Bank Accounts 101
Bank Accounts 101
Are you the type of person who likes keeping all your funds in cash (aka “mattress money”) to use however and whenever you want? If so, you just might want to rethink your strategy.
While it may make you feel good to have a wad of bills in your wallet (even if they are mostly ones!), it’s not the safest way to keep it. Not to mention that it’s too easy to spend that money on fun stuff today instead of saving it for tomorrow’s bills.
But putting most or all of your money in a bank account keeps it secure as well as helps limit those random purchases that are (admit it!) more of a “want” than a “need.”
Still not convinced that a bank account is the way to go? Here are five more reasons that might change your mind!
Reason #1. You have more flexibility when making online purchases.
Do you shop online and plan to use a prepaid card? Sounds good, until you find out that not all online vendors accept those kinds of payments, not to mention that you may have to pay a fee just to purchase it, and then a separate fee if you want to reload it with more cash, says Investopedia. But there is far less chance of the vendor refusing to accept a debit card tied to a bank account. And if your debit card comes from an FDIC-insured bank, federal law limits your loss in the event of an unauthorized online transaction, according to Federal Deposit Insurance Corporation (FDIC). [i] [ii] [iii]
Reason #2. You have proof of payment.
You say you paid that bill. The company said you didn’t. Trouble is, you paid with cash so without a receipt for payment, there’s no proof and no paper trail. But when you pay by check or with a bank debit card, your payment is tracked and easily accessible online, notes Resource One Credit Union. [iv] [v]
Reason #3. It won’t cost you money to cash your paycheck.
If your employer pays you by check and you don’t have a bank account, it will cost you a fee to cash it at check cashing outlet. But if you have a bank account, there’s no charge. You can even use your bank’s mobile app to deposit it with your smartphone. Also, if your employer offers direct deposit of payroll checks (a faster way to get your money), you’ll need an account to take advantage of that option. [vi] [vii] [viii] [ix] [x]
Reason #4: You can easily pay your bills on time.
Hate getting hit with late fees? That can happen if you have to remember to get a money order or go in person to pay with cash. But with a bank account, you can use the bill-paying dashboard to pay bills online and on time, notes Baton Rouge Telco Federal Credit Union. You can even set up automatic bill pay which means every month the money goes right from your account to the company (cell bill, utility provider, landlord) to pay the invoice. [xi] [xii] [xiii]
Reason #5: A bank account helps establish your credit history.
At some point, you’ll need to borrow money. Having an established relationship with a bank or credit union makes it easier to apply for a loan, especially if you have a track record of good money management. [xiv]
How to open your bank account
If you’re ready to make the leap into bank account ownership but don’t know how to go about it, these are the steps.
- Collect the needed documentation: a government identification (state-issued ID or driver’s license, military ID, or passport), your social security card, and your physical address (not a post office box number). (According to Investopedia, the bank will most likely require proof of your physical address. You can use your most recent utility, cable or cell bill, or a credit card statement if it shows your physical address. You can also use the lease agreement signed by you and your landlord.)
- Complete the application online or in person, then sign and date it. If you’re doing it online, you may have to come into the bank or mail the signature page to the bank before the account can be activated.
- Have money available for the initial opening deposit. The bank will tell you how much is required, but it’s generally a small sum for a checking account.
- If your account comes with a debit card, ask when it will be mailed to you, and notify the bank if you don’t receive it. Ask if there are fees associated with using your debit card and be aware that when you use a debit card the money will be deducted from your account very
Make sure you understand any rules or policies for the type of account you are opening. And don’t be afraid to ask questions before you start the application process. Here are some points to cover from the Washington State Department of Financial Institutions:
- Do I need to maintain a certain balance level?
- Are there monthly service fees?
- How broad is the ATM network in my area? (You’ll be charged a service fee to use an ATM that isn’t owned by your bank.)
- How do overdraft fees work and is there a grace period?
- Will it cost me money to order checks through the bank?
- Does my account have FDIC (for banks) or NCUA (for credit unions) insurance?
Now that you’ve opened your account, keep all your paperwork in a safe location. Record any deposits and withdrawals in your register, then balance your account each month. If you run into any problems, go into a branch location, and ask for help.
