Bank Accounts: Frequently Asked Questions

WHAT BANKING FEES DO YOU NEED TO LOOK OUT FOR WHEN SHOPPING FOR A BANK ACCOUNT?

Fortunately, banks are required to give you a list of fees for their accounts. Even with interest, the best account is usually the one with the lowest fees.

Checking accounts are minefields for potential banking charges. Be sure you ask about monthly fees, fees for check processing, and ATM fees. A no-cost checking account may impose a charge if your balance drops below a minimum dollar amount. Check printing charges have sky-rocketed in recent years to as much as $24 at some banks. You can have your checks printed for much less by an outside financial printer.

It rarely makes sense anymore to park money in an old-fashioned “passbook” savings account. Monthly account fees may overshadow the small amount of interest you will earn. Put it in your checking account instead if you can refrain from spending it. If it’s a big enough sum, you might want to put it in a money market account. You will earn more interest than in a savings account, but make sure you don’t get hit with a monthly charge if your balance falls too low.

WHAT ARE THE DIFFERENT TYPES OF BANK ACCOUNTS AVAILABLE?

The accounts offered by depository institutions generally fall within one of these types:

WHAT TYPE OF ACCOUNT SHOULD I OPEN?

The answer depends on how you plan to use the account. If you want to build up your savings and you won’t need your money soon, a certificate of deposit will serve your purposes.

If you need to reach your money easily, however, a savings account may be a better choice. And if you want a way to pay bills, a checking account is probably best for you.

Tip: If you usually write only two or three checks per month, an MMDA might be a better deal than a checking account. MMDAs pay a higher rate of interest than checking accounts, but require a higher minimum balance.

Checking accounts have other advantages. They simplify your recordkeeping. Canceled checks provide you with receipts at tax time, and the check register is a convenient way of keeping track of monthly expenses.

Account features and fees vary from one institution to the next. It’s important to take the time to ask bank employees about any account features and fees before you open an account.

Tip: To get the most out of a checking account, find out what the minimum balance for avoiding fees is, and keep that minimum in the account. Further, try to get a checking account that will pay you interest, or that looks to the combined balance in checking and savings accounts to arrive at the minimum required balance. This way, you will not be paying the bank for the checking services, and your money will be earning some interest-although not at a great rate.

HOW SHOULD I SHOP FOR A “BEST BUY” BANK ACCOUNT?

Choosing an account is a matter of comparing the features of accounts at various banks. The features that should be compared are:

HOW MUCH PROTECTION IS PROVIDED BY FEDERAL DEPOSIT INSURANCE?

Federal deposit insurance sets apart deposit accounts from other savings choices. Only deposit accounts at federally insured depository institutions are protected by federal deposit insurance. Generally, the government protects the money you have on deposit to a limit of $100,000. Accounts for special relationships, such as trusts or co-owners, may also have some effect on the amount of insurance coverage you have.

Tip: Ask the bank how the deposit insurance rules will apply to your deposit account. Federally insured depository institutions also offer products that are not protected by insurance. For example, you may purchase shares in a mutual fund or an annuity. These investments are not protected by the federal government.

HOW CAN I NEGOTIATE CHECKING ACCOUNT FEES WITH MY CURRENT BANK?

Here are some tips for negotiating with your current bank to try to get a better deal on your checking account.

Tip: Many banks offer free checking to seniors, students, or the disabled, if the depositor asks for this service.

Tip: If you decide to take your business elsewhere, don’t overlook smaller banks, which may be more eager for your business.

What questions should I ask when shopping for a Checking Account?

You need to know exactly how much a checking account will cost you. Get a list from your banker of all possible fees, including charges for maintaining the account, processing checks, bouncing checks, using the ATM, stopping payment, and transferring funds. Ask if the account will be cheaper if the bank does not return canceled checks. In the rare event that you need one, ask how much, if anything, it will cost to get a copy. To avoid bouncing checks, ask how long you have to wait after depositing funds to draw on them.

For interest checking accounts, ask how the bank calculates the interest. If the bank pays more on accounts with higher balances, be sure you get a “tiered” rate, which pays you the highest interest on all the money you have in the account. Be sure you know the charge for falling below the minimum balance, too. It might be more than the interest you will earn. Finally, some banks reduce charges on checking accounts if you take out a loan or buy a CD. Ask what deals are available.

WHAT IS OVERDRAFT PROTECTION AND SHOULD I HAVE IT?

Many people overlook a valuable service offered by banks: the overdraft protection line of credit. With this protection, if you write a check which would overdraw your account a loan is automatically made from a line of credit. With this protection you will not bounce any checks.

This type of service is most valuable to a self-employed individual whose business is seasonal. If there are times during the year when you have cash flow problems, the overdraft protection line of credit can save you headaches-and at a lower interest rate than other forms of borrowing.

Starting in 2010, automatic overdraft protection is no longer provided by banks and bank customers must opt-in for this protection. Don’t neglect to inquire about this service if it would suit your situation.

WHAT IS THE TRUTH IN SAVINGS ACT?

The Truth in Savings Act, a federal law, requires depository institutions to disclose to you the important terms of their consumer deposit accounts. Institutions must tell you:

To help you shop for the best accounts, an institution must give you information about any consumer deposit account the institution offers, if you ask for it. You will also get disclosures before you actually open an account.

In addition, the Truth in Savings Act generally requires that interest and fee information be provided on any periodic statements sent to you. And if you have a roll-over CD that is longer than one month, the law requires also that you get a renewal notice before the CD matures.