Before opening a bank account, it is important to know and understand the basics, as well as how to get started with banking. That way, you can maximize what the bank has to offer, at the same time, take full advantage of the benefits of banking.
Let’s face it, all of us reach a certain point in our lives when we will have to manage our finances. As a kid, perhaps you have your parents to manage your money, but once you reach a certain age, you will have to do it on your own.
Financial management, though it sounds overwhelming, is actually simple and easy as long as you know how to work around it. You know the basics, you know where to put your money, etc.
One aspect that is always present when it comes to financial management in banking. People, regardless of age, deal with banks. Banks are like our safe-keepers. They keep our money, ensure that it’s safe and secure and that it is ready anytime we need it. More so, by keeping our money in the bank, we get to earn – maybe not that big, but still, our money earns.
Now, if you are a newbie in banking, it is important to understand how it actually works. More so, you need to know what you actually need, and what you are expecting from a financial institution. That way, it’s easier for you to weigh your banking options, and eventually, choose the perfect bank for you.
Just so you know, according to data published by Statista, currently, there are 4,708 FDIC-insured commercial banks in the United States. That’s a lot!
Now, you know what we mean, right? With so many options around, how then do you choose the perfect one for you?
Well, today, we are going to share with you some of the basics on Before opening a bank account, it is important to know and understand the basics, as well as how to get started with banking. The information we shall be sharing is essential especially to those who are new to the idea of banking.
In particular, we are going to share with you the following information:
- Definition of Banking
- Types of Banking Services
- Account Types
- Where to Open an Account
- What to Look for in a Bank Account
- What to Avoid in a Bank Account
- Opening a Bank Account
DEFINITION OF BANKING
Before we proceed to the process of how to get started with banking, we got to first and foremost, define what banking is. We need to know and understand what banking is all about, and the concept of banking.
A bank refers to a financial institution that is licensed to accept deposits, as well as recurring accounts from the people. It also makes loans to those who need money for specific reasons.
Apart from that, most banks also provide financial services like wealth management, currency exchange, as well as safe deposit boxes.
Whenever we hear the word bank, we thought it refers to just one particular body. What most of us do not know is that there are actually different kinds of banks, which depend on the client they are servicing in. Three of the most common types of banks include retail banks, commercial or corporate banks, and investment banks.
In a lot of countries, banks are usually regulated by either the national government, or by the central bank.
Now, when we say banking, it basically refers to the industry that handles financial transactions such as cash, credit, and many more. Banking may also refer to the act of doing bank transactions or dealing with banks, and the like.
In the United States, banking is known as one of the major drivers of the economy.
If you want to learn more about what banking is all about, you may refer to this video by Kurzgesagt – In a Nutshell:
TYPES OF BANKING SERVICES
Now, as part of the process on how to get started with banking, we also need to know the different types of banking services offered by banks. This will help us gauge the right service according to our preferences.
When we say banking services, it basically refers to everything — from savings accounts, to checking accounts, to loans, and more.
As a potential customer or client, it is best to decide which specific banking service or services is/are most important to you, and also, if you are or are not willing to pay for some of these services.
Here are some of the different banking services that banks offer:
SAVING AND STORING FUNDS
To be honest, we find banks as the safest place to store money. Instead of keeping your cash at home, putting it in a “piggy bank,” or carrying it with you, storing it in the bank helps ensure that your money is safe and secure. Don’t worry, keeping it in the bank does not mean you won’t have access to your money. Banks let you easily access your funds anytime (and anywhere) you need them through electronic banking or through an ATM.
Make sure though that you are keeping your money in an FDIC-insured bank or credit union so your money is protected by the U.S. government. So, if by chance the bank where you stored your money fails, your funds will not completely evaporate.
Some of us would want to use banks not just to keep our money, but also to be able to earn interest from it.
If that is your goal, then you got to find a bank that offers a service or services that could help you reach such a goal.
There are bank accounts out there that help you grow your money by paying interest.
