Banks make most of their money through convenience fees charged to customers. When you are in the market for a new checking account or want to move to a new bank, there are a number of things you should take into consideration before selecting the bank to open your checking account with.
It used to be very rare for a bank to fail. The current economy has increased bank failures though, and when looking to open any bank account, it's important to take the possibility of a bank failure into consideration. The Federal Deposit Insurance Corp insures deposits from eligible banks and financial institutions in the US up to $250,000 per depositor. Make sure your bank is covered by the FDIC before you open an account with them.
Choosing a Checking Account
Most everyone relies on a checking account in order to pay their bills and hang on to their money before it's needed for a purchase or expense. You have a number of checking accounts from which to choose, from free accounts (no maintenance fees) that don't require a minimum balance; to accounts that offer interest if you maintain a certain minimum balance; to money market deposit accounts with higher interest paid but higher minimums required and a limit to the number of transactions you can make in any given month. There are specialty accounts for groups of people, too – like student checking, or senior citizen accounts.
Compare your local bank checking account options with online checking account options to find an account that will charge you the least amount of fees and provide the most interest for how you are likely to use the account.
Avoiding Overdraft Fees
People who live paycheck to paycheck often end up paying hundreds of dollars each year in the form of bank overdraft fees. At an average of $39 per occurrence, overdrafts are costly fees that you should do everything in your power to avoid! What happens when your account falls short is the bank will honor the largest debit or check that's outstanding first, which means each of your smaller checks will result in individual, overdraft fees. Instead of bouncing a single check, you end up paying an NSF (non sufficient fund) on each of the individual transactions.
While many banks will cover the non sufficient funds for you under “overdraft protection” all that means is your money is paid out to the person or business you wrote the check for or used your debit card for; but that the bank will charge you for that privilege. See if you can get standard overdraft protection, and link your checking account to a savings account. If your account is overdrawn they can tap into your savings account for the funds instead of charging you for the NSF.
Some banks hold your deposits for 10 business days for larger or nonlocal checks. Standard wait time for a regular check deposit can be 2-4 business days. This can make it difficult – if you are cutting things close, always find out when a deposit will come available so you know when you can use the money from the deposit.
Understand Your Debit Card
Almost all checking accounts include a debit card, but this is another way for banks to make money off their account holders. Sometimes if you use the debit card as debit at the retailer, you pay a fee - but if you chose credit instead at the same retailer, it wouldn't cost you anything more than the cost of whatever you're buying.
Using your debit card in an ATM machine owned by another bank will result in paying fees to the other bank, and your own bank as well. Paying $5 or $6 to take $40 out in cash is never a good idea, but you may not even realize it since the ATM only announces the fees of their OWN bank (not what your bank will add at the end of the month).
Using a debit card to reserve travel accommodations or purchase gas sometimes puts a hold on your account that's more than what you actually spend. It can take a week or two for the hold to be lifted, and meanwhile you don't have access to any of those funds which can result in overdrafts if you're not aware.