Banking is a part of everyday life. You use it to store your money, get benefits, and create a payment system to pay you bills. Just like banking, Credit Unions are a significant part of everyday life too, especially in big purchases like a car payment or house mortgage.
This essential part of everyday life is important to everyone, so it’s crucial to know where and how to get started. Knowing how your account works will help you take advantage of the services they offer and can help you keep a financially balanced life.
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What You Can Do With a Bank
Even though it isn’t completely essential to get a banking account, it’s always good to have and will definitely make your life easier. Some of the most useful features include:
Store Money: Banks are a way to securely store your money. Instead of keeping a bundle of cash on you or in a shoe box, you can store your money in a bank to prevent any theft or loss of money.
When you store your money all of it becomes virtual money until you withdraw it from your account. You may rarely ever touch physical cash, especially since you can pay your bills electronically making it super convenient.
Make Payments/Move Money: A bank provides the service of being able to make online virtual payments and the ability to transfer money.
- You can make payments with your debit card at retailers or merchants, removing the need to ever carry cash.
- You can pay online bills (if your bank allows that feature) using your banks online services. Payments can be sent to your utility bills, internet, tv, and loads of other bills
- If you provide your information to merchants or other services, they can pull funds without you ever needed to meet up
- Use apps to make payments to friends or other businesses
- Wire money for important transactions
Earn Interest: Banks offer interest for those who store their money with them. Over time you can gradually earn money for just using their bank to store your money. However, since banks are supposed to be a safe place to store your money, the interest rates they offer are supposed to be small.
It’s best to store your emergency funds in banks or credit unions to build some interest that you plan on using in the foreseeable future.
Borrowing Money: Banks offer the service of lending out money. Of course you have to pay it back, but there’s a catch. They usually come standard with fairly high interest rates.
They provide this service for loans on car payments, house payments, credit card use, etc. If you ever plan on borrowing money, be sure to learn everything about it.
Where Can You Open a Bank Account
There are different types of banks that may appeal to different sets of customers. You have Big Banks, Small/Local Banks, Credit Unions, and Online Banks. For information on each of these types of banks, check out our post on How to Choose a Bank where we go over the details of each banks.
There are benefits to each of these banking services that may suit you best, so be sure to go over and learn all about them.
Types of Accounts
There are different types of accounts for their specific uses, these include;
Savings Account: These are the most basic type of banking account. You can store money in them, earn interest and withdraw whenever you need. They aren’t the best for everyday expenses because of the limited amount of withdrawals you’re given every month. That’s where checking accounts come in. Learn about the best Savings Rates that you can earn.
Checking Account: These accounts allow you to spend your money easily. They give you the ability to:
- Write checks
- Swipe your debit card
- Authorize billers to take what you owe from your checking account
- Punch in your card number online
- Set up bill payments online
A checking account allows the user to withdraw money unlimited times from this account. You’re given a debit card that is a direct electronic link to that account that can be used to make payments. These account are usually what you use to deposit wages in. However, they don’t offer any interest since you aren’t required to keep a large balance in there. With that being said, there may be some high-yield accounts that offer rewards and bonuses greater than the interest rate earned in a savings account.
Money Market Account:
These accounts offer high interest rates for depositing a minimum amount of money in their bank. In order to receive the maximum interest rate, there is usually also a money cap. You can only put in a limited amount of money to earn the maximum interest rate. These banks are great for emergency funds, because they grant you the ability to still spend via debit card (most money making accounts usually limit their withdrawals to 3 per month though) and while your money is being stored there, you’ll gain great interest. Read our post about Money Market Accounts to learn more about their benefits.
Certified Deposits (CDs):
Another option for earning more interest than your savings account. Also known as time deposits, CDs require that you commit to leaving your funds untouched for a certain amount of time. If you do this, the bank pays you more, but you’ll have to pay a penalty if you cash out early. Terms vary from six months to five years, and longer maturities usually pay more. We also have a post about Certified Deposits if you’re interested in learning more about them.
How to Open an Account
In order to open a bank account, you must provide basic personal information. Nowadays you can complete this entire process online, but some banks may still require you to fill out a form.
This happens after you’ve gone through all your interested banks and have chosen the one that best suits your needs and interests. The information that you will provide are:
- Personal details: Your name, date of birth, Social Security Number or similar
- Identification: Driver’s license, passport, or other government-issued ID (if you’re opening an account online, you’ll need to provide the ID number)
- Address information (if you use a Post Office box or similar for your mailing address, you’ll still need to provide your physical address)
The information required include these, but are not limited to the listed information above. Some may include some additional personal information like your income or employment situation. Banks are required to ask for this information for security reasons.
The only exception to having to provide your information is when you request a loan. Every bank will ask for you income before you ask for a loan. This is so that you can guarantee that with your stated income, you will be able to pay back the loan with a preset plan that is built around your income.
Fund Your Account: After you’ve successfully opened your account, you will need to deposit some funds in it. You can bring cash in person to the branch or write a check to fill your account. If you’ve already had an existing account, you can link the two so that you can easily transfer funds between the two.
You can also set up direct deposit with your account. Your wages can be deposited electronically removing the need to deposit a check in person at your banks. However if you banks provides the service, you can deposit a check via the banking app and a camera. You can take a picture of a check and deposit it that way.
Get Into a Long-Term Relationship
Switching banks account tend to be a pain, because of all the verification they go through for security reasons. If you set up the right accounts, you should barely notice them, but if you do it incorrectly, you can experience constant frustration and spend more than you need to.
Get good rates, meaning high rates on your savings and low rates on loans. You don’t necessarily need the absolute best rate in the nation, but rates get more important as the dollar amounts get larger.
Minimize Fees: Monthly service charges and low-balance fees can cost hundreds of dollars every year — and other banks might offer the same services for free.
The Right Fit: Think about how you want to interact with your bank. Are you happy doing everything yourself online? If so, online banks (or low-cost programs at brick-and-mortar banks) are a good option. Need to visit a branch regularly?
Features: Any bank or credit union can provide savings accounts, basic checking, and a debit card. What additional features do you value? Some examples include:
- If you want the ability to transfer funds between multiple bank accounts (for free), find out about the bank’s ACH transfer rules. Some banks offer the service for free, but they limit the number of accounts you can link to.
- If you receive checks and hate going to the bank, make sure mobile deposits (or ATM deposits) are available.
- If you frequently use the ATM for withdrawals, check out the ATM network or get an account that refunds ATM fees.
Things to Watch Out For
These are a few things that you must watch out for when having a bank account.
- Funds Available
- Fraud and Errors
- Borrowing to Much
Getting started isn’t difficult whatsoever. Just be sure that you’ve decided on a bank that best suits you and your lifestyle. If you open all the right accounts and set up automatic payments, your life will become even easier.
If you’re interested in researching new banks, go through our posts about Best Bank Bonuses, Best Savings Account Rates, and Best Credit Card Bonuses. Be sure to soak in all this information when choosing the right bank for you!