In a NutshellWhether you are opening your first bank account or moving your money to another financial institution, preparation is a must when selecting the right bank account for your financial needs. You need to compare such factors as interest rates, fees and security features. And when you’re ready to open a bank account, you’ll need to have certain documents on hand.
Does the idea of setting up a bank account seem daunting? It doesn’t have to be.
With a little preparation, opening a new bank account can be simple. Whether you’ve opened a bank account in the past or you’re opening your first account, there are a few things you ought to know to help make the process go smoothly.
- Why do you need a bank account?
- How to choose the right bank account for you
- What do you need to open a bank account?
Why do you need a bank account?
Keeping your money stashed under your mattress could make it challenging to keep it safe. Bank accounts offer convenience and security. A bank account lets you deposit and retrieve money, use a debit card, set up direct deposits, access online banking services and save for the future.
“When a consumer has a bank account with a cash balance, they have money in an electronic format, which they can access almost anywhere in the world. If it weren’t for an account like this, electronic transactions wouldn’t be possible, and you’d be forced to stuff wads of dollar bills in your mattress or a safe in your basement,” says Justin Harvey, founder and president of APMWealth.
Ideally, you should open your first bank account when you begin making money. This may encourage you to establish positive financial habits, like budgeting. Having a bank account makes budgeting much easier — it’s hard to keep track of your money when you are digging into your mattress to find an extra $10.
Bank accounts have strong security controls in place to keep your money protected. Many banks have systems and procedures in place to help detect and reduce the risk of identity theft and fraud. Many financial institutions offer security alerts to let you know if there has been any irregular activity in your account, like any withdrawals over a specific amount. Many banks also offer transaction alerts, which notify you whenever a transaction is made from your account. Keeping your money at home may not give you the same peace of mind.
How to choose the right bank account for you
Everyone has different financial priorities. There is no one-size-fits-all approach to finding the best bank account to meet your financial needs. Here are some things you may want to consider when opening a bank account.
Factors you should consider when opening a new bank account
Shopping around for bank account options is key. Each bank will have a variety of benefits and potential bonuses, but you’ll also want to consider fees, interest rates, flexibility and how you plan to use the account.
Fees: Many bank accounts come with various fees, like overdraft fees, maintenance fees, out-of-network ATM fees and international transaction fees. For example, Wells Fargo charges $2.50 for non-Wells Fargo ATM transactions and 3% for international transactions with your debit card. PNC charges $3 for non-PNC Bank ATM transactions and also charges 3% on international transactions with your debit card.
Keep in mind, many banks have several ways you can avoid some of the fees listed above, including maintaining a minimum balance and establishing direct deposits. Even if you can steer clear of some maintenance fees, it’s still important to understand what they are before applying for a bank account.
Security features: Bank accounts also offer several security features that your mattress may not. For example, there’s insurance protection provided by the Federal Deposit Insurance Corporation. This insurance protects your deposits of up to $250,000 in case of loss or failure if your financial institution is insured. The insurance has limits, though — if you were robbed on the street, for example, the cash stolen would not be insured.
If your FDIC-insured bank is robbed, stolen funds may be covered, though not by the FDIC. Instead, stolen funds may be covered by what’s called a banker’s “blanket bond” — an insurance policy a bank purchases to protect itself from fire, embezzlement, robbery and other causes of disappearing funds.
Also, your bank can also immediately put a hold on your card in case it’s lost or stolen, and then request a replacement. But keep in mind that there may be a fee for the replacement or rush order.
Interest rates: Paying you interest for the money you’ve deposited into an account is the bank’s way of paying you back for doing business with it.
Also, be mindful of interest rate hikes by the U.S. Federal Reserve. This could be a good sign for your bank account. When we see a hike in interest rates, financial institutions often raise rates on their accounts.
Additional benefits: Some banks offer bonuses or additional benefits for opening an account with their financial institution. This can be a great incentive for you, the consumer, to select one account over another. But be careful; bonuses can come with lengthy rules and regulations.
For example, when you open a new Chase Total Checking® account and set up direct deposit, you will receive a $200 bonus. With a new Citibank® account you have the option of earning rewards based on where you live and the type of checking account you open.
You want to fully educate yourself so that you can make a well-informed decision. Determine what’s important to you and how you’ll use the account before moving forward with any financial institution.
What’s the difference between checking and savings accounts?
There are many different types of bank accounts. Two of the most common accounts are checking accounts and savings accounts. Each account takes care of a different set of financial needs and priorities.
Checking accounts offer quick access to your money. Whether you are on the go or banking online, you can access your money almost any time via your debit card.
Another benefit that checking accounts offer is bill pay, a service allowing you to make electronic payments. Many banks can help you set up automatic bill pay (even online), which lets you set recurring payments. This can protect you from late payments and additional fees. If you do establish automatic bill pay, be sure your checking account always has plenty of cash in it to avoid any insufficient fund fees, which are charged by your bank when you withdraw more money than you have in your bank account.
Saving accounts are beneficial when building an emergency fund or saving for specific goals. The interest paid on savings accounts is typically higher than the amount paid on checking accounts. Because the purpose of a savings account is to save, some financial institutions may place a limit on the number of transactions per month.
When opening a bank account, you may also be offered a high-yield savings account, certificate of deposit (or CD) or money market account. These accounts often give you a higher interest rate on your deposits than a traditional savings account — giving you a higher return on your money.
What do you need to open a bank account?
Whether you are opening a bank account online or in person, most financial institutions require several pieces of information to establish your account. If you are a first-time bank account holder, make sure you meet the banking requirements for the financial institution you decide to go with. Different banks might have different requirements, so be sure to do your research ahead of time.
Here’s the most-common information needed to establish your new bank account.
Identification and personal information: Some banks will request a copy of your driver’s license in order to verify your identity. Bank of America, Chase and other major financial institutions generally require your Social Security number, name, current residence and previous bank account information (if applicable) for the initial deposit. Keep in mind that some bank accounts have age restrictions and may require a guardian to open the account with you if you don’t meet the requirements.
Additional applicant information: If you are planning to open a joint account, you will likely need the same information for the additional applicant. To make the process easier, go into a branch together to establish the account.
Initial deposit: Many banks require an initial deposit in order to open an account. You could fund your new bank account with a previous account, money order or other funding option.
Once you have established your bank account, you can set up additional features such as automatic bill pay, which may help with your budgeting needs and help you avoid extra fees.
You may also want to set up a direct deposit for recurring income, which may help you avoid fees as well. Many banks and financial institutions make the direct deposit process simple and convenient. Keep in mind you may need to go directly through your employer to set up direct deposit for your paycheck.
Before you set out to open a bank account, do your research and review all financial institutions you are interested in as well as the accounts they offer. Compare interest rates, fees, the required initial deposit, monthly balance requirements and services such as mobile banking and transaction limits. Don’t forget to make sure your bank account will be FDIC insured, so that your money will be insured no matter which deposit account you choose.
By selecting the right account for your financial needs and preparing in advance, you can help the application process go more smoothly.