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Banking Basics

Posted on 23 August 2008

In college, you evaluated your needs (sweatshirt or Tupperware?), made your decision and opened an account with the respective bank. After graduation, the process of choosing a bank remains the same; the impact of your decision, however, is greater because the prospect of actually earning money means you need to closely and effectively manage it.

I can almost guarantee that at some point in your first year or two out of school, you will overdraft your account. It happens to the best of us. But you can reduce the chances of mismanaging your money or racking up big service fees if you put the effort in up front.

But you don’t have to take it from me. According to the American Bankers Association (ABA), the first thing to do when evaluating banks is to identify your “banking personality.” The following questions will help assess your motives for choosing a new bank, weigh your financial needs and prepare for a rewarding relationship with your bank.

  • What is your goal in establishing a banking relationship?
    Perhaps all you need is a checking or savings account. Maybe you anticipate you’ll need a loan in the next year or two. Examine your financial goals to determine what you want and expect from your bank.
  • How much money can you keep on deposit each month and how many checks will you write? This will help you determine if you need a simple or more complex account structure. Most new grads can get by with a “no frills” account that offers a minimum of service at an extra-low price. If the only checks you write each month are to your landlord and to Visa, this is probably the way to go. Keep in mind that many banks limit the number of checks you can write during a calendar month and charge a set fee for each cashed check over the specified limit, so read the fine print.
    For those with more sophisticated needs, consider “packaged” or “multi-service” accounts that offer a variety of services for one fee. Other accounts are designed cafeteria-style with a “pay-as-you-go” service structure.
  • Is there a minimum balance requirement?
    This is a key question to ask your bank. The student account you had in college probably didn’t require a minimum balance. Now, it will be harder to find accounts that don’t force you to keep a few thousand dollars in the bank at all times – and you probably won’t be able to do this for awhile.

    • Does the bank provide overdraft protection?
      As we said, you may find yourself in need of this service. Typically, banks will link your accounts so funds will automatically transfer from savings to checking if you write a check that’s bigger than your balance. Many will also cover an overdraft up to a certain credit limit. Avoid this situation – but if it does happen, make sure you pay back the bank quickly to avoid hefty financing charges.
    • Will you be buying a home or car or making another large purchase in the near future?
      If so, you’ll want to find out about the variety of loan products offered and the qualifications necessary to secure them. Do you need to have a certain amount in the bank to qualify? How do their interest rates compare with other loan providers?
    • Do you want to start saving for the future?
      Many banks now offer uninsured investments, such as mutual funds, as well as the more traditional insured deposit accounts. Even if you’re not ready to start socking away for the future, you may be able to get a better interest rate on your savings by opening a money market account or a CD.
    • Do you like the convenience of automated teller machines and other types of electronic services – like banking through your PC – or do you prefer to deal directly with bank personnel?
      Answering this question will help you determine if you’d be happier at a bank with an extensive branch network emphasizing regular, evening or weekend hours, or one that focuses more on electronic services like ATMs and PC banking. To cut back on personnel costs, some banks now charge for transactions conducted through bank representatives. If you don’t desire the human touch or prefer to pay your bills online, you may want to consider one of several online banks, which typically have the lowest fees of all.
  • That being said, many banks do offer a basic checking or savings account with no minimum balance – for a monthly fee. However, this fee typically is waived or significantly reduced if you opt for direct deposit of your paycheck (check with your employer to make sure they offer this option). If you absolutely can’t find an account without a required balance, make sure you can handle any fees the bank charges for dipping below the minimum.

Once you’ve identified your “banking personality,” begin calling, visiting or researching banks via the Internet. Yahoo Inc. provides a comprehensive online banking center that lets users get information from nearly 200 banks around the nation. Remember to compare fees and service charges as well as interest rates on loans and deposit accounts. What does each bank charge for services like cashiers checks, safe deposit box rental and ATM use?

Be sure to clarify the exact terms of the account before committing yourself to it; Tupperware is not adequate compensation for low interest rates and high banking fees.

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2 Comments For This Post

  1. Chris says:

    Personally, for my banking needs, I’ve decided to stay away from the brick and mortar banks and have gone to online savings accounts. I can get a higher APY, with an easy sign up. For example, Venture Bank Direct (www.venturebankdirect.com) offers a 3.8% APY with no minimum balance requirement.

    The setup was quick and easy and I was earning interest in 1 day.

  2. Marcus says:

    I checked out venturebankdirect.com. Have been happy so far. They are in the process of launching their online checking accounts.

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