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Free bank checking account advice and basic banking facts
Free bank checking tips:- Remember that money deposited into an FDIC insured bank account is safe. To further boost consumer confidence despite the credit crisis, the federal government said it would temporarily raise the insured amount from $100,000 to $250,000 per depositor.
- Be prepared to pay some type of fee for a checking account, because those types of accounts are the less profitable for banks. Banks pay lower rates on interest-bearing accounts than brokerages and mutual fund companies that offer check-writing privileges. Checking fees can be high, up to $200 a year or more unless the bank offers a special no fee deal for maintaining a minimum required balance.
- Inflation (cost of living increases) can erode what you earn from a bank account.
- Banks may use different formulas to calculate interest rates. To compare how much money you'll earn from various accounts in a year, ask for each account's annual percentage yield. Banks typically quote both interest rates and APYs, but only APYs are calculated the same way at every bank.
- Certificates of deposit (CDs) offer some of the best guaranteed interest rates on your money and are insured up to $250,000 each through the end of this year. The drawback is that you'll have to turnover your money for three months to five years or more. The good side is that; if interest rates fall before the CD expires, the bank is out of luck and must pay you the rate it quoted. If rates climb; however, you're still locked with the guaranteed rate. Money market accounts can become an attractive option, too, and they pay more than banking accounts plus you don't have to lock up your money for a specific amount of time.
- Watch those ATM fees. The price tag of enjoying the convenience of automated teller machines is becoming more costly. The average fee charged by a bank for you to use another bank's machine is $1.46. And then, the other institution will charge you an average of $1.97 to use its ATM.
- Shop and compare bank fees. Some banks may offer free checking to shareholders or to customers who direct deposit paychecks. Compare fees, yields, and minimum deposit requirements nationwide.
- Consider benefits. Online banking can make bill paying easier and faster to avoid late fees. To further avoid late fees, you can setup automatic bill pays directly from your account for recurring monthly expenses.
- Maybe you don't need a bank? A number of financial institutions offer accounts that resemble bank services, such as credit union accounts, mutual fund company money market funds and brokerage cash management accounts.
Now that you've reviewed basic banking facts, here are tips on how to choose the right bank for you.Consider:- The amount of money you plan to deposit at the bank - The higher your average balance, the more likely you are to get "free" checking by offsetting fees with earned interest. Currently, the average balance required for a no fee, interest earning checking account is over $3,460. For non interest earning checking accounts, the average minimum balance is around $110 to avoid a monthly charge.
- The volume of checks you'll write - Some no fee accounts limit the number of checks you may write and charge high fees if you exceed that limit. If you write a few checks a month and won't meet the minimum balance required to avoid fees, you might benefit best with a no frills, flat fee checking account.
- The banking services you need - If you use ATMs frequently, make sure the bank has plenty conveniently located near you. If you use another bank's ATM, you might pay $3.00 or more for the privilege, once you combine the surcharge imposed by the other bank and the fee your bank charges for going to another bank's machine.
- How many different types of accounts you want - The more accounts you have with your bank, the greater your chances of getting price breaks and perks. So if you have a checking and savings account and are taking out a mortgage or signing up for the bank's credit card, be sure to ask if you're entitled to any discounts. Using the Internet is one of the easiest ways to compare fees, yields and minimum deposit requirements nationwide.
Non-interest or interest earning bank acccount?Sometimes a non-interest checking account may be more cost effective than an interest earning account. For one thing, interest earning accounts don't earn much. You need to compare the cost of maintaining the account to the amount of interest you'd earn.Other tips:- Instead of parking the majority of your cash in a savings account, you could open a certificate of deposit (CD). If you've opened one at your bank, ask if your CD, checking and savings accounts can be "linked" - that way, you'll have an easier time meeting minimum balance requirements in your checking account. When you open a CD, you agree not to withdraw your money for a period of time ranging from three months to five years or more. The shorter the term of the CD, the lower the rate you'll get. If interest rates fall, you're in luck because the bank must give you the rate it quoted when you bought the CD. If rates climb, however, you're stuck with the rate you agreed to even though it's lower than one you could get if you bought a new CD. You can get money out of a CD prematurely but you'll pay a penalty. When opening a CD, be sure you understand whether the rate is fixed or variable, and how often the interest compounds. A CD interest rate can yield different sums of money depending on whether a rate is compounded daily, weekly, monthly, quarterly, or yearly.
- Banks also offer money market deposit accounts (MMDAs), which typically invest your money in short term loans to government agencies and corporations. Typically, they require you to keep around $2,500 on deposit. Because the minimum is high, a money market account is often free, and you're likely to get free checks to write against your account's balance. However, there may be a minimum check-writing amount, and you may be limited to the number of checks you may write a month.
When shopping for an interest account, keep the following in mind:- Banks frequently review yields - Yields are updated regularly, often on a weekly basis, and may lower or raise the rates quickly. That means the rate that's offered when you open your account may be different a month later.
- Banks can quote rates that compound daily, weekly, monthly, quarterly, or yearly.
- Do the math... Over a period of 12 months, a high interest rate that compounds yearly could yield less money than a lower interest rate that compounds daily. To compare how much money you'll earn from various accounts in a year, ask for each account's "annual percentage yield" in addition to its interest rate. Banks typically quote both interest rates and APYs, but only APYs are calculated the same way everywhere.
- To see how quickly your money will grow in an interest bearing account, try our savings calculator.
- Few people would pay a bank $15 or $20 a month for an account that pays no interest if they knew how to avoid it, and if avoiding it didn't take too much work.
