Banking Basics
By: AARP Outreach & Service | Source: AARP.org | December 23, 2008
Opening a checking account at a bank is often one of the first steps people take into the world of money—and it should be. A checking account is very important in managing your daily finances. Your checking account is your cash flow control center. By paying attention to how money flows in and out of your checking account, you have the ability to be more in control of your finances—and your life.
Choosing a Bank
Choosing the right bank can make your life easier. Here's what to consider:
- Hours, branches, ATMs
- Ability to get an ATM and debit card
- Options such as online banking, direct deposit and phone transfers
- Fees
Branches and ATMs (Automated Teller Machines)
Consider how close a branch is to your home or work. Ask about numbers and locations of ATMs. What hours do the local branches keep and what services do they offer? If you use ATMs a lot, be sure to check out the fees. Sometimes there is a limit on the number of transactions you can do per month. Avoid racking up fees by using ATMs owned by other banks-- usually you will pay fees to both the other bank as well as your own bank.
Consider how close a branch is to your home or work. Ask about numbers and locations of ATMs. What hours do the local branches keep and what services do they offer? If you use ATMs a lot, be sure to check out the fees. Sometimes there is a limit on the number of transactions you can do per month. Avoid racking up fees by using ATMs owned by other banks-- usually you will pay fees to both the other bank as well as your own bank.
ATM Cards and Debit Cards
Unlike credit cards, both ATM and debit cards (sometimes called "check cards") immediately withdraw money from your account when you make a transaction. They don't allow you to borrow money. ATM and debit cards, however, are not the same things. An ATM card allows you to conduct banking transactions at an ATM machine. Debit cards are used to make purchases at stores, restaurants, online, and most places that accept credit cards. Many ATM cards now double as debit cards (if so, it will have a Visa or MasterCard logo on it). Debit cards add another level of convenience: Many stores allow you to get cash on top of your purchase, which saves trips to an ATM.
Unlike credit cards, both ATM and debit cards (sometimes called "check cards") immediately withdraw money from your account when you make a transaction. They don't allow you to borrow money. ATM and debit cards, however, are not the same things. An ATM card allows you to conduct banking transactions at an ATM machine. Debit cards are used to make purchases at stores, restaurants, online, and most places that accept credit cards. Many ATM cards now double as debit cards (if so, it will have a Visa or MasterCard logo on it). Debit cards add another level of convenience: Many stores allow you to get cash on top of your purchase, which saves trips to an ATM.
Caution- Legal responsibility issues for debit cards:
1. If you notify your banking institution within two days of learning your debit card is missing, your maximum liability is $50. If you wait longer, you could be liable for up to $500. And if you wait longer than 60 days, you can be liable for all the money in your checking account plus any overdraft protection.
2. The federal Fair Credit Billing Act says that credit card purchases give you the right to withhold payment if you're not satisfied with an item. The Act doesn't apply to debit card purchases.
3. Many stores treat debit card purchases the same as cash or checks. As a result, you may only have the right to a store refund if you made a purchase with a credit card.
Safety
The Federal Deposit Insurance Corporation (FDIC) insures deposits at banks and savings and loans. In addition, the FDIC will step in and act as the “receiver” (i.e., a temporary owner) of a bank should it fail. Usually the bank is quickly sold to another financial institution with no disruption of service. Note that FDIC insurance does not cover mutual funds, stocks or bonds, even if you purchased them at a bank.
Your total deposits in each bank where you have an account are covered by FDIC insurance up to:
· Single Accounts (1 person) $250,000 per owner
· Joint Accounts (2 or more persons) $250,000 per co-owner
· IRAs/certain other retirement accounts (1 person) $250,000 per owner
The limits for single and joint accounts have been raised from $100,000 to $250,000 at least until December 31, 2009.
Online and Phone Banking
You can now bank by telephone, Internet, or ATM, 24 hours a day, 7 days a week. Online banking is becoming much easier to use and more powerful. You can do most of your regular banking online, pay bills automatically, and much more. Many institutions also create instant activity reports that you can see and download to your computer. Some financial institutions are offering free online banking, so shop around.
Opening a Checking Account
Some checking account features can save you time and energy. Usually, the new features are driven by technology. Consider:
- What transactions can you do at an ATM?
- How easy is it to bank online or by phone?
- How quickly do your checks and deposits clear?
- What services are available to keep you from bouncing checks and incurring fees?
- What other services does the bank offer that might make life easier?
If you're opening a checking account, look for the features and services that you need. Don't get fooled into getting an account with a fancy name if it doesn't provide the features you want. The best way to keep fees down is to have only the features and services that you really need. Download a checklist of questions to ask regarding fees (PDF) and see a chart of fees and ways to avoid them (PDF).
Here are some types of accounts to consider:
· Free Checking
Some banks and credit unions offer free checking to people of any age. Some have totally free checking. Others provide free checking when you use direct deposit of a payroll or Social Security check. Still, having a free checking account doesn’t mean that there won’t be fees. For example, you may be charged a fee for bounced checks, stop payments, check printing, banking online or for using a debit card for store purchases.
Some banks and credit unions offer free checking to people of any age. Some have totally free checking. Others provide free checking when you use direct deposit of a payroll or Social Security check. Still, having a free checking account doesn’t mean that there won’t be fees. For example, you may be charged a fee for bounced checks, stop payments, check printing, banking online or for using a debit card for store purchases.
· Basic/No Frills Checking
A basic or no frills account lets you write a limited number of checks per month with a low or no fee. This type of account is designed for people who don't write many checks or use the ATM often.
A basic or no frills account lets you write a limited number of checks per month with a low or no fee. This type of account is designed for people who don't write many checks or use the ATM often.
· Senior Discount Accounts
Some banks offer free or low-cost checking accounts for older people. Not all banks advertise their senior accounts, so you need to ask. They are required by law in some states.
Some banks offer free or low-cost checking accounts for older people. Not all banks advertise their senior accounts, so you need to ask. They are required by law in some states.
Compare checking accounts in your state.
Overdraft Protection
If you're worried about the possibility of bouncing a check, ask about overdraft protection. This checking feature creates a line of credit for you, which is automatically used when there is not enough money in your account to pay a bill. So instead of bouncing your check, the bank will pay the check using money from your credit line. You may also be able to link your savings or other type of account to your checking and have the money withdrawn from that account when needed. Beware of programs with names such as "bounce protection." They may not offer as much protection as standard overdraft protection, and they may even cost more.
If you're worried about the possibility of bouncing a check, ask about overdraft protection. This checking feature creates a line of credit for you, which is automatically used when there is not enough money in your account to pay a bill. So instead of bouncing your check, the bank will pay the check using money from your credit line. You may also be able to link your savings or other type of account to your checking and have the money withdrawn from that account when needed. Beware of programs with names such as "bounce protection." They may not offer as much protection as standard overdraft protection, and they may even cost more.
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