In a certain period of time, compounding interest helps grow your original funds into a larger amount of money.
However, please take note that most banks do not pay as much as many investments do.
If your goal is to earn a larger amount of money from your account, then, you better check investment options instead (but that’s for another topic).
Apart from storing and keeping their clients’ money safe and secure, banks are also into the business of lending money.
Banks provide a variety of lending options such as auto and home loans, credit cards, as well as lines of credit for starting a business.
MOVING MONEY AND MAKING PAYMENTS
Banks understand that people need easy access to their money. Thus, they provide products like checking accounts, which allows you to write checks against your money in the bank.
Also, banks provide several ways to make electronic payments wherein a lot of them use the Automated Clearing House (ACH) network or electronic funds transfer (EFT) system.
Specifically, banks offer the following features (Please note that features differ from one bank to another. That is why it’s always best to check with your preferred bank first before opening an account with them.):
- Pay bills online
- Use your debit card to make payments at retailers or online merchants
- Move money from one account to another through the bank’s app or via an online banking service
- Provide account information to companies to be able to pull funds from your account through automatic payments
- Send money to family, friends, and businesses that you buy from via a third-party app or an online banking service
Most banks, if not all, offer a wide variety of account types that will suit customers with varying needs and preferences.
As a potential bank customer, it is important to be aware of the different account types that the bank offers. That way, it’s easy for you to detect if the bank is ideal (or not) based on your needs.
Here are some of the common types of accounts that banks offer:
Savings accounts are the most basic type of bank account. You basically put money in, and then the bank pays you with a little interest, and then, if you need funds, you can withdraw cash or you can opt to transfer to another account.
The downside of a savings account, though, is that it is not ideal for everyday spending. That is because there is a limitation when it comes to how often you can make certain types of transfers or withdrawals.
Unlike savings accounts, checking accounts do not usually have withdrawal limits. Thus, making it ideal for those who need to access their money every time.
To use your funds in your checking account, you can do any of the following:
- Write checks
- Enter your card number online
- Set up bill payments online
- Swipe your debit card
- Authorize billers to get the fund you owe
Meanwhile, the downside of checking accounts is that usually, they do not pay interest. Although, there are interest-bearing checking accounts, they do not pay more as compared to savings accounts.
CERTIFICATE OF DEPOSIT (CD)
Apart from savings accounts, certificates of deposit also earn interest. CDs are another good choice for those who want to put their money in the bank in order to earn interest.
However, unlike savings accounts, CDs are not easily accessible. Banks require that you leave your CD funds untouched for a particular period of time.
Should you intend to get your money ahead of its maturity date, the bank will have you pay a penalty.
With CDs, terms normally vary from six months to five years, and even longer. If you want to earn more, then go for a longer-term.
MONEY MARKET ACCOUNTS
Money market accounts are like a mix of savings and checking accounts. Usually, money market accounts pay more interest as compared to savings accounts.
A money market account allows you to spend your money easily by either writing checks or by using a debit card.
The catch with money market accounts is that the government limits the number of withdrawals or transfers up to six per statement cycle only.
Money market accounts are ideal for emergency savings or for infrequent expenses.
WHERE TO OPEN AN ACCOUNT
The bank is normally used generically. If you do not know yet, there are actually different types of banks out there. But of course, big banks are typically the most popular option when in fact, local or regional banks, as well as credit unions, are actually better choices especially if it’s your first account.
Thanks to digital technology and the internet, online banks are booming and are becoming a popular option especially among the young ones.
For your reference, here are the different bank options where you can open an account:
You can usually find large banks as well as global banks advertised aggressively. Needless to say, since they are huge, they usually are present in numerous locations.
Big banks are often household names plus they normally offer a full range of products and services.
Furthermore, big banks have a global reach, a lot of ATMs to choose from, and their customer service is often available 24/7 through phone (or in some cases, through chat).
