A bank is a business that provides clients with information and assistance regarding bank accounts, loans, and debit/credit cards among many other services. A bank is a trusted and secure place where you can store your money and manage finances. It is important to understand how a bank works so that you are able to utilize it to your greatest benefit.
Banks and Credit Unions
What is the difference?
Commercial Bank: A commercial bank offers services to the general public and to companies. They accept deposits, transact withdraws, provide loans, and they may offer basic investment products. They are a for profit business typically owned by private investors.
Credit Union: A credit union are typically smaller, non-profit financial institutions owned by their members. In credit unions, members borrow from pooled deposits at low interest rates. Profits made by credit unions are returned back to the members in various forms such as reduced fees, higher savings rates, and lower interest. They provide similar financial assistance as commercial banks as well.
How to Open a Bank Account
After choosing your banking institution, whether it be a commercial bank or a credit union, either go online (as most banks have this option) or go in person and speak with a representative. Typically, you may need your drivers license, address and phone number, and Social Security number. There may be other necessary elements that you would need to bring in with you, such as a deposit, so a good option is to call ahead and ask so that you are prepared.
What to Research Before Opening an Account
- Minimum balance requirements: Make sure that if your account does require a minimum balance amount, that it is something you can maintain. If your account follows below the minimum amount, there may be consequences such as fees or even account closings.
- Fees: Beware of any fees that may be charged to your account. These fees can come about for various reasons such as; falling below the minimum, ATM fees, overdrafts, transfers, and much more.
- Restrictions: It is important to become familiar with any restrictions that your account may have, such as withdraw or transfer limits.
- Interest: Familiarize yourself with your bank or credit unions interest rates so that any charges or additions to your account do not come as a surprise.
Checking accounts allow you to deposit and withdraw money and make payments with either checks or a debit card. It is important to not use what you don’t have, or else, you may get an overdraft fee. With some checking accounts, overdraft protection may be added allowing funds to be transferred from another related account in order to cover the insufficient portion. It is important to do your research, as there are many different types of checking accounts which may differ in services and traits. Below is a brief description of a few of the most common ones;
- Basic Checking Account: This is an account that would typically be used to make purchases or payments for daily necessities and other bills.
- Online Checking Account: These accounts forgo any type of physical transaction. They may be similar to a basic checking account (depending on who you bank through), but instead, everything is handled online.
- Interest Bearing Account: These are most commonly used for individuals with higher balances in their account because the higher the amount is, the greater the earned interest rate is. Oftentimes, these require you to keep a high minimum balance in your account.
- Student Checking Account: Since these accounts are directed towards students, they typically have lower fees and if there are any, lower minimum balance requirements.
These accounts are used to keep money that you would like to set aside for a period of time. In a savings account, the bank will pay interest on the deposited balance. Similar to checking accounts, there are also a variety of different types of saving accounts, the most common ones are listed below.
- Basic Saving Account: These tend to have a reasonable minimum balance requirement and lower interest rate.
- Money Market: These accounts generally are a good place to invest your money because they have lower risk and accrue higher interest, but, they may require a higher minimum balance.
- Certificates of Deposit (CD): CDs are another option when deciding where to invest your money while you are saving. These accounts tend to have higher than average interest rates, but, there is usually a limitation in regards to how much you are able to withdraw.
- Automatic Saving: These accounts automatically withdraw from your checking account and deposit the selected amount into your savings.