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Best Banking Practices
Banking isn’t easy. You have thousands of institutions from which you can choose. Each one has a long list of disclosures, fine print, account requirements, and more. You also have to worry about fees and penalties for breaking any of these requirements.
Getting the most out of your banking can take some work. Follow these best practices to keep your money safe and make banking an easier experience.
What to Look For In a Bank
When you work so hard for the money you earn, you deserve to stash it with a bank with the best features. Here are some things to look for when choosing a financial institution.
Primary Account Types
With the wide variety of account types and other products and services available, looking through each bank’s catalog of offerings can become overwhelming.
Here are the types of accounts you’ll find at most financial institutions.
- Checking: Checking accounts provide you easy access to cash for spending. You can withdraw your money by writing a check, using your debit card, visiting an automated teller machine (ATM), or using electronic funds transfer (such as if you were paying a bill online). Some checking accounts pay interest, but the rates are quite low.
- Savings: Savings accounts are designed to help you save money. These typically limit you to six withdrawals a month per Federal Reserve Board Regulation D and don’t come with debit cards. All savings accounts pay interest. Many banks now offer high-yield savings accounts with interest rates that match or beat inflation in some cases. Consider savings account interest rates when choosing a bank.
- Individual Retirement Accounts (IRAs): Traditional IRAs are retirement accounts that let you deduct your contributions from your taxes each year. Your contributions grow tax-deferred. In retirement, your traditional IRA withdrawals are taxed at your ordinary rate. Roth IRAs are the opposite: you make contributions with after-tax income, but your money grows tax-deferred, and retirement withdrawals are tax-free.
- Brokerage Accounts: Through taxable brokerage accounts, you can invest for a variety of financial goals, such as retirement or your child’s college expenses. Many banks offer both managed portfolios — where the bank’s experts handle your investments for you — and self-directed trading.
- Money Market: Money market accounts are interest-bearing accounts that blend features of checking and savings accounts. Interest rates are often similar to high-yield savings accounts, but they may be lower. You can write checks against your money market funds, but Regulation D again limits you to six withdrawals per month. Money market accounts typically have higher minimum balance requirements.
- Certificates of Deposit (CDs): A CD is a time deposit, a financial product commonly sold by banks, thrift institutions, and credit unions. It lets you store away a lump sum deposit for a fixed amount of time, during which you cannot withdraw the money. In exchange for the lack of liquidity, CDs usually pay more interest than savings accounts. CDs can be helpful if you have extra cash you won’t need for a while and you want to beat inflation.
Account Balance Requirements
To draw in new customers, many banks now offer no minimum deposit — meaning you can open a checking account with $0. Once you open the account, you may have to meet a minimum balance and other requirements to avoid fees.
Fees are big business for banks — in 2015, Bank of America, Chase, and Wells Fargo earned over $6 billion combined in overdraft and ATM fees alone. Whether you’re hunting for a new bank, or looking to save on your expenses with your current bank, watch out for these common bank fees.
- Account closure fees (up to $25): Some banks will charge you for closing your account within a specific time frame after opening the account.
- Minimum balance/maintenance fee (up to $20): Many banks will waive your maintenance fee if you maintain a specified minimum daily balance, or if your direct deposits total a specific amount each month. Each bank defines direct deposit a bit differently, so call your bank to confirm that deposits made to your account count.
- Overdraft fee (usually around $30): Banks charge these when your account balance dips below $0 due to a transaction or transfer. You typically have one day to initiate a transfer to cover the balance.
- Out-of-network ATM fee ($1-$3): If you use an ATM that is not your bank’s, you’ll pay an out-of-network ATM fee. Some banks reimburse you for these fees.
- Paper statement fee ($2-3 per statement): Switch over to paperless billing to avoid these fees.
- Wire transfer fees (About $20 for domestic, $35 for international): Wiring allows you to send money fast, but you’ll pay a steep fee for the convenience.
Regulations dictate that at least $200 of any deposit must be made available to you by the next business day — but many banks make a portion or all of your deposits available immediately, regardless of the method with which you made the deposit.
Rewards and Perks (For Debit Cards)
Your credit card likely offers cashback points and other rewards — some banks do the same by providing rewards checking accounts. With a rewards checking account, you can earn points on debit card purchases.
Now, many of these accounts have additional requirements you must meet to enroll in the rewards program. Make sure you ask about these requirements before committing to a new bank.
Mobile and Online Banking
Mobile and online banking features let you manage your accounts without visiting a branch. A responsive and intuitive banking website makes managing your money so much easier. Even better if it also has a mobile app – viewing your bank accounts on the go can come in handy when you can’t access a computer.
With technology, however, comes the risk of hackers and thieves trying to steal your bank information. Here are some best practices for banking security to follow, regardless of your financial institution.
- Never access online or mobile banking on unprotected/public Wi-Fi or computers: Hackers may be able to break through security protocols and access your sensitive financial data if you use online or mobile banking on public Wi-Fi or computers. If you must use your mobile banking app outside of your home, use your data.
- Always be sure that encryption protocols are in place: You’ll know if encryption protocols are if you see a padlock symbol and “https” at the beginning of the URL in your browser’s address bar.
- Create a strong and unique password: Your password should be at least eight characters long and consist of numbers, letters, and symbols. Write the password down on a piece of paper and keep it somewhere secure. Never share your password with anyone.
- Set up account alerts: Your bank will alert you via text or email every time a transaction is made. Most banks offer fraud alerts for additional protection. Your bank will flag suspicious transactions and ask you to confirm that they were valid.