The downsides of using a big bank though are that since they are huge, you might find them complicated to navigate. Also, there’s a chance of paying more and higher fees as compared to smaller banks and credit unions out there.
REGIONAL AND COMMUNITY (OR LOCAL) BANKS
Unlike big banks, regional and community banks focus on smaller geographic areas. Normally, they would either serve customers in several states or in just a few towns.
Since they are on a smaller scale, these types of banks is usually more involved in communities. They help individuals, as well as businesses, operate locally. Technically, regional and community banks may play an important role in the local economy.
Now, since they have a more personal touch or personal approach, these banks are more likely to offer free checking accounts and loan approvals.
Unlike big banks though, since these are smaller banks, they typically offer limited options with regards to their products and services.
Credit unions are very much similar to regional and community banks. What makes the difference is that credit unions are not-for-profit organizations that are owned by the members (which are also their customers). Banks are usually investor-owned.
In order to take advantage of the products and services offered by credit unions, you need to be a member first. By the way, being a member means becoming a partial owner of the credit union.
A lot of credit unions have eligibility requirements like belonging into employee groups, associations, or geographic areas.
Being part of a credit union means enjoying superb customer service, lower fees, and of course, access to a shared network of ATMs.
With the advent of digital technology and the internet, the banking industry adapted to it — thus the existence of online banks. Today, there are more online banks coming out, offering customers digital access.
Most online banks operate entirely online without brick-and-mortar branches. This type of bank is ideal for people who are tech-savvy.
What’s nice about online banks is they pay higher interest rates on savings accounts than traditional or brick-and-mortar banks, which we thought is the very reason why this is becoming the new norm in banking.
WHAT TO LOOK FOR IN A BANK ACCOUNT
When finding a bank where to keep your money into, make sure to look for one that offers the following:
- Good Interest Rates – As much as possible, look for a bank that pays high-interest rates, but offers low rates on loans. Interest rates become more important as dollar amounts get bigger.
- Minimal Fees – If you can find a bank that does not charge any fee, then that’s a good find. Otherwise, at least choose the one with minimal fees particularly on monthly service charges and low-balance fees. It’s non-sense keeping your money in the bank at the same time paying high fees. It defeats the purpose of saving.
- Additional/Special Features – All banks offer almost the same types of products, but what makes one different from another? Usually, it’s the features that come with it. So, look into that, and see if it’s a good deal.
WHAT TO AVOID IN A BANK ACCOUNT
While there are certain factors that you should look into a bank, there are also things that you should avoid. This includes the following:
- Limited Availability of Funds – Banks’ rules are different from one another. While some lets you access your money in just a day or two business days, some hold your deposits and would let you wait a week or so before you get to use your money.
- Unnecessary Fees – As we have said, when looking for a bank, make sure to look for one with less or no fees at all. Also, make sure the bank does not charge unnecessary fees like low balance fees, inactivity fees, fees for bouncing checks, and many others.
- Errors and Fraud – As a customer, it is important that you are confident with the bank where you store your hard-earned money into. Thus, make sure to look for a credible bank. A bank that has been there and get through the test of time.
OPENING A BANK ACCOUNT
How to get started with banking is pretty much easy, right? It actually is if you know the basic information. It should not cause any hassle at all.
Anyway, now, we go into how to actually open an account — assuming by now you already have a specific bank in mind.
Generally, banks will ask you to provide the following information:
- Personal Details – This includes your name, date of birth, and Social Security Number or something similar
- Identification – Banks normally asks one or two identifying documents like a driver’s license, passport, or other government-issued ID.
- Address – This refers to your physical address.
The above-mentioned information is actually required by the law.
Now, when opening an account, banks do have varying deposit requirements depending on the product that you are availing. Some may require at least $25, while others require at least $100. It’s best to check with the bank first regarding this.
FINAL THOUGHTS ON HOW TO GET STARTED WITH BANKING
Getting started with banking, as you can see, is actually not that complicated as long as you know the basics.
So, have you been enlightened on how to actually start with your banking experience?