Most of us don’t feel comfortable sleeping with a wad of cash under our pillows, so we deposit our paychecks into savings accounts instead. But for individuals unfamiliar with banking, selecting the appropriate bank or credit union account can be a daunting task.
Find out what a bank or credit union is, how to open an account, how to deposit money, and what features to look for in a bank account with this helpful guide.
Here is a Crash Course for newcomers to the banking industry:
Which Is Best: a Bank, a Credit Union, or an Online Bank?
Whether you prefer a traditional bank, a credit union or an internet bank to save your money is the first option you’ll have to consider.
Explain what is a bank:
Generally speaking, a bank is a financial institution where customers (who meet the bank’s criteria) can deposit funds and borrow money. Most banks now offer both virtual and physical banking options.
Finance industry experts::
1. Customer-facing interactions
2. Applications and online instruments
3. Bank account choices abound.
Con artists targeting financial institutions:
1. Higher-than-average fees are charged.
2. An increased interest rate is a common feature of loans.
3. The interest rate on deposit accounts (such as savings) is typically
Typically, banks operate with the goal of making a profit. You can get a variety of financial services, including deposit and withdrawal accounts, loans, and credit cards, from a bank. Anyone can open a bank account if they want to.
The fees charged by banks are typically higher than those charged by credit unions. Interest rates on checking and savings accounts are typically lower as well.
For your convenience, we have compiled the following tables to assist you in comparing various banks’ rates, perks, and more:
1. Superior national banks
2. Banks that are best for joint accounts
3. Best banks for students in college
What exactly is a credit union?
Simply said, a credit union is a financial cooperative whose members meet in person to make financial transactions like saving and borrowing money (and sometimes online).
Pros of a credit union:
1. Direct interaction with customers
2. Compared to other banks, their fees are typically lower.
3. Compared to other forms of credit, interest rates on loans are typically more reasonable.
4. Interest rates on deposit accounts (like savings) tend to be higher.
Negative aspects of credit unions:
1. There are generally less digital and mobile resources available.
2. Only those who meet the requirements can become members.
3. Fewer banking alternatives
Unlike banks, credit unions do not aim to make a profit. There is a general consensus that credit unions provide superior rates of interest (and service) compared to other financial institutions like banks. But typically they have fewer products available. Credit union membership is not open to the public.
There is no universally accepted definition of “member” in credit unions. It’s possible that joining a credit union requires a nominal charge or that you belong to a certain group (like the military).
The definition of an online bank:
Definition: To put it simply, an online bank is a financial institution that allows customers to make deposits, withdrawals, and loan applications entirely via the internet, provided they meet the bank’s other criteria (but not in-person).
Advantages of Banking Online:
1. Reduced costs
2. Low interest rates are available for loans.
3. Interest on deposit accounts (such as savings) is higher than interest on other types of accounts.
Cons of online banking:
1. There is no in-person support available.
2. Getting cash out might be a bother.
Financial institutions operating online do so for the purpose of making a profit. They function similarly to conventional banks, with the exception that they don’t have physical branches. Email or phone the online bank for assistance.
These banks are popular among customers because they provide competitive savings rates and inexpensive borrowing rates.
The most significant drawback of using an online bank is the difficulty in gaining access to your money. You can get cash via an ATM network provided by some institutions for free. It can be inconvenient to withdraw money from an online bank account if you don’t have easy access to one of them.
If this is your first time opening a bank account online, you probably have a lot of questions. Considering the relative novelty of internet banking, many consumers have yet to establish an account with one. To assist you figure out whether or not an online bank account is right for you, we’ve put together the following materials:
1. What about the safety of banking online?
2. Online banking’s benefits and drawbacks
In addition, we have compiled a list of the most common online checking accounts after reviewing each one.
Read more about: HOW TO OBTAIN A PERSONAL LOAN IF YOU HAVE NO CREDIT IN 2023
Creating a Financial Account:
The next step, after deciding on a bank or credit union account, is to actually open it. Just do what I say:
Put together the necessary data and paperwork:
To open a checking or savings account at a bank or credit union, you’ll need the following:
3. Birth Date
4. SSN or Tax ID
6. Driver’s License or Passport
Submit an application by filling it out:
Online application forms are available at most financial institutions these days. If you’d rather speak with a real person, you may always stop by the branch of your bank or credit union. If the bank doesn’t have an online application form, you may have to print, sign, and mail it in.