Once you get the hang of it, you’ll find that having a bank account makes handling your finances much easier than dealing with cash!
[i] Federal Deposit Insurance Corporation (FDIC) — Top Reasons To #Getbanked — You can make online purchases with ease and peace of mind. Some bank accounts provide you with a debit card you can use to shop online. If your account is with an FDIC-insured bank, federal law limits your loss in the event of an unauthorized online transaction.
[ii] TechGenix — Online Payment Methods: The Best Methods to Maximize Your Benefits Prepaid cards are a great way to buy things with cash without personal information. You can find these at your local grocery store or pharmacy, and they work just like debit cards, except you don’t have the risk of creating an international payment plan. It’s a safe and easy online payment method without risking identity theft. Yet, some vendors may not accept prepaid cards as the payment method, so be sure you read the vendor’s policies before buying anything from them. You also can’t know if you’re getting scammed, because you’re using upfront money. You also need to visit a store in person to get a card, so that’s not very convenient. Instead, it’s quite time-consuming.
[iii] Investopedia — What Are the Pros and Cons of Gift Cards? — Some prepaid gift cards charge a fee to purchase them. You may also pay a separate fee to reload money to a gift card if you wish to reuse it.
[iv] Federal Deposit Insurance Corporation (FDIC) — Top Reasons To #Getbanked — You have proof of payment. Whenever you purchase an item with a checking account or a debit card you have the proof you paid on your monthly statement.
[v] Resource One Credit Union — 10 Reasons to Open a Checking Account —5. There is a paper trail: Another risk with paying bills or other expenses in cash is that you run the risk of the payment not being tracked or filed appropriately. What do you do if you pay a $300 utility bill with cash and the utility company neglects to credit the payment to your account? How can you prove that you ever made the payment in the first place? When you’re paying with cash, debit card, or via online bill pay, everything gets tracked via statements and transaction ledgers. You have a paper trail to prove every payment you ever make.
[vi] Westchester County — Benefits of a Bank Account — Cashing checks: Using a check cashing outlet really adds up. You can deposit and cash your checks at the institution where you have a bank account for free.
[vii] Resource One Credit Union — 10 Reasons to Open a Checking Account — 3. Dealing with checks is easier: The entire structure of our society is skewed in favor of people with bank accounts. Most employers don’t pay in cash; they pay with check or via direct deposit. If you don’t have a bank account, direct deposit obviously isn’t an option. Even cashing a check can be a challenge without an account. Many banks will cash your payroll check but will require you to pay a fee if you aren’t a member. With a checking account, you can collect, deposit, or cash your paychecks in a more convenient (and ultimately less expensive) way.
[viii] Baton Rouge Telco Federal Credit Union — 8 Reasons Why You Should Open A Checking Account Direct Deposit—There are many reasons you’ll want a direct deposit in your checking account. You can gain access to your paycheck funds, your IRS tax refund, or even a settlement without having to wait for a physical check, which generally takes longer. Having direct deposit access allows your money to be safely deposited into your checking account. There’s no reason to wait for a check, risk losing your check, cashing your check, or risk losing the cash. Everything happens automatically, safely, and securely.
[ix] Baton Rouge Telco Federal Credit Union — 8 Reasons Why You Should Open A Checking Account you can quickly deposit checks. If you do receive a check, you want a safe place to store the funds without having to get cash. You can deposit your check at your convenience using your bank’s mobile app.
[x] U.S. News & World Report— How to Mobile Deposit a Check With Your Smartphone While there are some exceptions, depending on your bank, here's how to deposit a check by phone: Download your financial institution's app. Understand your bank or credit union's policies. Endorse the check properly. Take photos of the front and back of the check. Confirm transaction details and send to your financial institution. Hold on to the check for several days. Discard the check once it's cleared.
[xi] Westchester County — Benefits of a Bank Account — Paying bills: Without a bank account, you probably rely on check cashing outlets, telephone bill pay or money orders—all of which have attached fees—to pay your bills. With a checking account, you can write checks for free or pay online at a low cost.