- Be cautious about copycat sites: Scammers will email you from an address with a URL nearly identical to your bank’s, hoping you think it is your bank. Never answer emails from your bank. Instead, either log in to your account and view your message. Alternatively, call the bank and speak with a representative instead.
Make sure your bank has accessible, responsive customer service. When you have questions or concerns about your bank account, you should be able to access a representative with ease. Today, many banks offer phone, email, and live chat support. Some also have a Twitter support account you can contact via tweeting or direct messaging.
Many banks offer promotional sign-up bonuses to attract new customers. For example, a bank may offer $200 when you open a new checking account and set up direct deposit. Some offers may require you to maintain a certain balance for a specific period, such as for 60 days after opening.
Out of all these factors, fees top most peoples’ lists. Paying to store your money somewhere safe may strike you as unfair. Fortunately, you can minimize your fees by taking action.
How to Negotiate Bank Fees
The average bank customer pays around $10 a month in bank fees. That means you’re likely spending $120 per year to keep your money safe at a bank — wiping away any interest you earn. If you own more than one account, that number could climb. You might need to expedite a transfer, or worse, accidentally overdraw an account.
The good news is you can negotiate many bank fees and protect your hard-earned savings. If you see a fee on your account, call your bank’s customer support line immediately. When you speak with a representative, leverage your customer loyalty — keeping you as a customer is easier for banks to do than acquiring a new customer. Additionally, if you rarely incur fees, make sure to inform the representative.
Maintain a calm but firm demeanor while on the phone. Representatives are much more willing to help those who remain polite. If you receive pushback, ask to speak to a supervisor.
As for fees to negotiate, overdraft fees are the easiest. Most banks will give you a one-time courtesy refund, no questions asked. Some will reset your courtesy over a period, such as one year. Beyond that, you may be able to get an additional overdraft waived if it was accidental — perhaps you made a second transfer before a previous transfer cleared, and your balance dipped below $0 — you’re a long-time customer.
Perhaps you’ve negotiated with your bank to no avail, though. If your current bank is set on draining your account through fees, you can always look for a different bank.
How to Switch Banks
If you’re dissatisfied with your current bank — whether through excessive fees, poor customer service, or security concerns — now’s the time to find a different bank. Thanks to mobile and online technology, switching banks takes less time. However, it involves more than making one transfer to a new account. To avoid penalties, fees, and headaches when switching banks, there are a few steps you must follow.
Research New Banks
Consider which features you care about the most when looking for a bank. Maybe you want a brick-and-mortar bank so that you can interact face-to-face with a teller. Or, perhaps you want an institution with a large network of ATMs so you can access cash easily.
You don’t have to stick with one institution. For example, if you find an online bank paying fantastic interest rates, but with substantial maintenance fees on checking accounts, as well as a brick-and-mortar bank with easy fee waiver requirements, you might consider opening a savings account at the former and a checking account at the latter.
Keep in mind, however, that transfers between accounts at separate banks take time. Take note of any transfers you make so that you don’t initiate another transfer — before the first one has cleared — and accidentally overdraw your account.
Open Your Account at Your New Bank
Open your new account at your chosen institution. You’ll need to provide basic information like your name, address, Social Security number, and a government-issued ID (such as a driver’s license). Also, make sure you’re able to meet the minimum opening deposit amount, if any.
Most banks do, at most, a soft pull of your credit — meaning it looks at your credit, but it doesn’t harm your credit score. For the few that do, the hard pull won’t hurt your score that much if you have a strong credit history
Before you move money over to your new account — beyond your minimum deposit — you’ll want to take stock of any bills and subscriptions paid automatically out of your old account.
Consider community banks to support your local economy. It may make your overall banking experience easier. Some local banks have a good amount of local knowledge which could prove handy when asking for a loan (mortgage or business loan).
List All of Your Bills and Subscription Payments
If you move money to your new account before changing your payment settings for your bills and subscriptions, those bills will keep charging your closed account automatically — leading to fees and penalties.
Gather a year’s worth of statements from your old account and identify any automatic deposits and withdrawals. These could include direct deposits, recurring transfer to and from other accounts, and automatic bill and subscription payments
Then, you can begin moving everything to your new account.
Begin Transferring Money and Automatic Transactions to Your New Account
Move some of your old account’s funds to your new account, but leave enough in the old account to cover any upcoming automatic payments. Change your direct deposit information with your employer as well.
Next, change your automatic bill and subscription payments to withdraw from your new accounts. Triple-check that you’ve covered every automatic payment. Failure to change one could lead to fees and credit damage.If you have any automatic transfers between other bank accounts, address those as well.
Finally, move the rest of your money to your new account. When you’ve cleared out the old account, you’ll need to close it.
Close Your Old Account
Check once more that your old account does not have automatic transactions attached, then begin the closing process. You can contact your bank in-person, online, or with a written request. Some banks may allow you to close your account online as well.
Be ready for a sales pitch when you contact the bank to close your account. Don’t let them talk you into staying. The Consumer Financial Protection Bureau recommends that you request a written confirmation of the account closure — this will come in handy in case the bank fails to close your bank account properly.
If an automatic payment or deposit occurs on your old account after closure, your bank will reactivate your old account. Call your old bank about 30 days from account closure to confirm that your account is closed.
Now you’re set to enjoy your new bank.
Banking can get complicated, especially as your wealth grows. There are several types of accounts you can use, but plenty of requirements and fees to watch out for as well. Secure and convenient mobile and online banking have become critical factors to consider in today’s banking environment as well.
You’re not stuck with your bank, though. If it’s been fleecing you with fees, you can move your money to an institution that will respect you more as a customer.
Prioritize what’s important to you in a bank, and look for institutions that offer what you need. You worked hard for your money — you deserve a bank that works hard for you.