Saturday, October 17, 2009

Checking Accounts

The purpose of a checking account is not to save or earn money, but simply to handle it conveniently. A few checking accounts earn a small percentage of interest, but most do not.

Not all checking accounts are created equal
When searching for a new checking account, there are several things to keep in mind:
  1. Location, location, location: Having at least one bank branch (or ATM at the very least) is much more important for a checking account than a savings account. With a checking account, you'll probably be making transactions fairly often. You may need to cash a check, deposit a check or some cash, or make a withdrawal. If you don't have access to an actual bank branch with teller services, you can't cash checks or make large withdrawals (as ATMs usually have a withdrawal limit of around $250 per day.) Also, many people are wary about making cash deposits via ATM; the potential for the deposits to be lost or miscounted is higher than with checks, as cash is not traceable, and there is no teller there to verify the transaction.

    That said, it's also good if your bank has several ATMs around your city/state. That way, you can have access to cash when you're out partying downtown.

  2. Account Fees: Look for a fee-free account. There's no need to pay $50 a year just for the privilege of having a checking account. Most banks have checking accounts aimed at students, and these almost never have fees. Beware of hidden fees like "minimum monthly service charges." If you're pretty sure you'll keep the account minimum (if there is one), then you don't really have to worry about low-balance fees. Just don't forget.

  3. Online banking and bill pay: This is more important to some people than to others. But if you've never used it, you should know: online banking can be a life saver. Need to transfer money *right now* and can't get to the bank? No problem. Need to check your balance? Easy peasy. Want to save trees and stamp money by receiving and paying your bills online? You got it.

  4. ATM fees: If you travel a lot, these can kill you. Almost no bank will charge you to use their own ATMs, but almost all of them charge you to use other banks' ATM. Find out what the bank's policies are regarding ATM fees (and partner bank ATMs, if any) before you open your account.

  5. Interest: Most checking accounts right now pay half a percent or less in interest. Many pay no interest at all. If you can find one that pays 1 or 2 percent interest with no fees or catches, grab it. If not, no worries. Most people don't keep enough money in their checking accounts to accumulate much interest anyway. has a cool feature that lets you compare various aspects of checking accounts in your area, such as APY, account opening fee, annual fee, fees for bounced checks, required amount to open the account, required minimum account balance to avoid fees, whether they offer online banking, and ATM fees and surcharges. It's super helpful.

The Dreaded Bounced Check

When you write a check for more than you have in your checking account, your bank has one of two options. It can either front you the money and pay, or it can "bounce" your check/transaction. If it does pay, your check doesn't actually bounce, but your account will overdraft and the bank will usually charge you an overdraft fee. And if it doesn't pay, then you get charged a bounced check fee, plus whoever you wrote the check to might charge you a returned-check fee too. If you screw up and bounce a check for the first time, don't be afraid to ask your bank for a break, especially if you've been a good customer thus far. Sometimes, they'll be willing to waive or reduce your fees. Don't expect that to work more than once, though.

ATMs (or cashpoints for all you Brits) are wonderful inventions, but they can be expensive little buggers if you're not careful. Banks love to charge access fees which will sometimes show up as unwelcome surprises on your bank statement. Normally your bank will only charge you an access fee (or surcharge) if you use an ATM owned by another bank, and often it's doubled because that other bank tacks on their own surcharge. (One transaction can end up costing $8. No joke.) Most of the time this isn't a problem because you know where the nearby branches of your bank are, and you stick to using those ATMs. It's when you go out of town (or out of the country) that it can become problematic. One temporary solution, if you only need a bit of cash, is to use your debit card somewhere for a small purchase, pack of gum, etc. (or better yet, something you need anyway) and then use it to get cash back. But if you know you'll be out of town, check your bank's website ahead of time and find out if they've got branches where you're going and where they are. Also, most banks have partnerships with banks from other regions that allow their customers to use any of the partner banks' ATMs either without a surcharge or with a smaller surcharge. This information can be found on your bank's web site or by simply phoning and asking. Make sure you find out 1) what ATMs you can use 2) how abundant they are in the area where you'll be traveling and 3)if there will be any surcharges.

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