[xii] Resource One Credit Union — 10 Reasons to Open a Checking Account —4. Paying bills is a breeze: Today’s checking accounts typically come with intuitive online banking features. Among those features is a bill-paying dashboard. Use this system to pay credit card bills, utility bills, or other bills directly out of your account balance. If you have a bill that is the same every month, you can even set up your account for automatic bill pay. In any case, paying bills online is easier than paying them in cash or money order.
[xiii] Baton Rouge Telco Federal Credit Union — 8 Reasons Why You Should Open A Checking Account You can easily make payments using a checking account. Most companies will allow you to make a payment using your routing number and checking account number or the associated debit card information. You can set up automatic payments through the company or use services like Online Bill Pay to automate your monthly payments.
[xiv] Westchester County — Benefits of a Bank Account — 5. Bank accounts can help you access credit Banks and credit unions can help you access credit to acquire a home, a car, student or personal loan, because banks tend to favor existing customers, particularly those who manage their money well. Plus, going to small loan lenders that lend you cash quickly can be quite expensive because they charge lending fees and high interest rates.
[xv] Washington State Department of Financial Institutions — Deposit insurance at banks and credit unions Deposit insurance is one of the significant benefits of having an account at an FDIC-insured bank or NCUA-insured credit union. Deposit insurance protects your money in the unlikely event of a bank or credit union failure. How much am I covered? The standard insurance amount is $250,000 per depositor, per insured bank or credit union, for each account ownership category. The Federal Deposit Insurance Corporation (FDIC) insures deposits in FDIC-insured banks. The National Credit Union Administration (NCUA) insures deposits at NCUA-insured credit unions.
[xvi] Washington State Department of Financial Institutions — Bank Account Basics Questions to ask when choosing a bank account Does the account have monthly fees or a services fees and can I afford them? Is there a minimum balance requirement for the account and can I afford it? How broad is the ATM network? Will you be able to access your money easily if you travel? Are there branches near you that allow you to deposit or access your money? How do overdraft fees work? Are there fees for ordering checks? Does the account have FDIC or NCUA insurance?
[xvii] Baton Rouge Telco Federal Credit Union — How To Open A Checking Account [Step-By-Step Guide] — You will need to provide specific information on your checking account application from the documents listed below and/or copies of the documents to verify your identity and address. Although different banks and credit unions have varying requirements, in general, you should have these ready for your application: Government identification in the form of your driver’s license, military ID, or passport Social security number Date of birth
[xviii] Investopedia— What to Bring to a Bank to Open a Checking Account While a few banks allow you to open a checking account using a post office box, most require that you include a physical address on the account. The best way to prove your address is by bringing in a current official document with your name and address. Your most recent utility bill, cable bill, credit card statement, or even a cell phone bill should suffice. a lease agreement signed by you and your landlord. Banks also require you to have either a valid Social Security number (SSN) or individual taxpayer identification number (TIN) to open a checking account. If you have an SSN, bring your Social Security card with you to the bank so the representative can verify the document.
[xix] Baton Rouge Telco Federal Credit Union — How To Open A Checking Account [Step-By-Step Guide] — Most banks and credit unions have online applications to open a checking account. You can also visit a local branch to complete the process. Whichever you choose, your application should only take a few minutes. You will need to provide your personal identification information such as your name, birthday, social security number, and address. This is why having your documentation ready in advance makes it easier for you to complete your application.
[xx] Baton Rouge Telco Federal Credit Union — How To Open A Checking Account [Step-By-Step Guide] — 4. Set up an initial deposit If your checking account requires a minimum opening deposit, you will need to set that up next. Some checking accounts don’t require an initial deposit or only require a small amount. At Baton Rouge Telco, we have 3 checking account options that only require a $5 minimum deposit. Your deposit can be made from an internal account if you’re already banking with the financial institution or from an external account. Either way, you will need to provide all relevant account information and authorize the transfer.
[xxi] Baton Rouge Telco Federal Credit Union — How To Open A Checking Account [Step-By-Step Guide] — 5. Sign documentation The final step in opening a checking account is to sign your application agreeing to all terms and conditions and confirming that the information you provide is accurate. If you’re submitting an online application, this can usually be done online, though some banks and credit unions will require that you mail in the signature page for their records. Your checking account will not be active until all necessary documentation is signed and received.