Money into the account:
After opening an account, you should receive instructions on how to make deposits from your financial institution. There are typically three options available to you:
1. Place money in a deposit
2. Put cash or a check in the bank
3. Contact your workplace about setting up a direct deposit.
4. Submit a request to withdraw funds from another financial institution
Finding the Right Financial Institution:
The next step is to learn as much as possible about the specific bank or credit union of your choice. No matter what kind of account you have, here are some things you should check out:
[Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insurance:]
You should verify that the bank or credit union you’re considering has FDIC or NCUA insurance, even though you’ll probably never use it. The ID number is typically displayed in the site footer. In case you’re still unclear, though, don’t hesitate to contact the bank or credit union in question.
How quickly you can withdraw money from your account depends depend on the sort of account you go with. Keep in mind the things that are most important to you:
Locations of Branches:
It is common practise for financial institutions to provide online tools to help customers find the nearest branch.
Telephonic Automated Teller Machine System:
Your credit union or bank may have its own ATM network, or it may be partnered with a national surcharge-free ATM network provider like Allpoint or MoneyPass®.
Although some financial institutions don’t offer free cash machines, they may pay your ATM fees.
Bank account or credit union account:
Debit cards are standard with checking accounts, and some money market accounts even offer them.
Both checking and money market accounts can order checks.
Virtual banking services are available from the majority of banks and credit unions, allowing account holders to check balances, make payments, and transfer money. There are some that even allow you to deposit checks remotely through your phone.
Check out the annual percentage yields (APYs) offered by your bank or credit union on the account type you’re considering, and see how they stack up against those of other financial institutions. Keep in mind that some banks use a tiered structure where you get a better interest rate the more money you have in the account.
If that’s the case, you should calculate how much interest you may anticipate to earn on your savings. If you’re thinking about getting a loan from the bank or credit union, you should also compare its interest rates to those of other financial institutions.
Various Other Goods:
While you may be solely interested in a checking or savings account right now, you may eventually want to open a home or start a business, both of which would require loans. If you can pick a bank or credit union now that will be flexible enough to meet your demands as they evolve, you won’t have to switch providers.
Before opening a new account, be sure you understand the associated costs. If you have any trouble locating this data on the bank’s or credit union’s website, or if you have any queries concerning the costs associated with your account, you should get in touch with the institution directly.
Make sure you read everything thoroughly and know exactly what you’re agreeing to. To be aware of are the most common types of fees for:
The recurring cost of upkeep each month:
Having this account costs you this annual price. There are situations in which you may be able to get around this requirement at some banks and credit unions.
Financial penalties for overdrawing a bank account:
Only if you sign up for overdraft protection and then remove more money than your account has will you have to worry about these fees.
Payable at least monthly:
It’s possible that you’ll incur a fee if your balance in the account falls below the minimum required to avoid charges.
Payment for a Statement
Bank customers who continue to receive paper statements may be charged a fee until they make the transition to eStatements.
Fees for insufficient account activity. If you want to know more about how to avoid this cost, you should talk to your bank or credit union.
Cost of a new card:
If your debit card is lost or stolen, you may have to pay a fee to get a new one issued by your bank.[h3]
Required Minimal Funds:
There is sometimes a minimal opening deposit required to open an account at a bank or credit union, and some of these institutions may also impose minimum balance requirements that must be met in order to avoid incurring fees.
Depending on the financial institution and the kind of account you have, different criteria may apply. Read these carefully and make sure you understand them before signing anything.
To compete with credit card sign-up bonuses, a growing number of banks and credit unions are providing similar incentives to new account holders. However, if you’re trying to decide between two similar bank accounts, the sign-up bonus shouldn’t be the determining factor.
If you have any queries or issues with your account, you should find out how to get in touch with the bank or credit union. Find out when you may contact customer support, too. While some large national banks may be available to their customers around the clock, smaller regional banks and credit unions may only be open during traditional business hours.
Explain what a checking account is:
Those looking for a secure place to keep their money with minimal hassle while withdrawing funds will benefit the most.
No good if you’re looking to maximize your interest rate on your savings.
To facilitate your day-to-day spending, you need to establish a checking account. There are no time or frequency limits on withdrawals from a checking account, unlike savings accounts, CDs, and money market accounts; just make sure you don’t spend more than you have.