Cost cutting tips:- Buy cheap checks - If you write a large number of checks, it may pay to shop around. Some banks charge $24 or more for a box of 200 checks. You can get that same box for less than $10 by ordering direct from the printer. Online services also offer a wider range of check designs.
- Get overdraft protection - It's usually free to set up. The average bounced check fee ranges from $20 to $30. If ever you write a check that exceeds your account balance, overdraft protection automatically covers the extra money needed. But be sure your bank isn't hitting you with a daily fee in addition to the non-sufficient funds fee if you bounce a check. Also, make sure you get 30 days to repay the overdraft. A number of banks hide charges and restrictions for people who use their overdraft protection service.
- Ask for discounts - Periodically check with your bank to see if there are better deals for your money. Over time, your financial situation changes and you may qualify for a higher interest, lower cost account upgrade.
- If you have a debit card, ask for cash when you make purchases so you won't need to use an ATM and you'll avoid the ATM fees. Most banks don't charge a fee for this service, just check to see if your bank is among the majority.
- Invest in the bank if it offers free checking and free checks to shareholders.
- Limit bank visits and transactions - Some banks offer no fee checking accounts if you agree to do all your banking at its ATMs. If you must visit a teller, make sure it's for a transaction that you couldn't perform at an ATM, otherwise you'll be charged a fee. Banks also may offer low fee checking if you confine yourself to 10 or fewer transactions a month, including ATM withdrawals, checks, and debit card purchases.
- Learn the full terms to qualify; and maintain, a free checking account. Most banks will give you free checking but only if you maintain a balance of at least $500 to $2,500 in a low or no-interest account. But say your bank requires a $2,500 minimum to avoid fees, and you need only $1,500 to cover your checks every month. The remaining $1,000 could be earning more interest for you in a money market account at a brokerage or mutual fund company. Of course, the difference may be less than what you'd pay in checking fees if you didn't keep the required minimum balance, but "free" checking it's not.
- Link your accounts - For example, if you have a high-yield CD in addition to a checking account at the bank, you can satisfy the minimum balance requirement if your bank treats the money in all your accounts as one combined balance.
Online banking:The best online banks go beyond bill payment and balance updates to let you check your credit card accounts, look at both your banking and brokerage accounts, make trades, and get free stock quotes. To combat phishing scams, banks with online services have gone to great lengths to increase the security of their transactions, adding new layers of encryption.If you think you'll do all your banking online and are in search of better rates, you might be considering an Internet bank. Internet banks can often provide higher yields on accounts and lower rates on loans than traditional banks due to the reduced cost of their operations. But in exchange you forfeit some of the conveniences of a traditional bank.Often transactions occur more quickly online than in person, but there are some cases when you just need a human teller.Internet banks don't usually have their own ATMs, so you will pay surcharges every time you use another institution's, although you may be offered some reimbursement for these fees by your bank. Also, be aware of the occasional Internet bank whose accounts are not insured by the FDIC.Checking and savings accounts are not the exclusive domain of banks. They are also offered by some non-bank businesses. Here are three of the most common:- Credit unions operate much like banks, and deposits in member credit unions are federally insured up to $250,000 by the National Credit Union Share Insurance Fund (NCUSIF). As with more traditional bank accounts, the insurance on credit unions returns to $100,000 at the end of this year. The key difference is this: Credit unions are nonprofit, member-owned cooperatives whose members share something in common, such as a labor union, college alumni association, employer, or community. Members' immediate family may also be allowed to join. Since credit unions return profits to their members, interest rates for savings and checking accounts at credit unions tend to be higher than at commercial banks, while fees and minimums tend to be lower. But a credit union may offer fewer services than a bank and they may have more restricted access to ATMs.
- Money market mutual fund companies offer money market accounts that tend to have higher yields than those on banks' money market deposit accounts (MMDAs). Mutual fund company accounts, however, are not typically insured against loss by the FDIC, whereas MMDAs are. The Treasury Department issued a Temporary Guarantee Program for mutual fund accounts as part of the government's rescue efforts to shore up confidence during the credit crisis. The backstop for mutual funds is not automatic, and the guarantee is only temporary. Mutual funds have to apply for the backstop and the coverage is only granted through April 30 of this year. Nevertheless, mutual fund companies make it a practice to kick in extra dollars whenever necessary to make sure that they maintain a constant price of $1 per share, so in practice your chance of losing money is slim. Mutual fund money market accounts require a minimum opening deposit; typically $500 to $5,000, and may require that you maintain a minimum balance. Many also let you write checks on the account, though there may be a minimum check writing amount (typically $100 to $500) and/or a limit to the number of checks you can write per month or per year.
- Cash management account work like a combination bank/brokerage account, consolidating your investments with your day-to-day cash flow. Cash-management accounts (CMAs) are offered by brokerages for affluent customers who had discretionary income to invest but also wanted a liquid, bank-like account that earned higher interest than a traditional bank account. In a CMA, your cash earns money market rates, and you get checking and credit card privileges, an ATM debit card, and often a line of credit or a margin account. If you overdraw your account, the interest you're charged on the loan is likely to be lower than that on a bank overdraft. In many instances, too, the interest may be characterized as margin interest, which can be tax deductible. The fee for a CMA typically ranges from $50 to $180 a year, though it may be waived if you have $50,000 to $100,000 or more in your account. In addition, you may pay fees if you make trades through your account or consult with an investment adviser at your brokerage or who is affiliated with a subsidiary of your bank. Cash up to $100,000 in a brokerage CMA is protected by the Securities Investor Protection Corp.
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