest compounded?
• Is there a monthly service charge on the account?
• How much money must I keep in the account to avoid a monthly fee?
• Does the bank use a low minimum balance or an average daily balance system?
• How much will I have to pay each time I need to order checks?
• Is there a limit on the number of checks I can write each month without having to pay a per-check fee?
• Will I have to pay a fee to obtain my account balance?
• How much will it cost if I bounce a check?
• Is there a feature where money will be transferred automatically from my savings account if I write a check for more than I have in my checking account?
• Are my canceled checks returned to me at the end of each checking period? Is there a fee if I want them?
• Is there overdraft protection if I overdraw my account?
• What’s the monthly fee for overdraft protection?
• Are checking account fees waived if I keep a minimum balance in my savings account?
• Can I buy whatever checks I want, or must I get them from the bank?
• Can I access my account on-line?
After you’ve opened a checking account, or changed your account to a bank that offers a better deal, there are a few other things to keep in mind. One simple, but important, rule is to keep your checkbook in a safe place and report it immediately if it’s lost or stolen.
You must keep track of how much money you have in your account. If you don’t, you risk bouncing a check. The average fee for bouncing a check these days is around $25 per check, making it a very expensive mistake. Bounce three checks, you just wasted $75.
Record every transaction immediately, or sooner or later, you’ll forget about one. Record the checks you write as well as ATM and debit card transactions. Some people find it more convenient to stick a Post-it note on the outside of their checkbook and write down the basic information as soon as they write the check. Then, the information can be recorded in the checkbook when there’s more time.
Even if you don’t balance your checkbook to the penny, which is what you should do, make sure you know as accurately as possible how much money you have. Always look over your statement each month and confirm all deposits, ATM transactions, and withdrawals. If you notice something that doesn’t look right, call your bank right away. Banks do make mistakes, and they’re not always in your favor.
Balancing a checkbook requires you to first list every transaction made during the month. You add deposits to your balance, subtract out checks, and remember every ATM or debit card transaction. At month end you compare what you have with what the bank has on their statement. Should be the same. The easiest way I’ve found is by keeping the checkbook on the computer.
To help you avoid bouncing checks, find out about your bank’s check-hold policy. Banks may hold any local check of $5,000 or less for two business days and certain other checks, such as those for large amounts, for up to eight business days. That means that you could deposit your paycheck or the birthday check from Aunt Mary and still not have money in your account for two days or more. You’ll be in for a shock when you use your debit card at the grocery store only to be told that you’re suffering from the dreaded insufficient funds.
Also, find out what time of the day your bank stops handling transactions. If you make a deposit at 3:30 p.m., you may have missed the transaction cutoff for that day, and your deposit won’t be processed until the next business day. Don’t hesitate to ask the teller whether your deposit will be made that day.
If you ever find yourself considering a stop payment on a check you’ve written, consider what it will cost you. Say you write a check for $50 to your friend Rob because you just bought his old in-line skates. Two days later, Rob tells you he lost the check. He’s not sure if he threw it out along with a stack of papers, or if he dropped it somewhere between your place and his. What to do?
You could call the bank and request a stop payment on the check. You’ll need to provide the bank with all the applicable information about the check. The problem is, a stop payment will cost you somewhere around $20, and your check might be safely resting in a landfill someplace, never to be seen again. Or it might be somewhere on the sidewalk between your place and Rob’s, waiting to be found by someone who just might try to cash it. It’s a judgment call, and you’ll have to decide what to do.
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