The Basics of having a Bank Account

So, you opened your first bank account. Congratulations! You have now joined the ranks of responsible adults everywhere. Now to keep it that way. Most banks are companies that want to make profits, except credit unions, and these come in only a few flavors for banks. Number 1 is loans. This is the most important. Banks take your money and loan it to others, to buy houses, cars, etc. They are only required to hold 10% of your total deposit at the Federal Reserve, for FDIC reasons.

Next is fees. When you screw up and overdraft your account, need to stop a check, use another bank’s ATM, they are there to collect. Lastly is stock sales, but these are made more attractive the more the bank collects on the first two items.

Pure and simple, banks are the safest place to keep your money, and they pay you interest in specific accounts. You do however, need to know how the system works. Don’t write checks for more than you have. Banks will often pay the checks for you, but they will charge a fee for this, sometimes in the neighborhood of $25. Even if the check was for $1.30. The best way to avoid this is to keep an up-to-date check register and to log each check, debit card, and yes, cash purchase you make.

Online banking is a great tool, but many times it is not really up to date. For example, you bought gas today, on your debit card, you spent $40.00 to fill your tank (now-a-days that means you own a Fiesta). You go online and expect the balance to reflect. Trouble is, gas stations normally only hold $1.00 on your card until they get around to processing the real amount. Restaurants are bad too. They hold a certain percentage on the card in order to cover tips. So be careful with the checking account. If you overdraw and don’t pay it back, you get on Chexsystem’s which is sort of a credit bureau for banks, cross them and you don’t get to open another account until you fix the first one.

A savings account is almost mandatory. You need to put money away, and be disciplined enough not to touch it. If you have enough, put it in a CD, these make more interest for the time period you choose, but the money is locked in until the maturity, or end, date. Take it out before and pay a penalty, usually 3 months interest. Even if it hasn’t been 3 months yet. Money markets are great, they let you touch and move your money at a higher interest rate, with no lock in time. You do need to be aware, however, that Federal law limits withdraws to 6 per month, three of which can be checks. More than that, you pay a fee.

Also, if you put money in and just leave it there for 20 years, don’t expect it to be there when you come back. The government will escheat (fancy word for take and hold) your money until you claim it, after a certain period of time. It can be a lot, but banks are much better than carrying your money around with you to get mugged. Also, they have protection systems that cash doesn’t. Loose a $100 bill and you are out $100, but loose your debit card and you can freeze it and get a new one. Also, if you live in New York, just try to pay a guy in California cash for something.

Most banks will help you manage your money, in order to make it work for you. Just make sure that you are careful with your account.