They work great for making payments, and the associated debit card makes it simple to withdraw cash from your bank account whenever you need it. If you’d rather make payments from a checking account, you can do so by purchasing checks.
Interest-bearing online checking accounts are somewhat uncommon, and even the best of them often give annual percentage yields (APYs) lower than most savings account APYs. You should use one of the other accounts below if you want your money to grow.
If you meet specific criteria, such as making a certain amount of monthly deposits or keeping a minimum level, some checking accounts will forgo the monthly maintenance cost. Overdraft fees apply if you try to withdraw more money than is in your checking account, and ATM fees apply if you use an ATM that is not part of your bank’s or credit union’s network.
Exactly what is a savings account?
Who it’s ideal for: Those who desire a safe method of increasing their wealth.
Not a good fit for people who anticipate regular account withdrawals.
One of the safest ways to grow your money is through interest from a savings account. Your deposits into savings accounts at financial institutions like banks and credit unions are pooled and used to provide funding for loans to other customers.
You will then receive a percentage of the interest they collect from the borrower. Some high-yield savings accounts offer annual percentage yields (APY) of more than 2%, while the average APY for savings accounts is 0.09%.
The rate at which your savings accumulates will be accelerated by a greater APY. It’s possible to maintain savings for an unlimited period of time, but you should only put money there that you won’t need for at least the next few years. To grow your wealth faster than inflation and maintain purchasing power over time, you should invest your savings for the long term.
If you anticipate making frequent withdrawals from your accounts, a savings account is not the ideal option. Because of the application of Regulation D, that is. Federal law limits savings account holders to six “convenient” withdrawals or transfers every calendar month.
Overdraft transfers, bill payments, and other recurring transfers are examples of convenient transactions that can be completed online or by phone.
Extra costs may be assessed by your financial institution if you exceed six of these per calendar month. You can still make “inconvenient” withdrawals such as visiting a branch if your bank offers one or requesting a check be mailed to you.
Money in a savings account cannot be withdrawn in the form of checks or debit cards. To withdraw money by check or debit card, you may first need to move it to a checking account. Keep in mind that there is a minimum balance that must be maintained in the account. There may be additional charges if your balance falls below the minimum required by the institution.
First of all, let’s define a certificate of deposit (CD):
Whom it’s best for: Anyone looking to earn a high-interest rate who doesn’t plan on using the money for immediate needs.
People who anticipate a need for access to their funds prior to the CD’s maturity date
Certificates of deposit (CDs), or share certificates at credit unions, are a form of savings account that typically yield significantly higher rates of interest.
By investing in a certificate of deposit (CD), you promise not to withdraw the funds for the duration of the CD’s term. It could be a few months or it could be a few years. Typically, a loan’s interest rate will increase in proportion to its length of term. Average periodic yields (APYs) on the best certificates of deposit can approach 3%.
If you need access to your funds before the CD term ends, you can do so, but you’ll have to pay a hefty penalty. This is usually expressed as a number of months’ interest, and it increases in proportion to the length of time before the maturity date.
Certain certificates of deposit (CDs) do not levy penalties for early withdrawals; they are called “no-penalty CDs,” although their annual percentage yields (APYs) are often lower than those of other CDs.
Money market accounts — what do they entail?
For those who want to maximize their interest earnings without limiting their access to their funds, this option is ideal.
People who don’t have enough saved to meet the minimum balance criteria.
Unlike the other two types of bank accounts, money market accounts include perks from all three. To facilitate easy access to your funds, money market accounts typically issue checks in addition to other withdrawal options.
Some may also issue debit cards that can be used to access funds from your money market account at ATMs or pay for in-store or online transactions.
Because their annual percentage yields (APYs) are typically higher than those of savings accounts (sometimes by more than 2%), they are a good option for those who want to see their money grow faster than a savings account but don’t want to lock it away in a CD for an extended period of time. However, this does not mean there aren’t any limitations.
Like savings accounts, money market accounts are subject to Regulation D, which caps the number of withdrawals and transfers you can make from your account each month at six.
Amounts withdrawn via an ATM do not count toward your six easy withdrawals per month, but checks do. The greater minimum balance required of MMAs compared to traditional savings accounts (which can be as high as $5,000) is another factor that may dissuade some people from making the switch. It can be difficult to open a bank account if you don’t have a substantial amount of money in your name.