October Monthly Money Makeover: October Edition
Welcome back to Monthly Money Makeover, your go-to series for transforming your financial health and knowledge, one concept at a time. This month, we’re diving into something that seems straightforward but is often misunderstood: the basics of banking. Now, you might think, “I already know how to open a bank account, Dasha,” but stick with me. There are key details and strategies that many people overlook or don’t fully understand when it comes to selecting, managing, and optimizing a bank account.
Breaking Down the Basics of Banking
Opening a Bank Account: More Than Just Picking a Name You Recognize
When choosing where to bank, most people go for convenience or a brand they’ve heard of, without considering some of the deeper factors that can impact their financial wellness. Instead of thinking, “What bank is closest to me?” ask, “Does this bank align with my financial needs?” Consider things like:
- Fees for Basic Services: Many people sign up for bank accounts without checking fee schedules. That free checking account may not be so free when you factor in overdraft, monthly maintenance, or ATM fees. Make sure you know exactly what you’ll be charged for using your account.
- Interest Rates and Minimum Balances: It’s easy to get excited about opening a savings account, but are you aware of the minimum balance required to avoid fees or the interest rate you’ll earn? Many banks offer shockingly low interest rates that don’t do much to grow your money. Shop around for an account aligning with your savings goals—whether it’s a high-yield savings account or a checking account earning interest.
Hidden Features: Are You Leaving Perks on the Table?
Your bank account could hold hidden gems you’re not using. Here’s what many people miss:
- Automatic Savings Tools: Some banks offer automatic ‘round-up’ features that take the spare change from each debit card purchase and move it to a savings account. If saving regularly feels like a stretch, these tools could help you save painlessly.
- Early Direct Deposit: Some banks allow you to access your paycheck up to two days earlier if you have direct deposit set up. This small change could make a huge difference in your cash flow and help you avoid payday loans or other high-interest borrowing.
- Alerts and Controls: Stay on top of your finances — look for banks that offer customizable alerts for low balances, unusual transactions, or upcoming bills. These tools can help you avoid fees and control your money better. Some banks also allow you to set spending limits or lock your card instantly if it’s lost or stolen.
- Sub-Accounts for Budgeting: Certain banks allow you to create sub-accounts or ‘buckets’ within your savings or checking account. These can divide your money for different savings goals, like vacation, emergency funds, or big purchases, helping you stay organized and track your progress more easily.
Bank Safety: FDIC vs. SIPC Protection
You’ve probably seen the term FDIC-insured, but do you know what it really covers? Many people assume it means everything in their account is automatically safe. However, FDIC insurance covers only up to $250,000 per depositor, per bank, in case the bank fails. And it doesn’t cover investments like stocks, bonds, or mutual funds.
If you have investment accounts, make sure they’re under SIPC (Securities Investor Protection Corporation) protection, which is a different layer of protection designed to safeguard the securities in your investment accounts, not cash deposits.
Overdraft Protection: Is It Actually Helping You?
Many banks offer overdraft protection, but it’s important to remember that it’s not always a benefit. Overdraft fees can add up fast, often costing you $35 or more each time you accidentally dip below your balance. Instead, consider opting out of overdraft protection, so your card is simply declined if there aren’t enough funds. This small adjustment could save you hundreds in unnecessary fees over time.
Digital-Only Banks: Are They the Right Fit for You?
Digital-only banks have become increasingly popular with the rise of fintech, offering features like no-fee accounts, competitive interest rates, and streamlined, user-friendly apps. However, before making the switch, it is important to assess your personal banking needs. Consider whether physical branch access is something you value or if reliable customer service is your top priority. While digital banks can offer convenience and benefits, they may only suit some, especially if you prefer in-person interactions or require more immediate customer support.
The Things No One Talks About: Building a Strong Banking Relationship
Having a solid relationship with your bank can go beyond your day-to-day transactions. Here are a few things to consider when building a healthy relationship with your bank:
- Negotiate Fees: Don’t be afraid to ask your bank to waive fees, especially if you’ve been a long-time customer. Banks are businesses, and they may waive a fee rather than lose you as a customer.
- Utilize Financial Planning Services: Many banks, especially credit unions, offer free or low-cost financial planning services. If you’re unsure how to set up your financial future, see if your bank offers these services as part of their package.
- Inquire About Loyalty Perks and Bonuses: Some banks quietly offer loyalty perks to customers who’ve maintained accounts for an extended period. These perks include interest rate bonuses, reduced fees, or exclusive access to products like higher-yield savings accounts or better loan rates. This isn’t always advertised, so it may be worth asking your bank if they have any rewards for long-term customers.
Banking for the Future: Preparing for Bigger Financial Moves
Lastly, think about how your bank can support your long-term goals. Whether you plan to buy a home, start a business, or save for a major purchase, your bank should work for you, not against you. Look for features like:
- Home Buying Assistance Programs: Some banks offer programs to help first-time homebuyers with lower mortgage rates, down payment assistance, or even grants.
- Business Banking: If you’re an entrepreneur or planning to start a side hustle, look into business accounts that offer better transaction limits, perks like cash back, or networking opportunities.
- Personal Line of Credit: Some banks offer personal lines of credit that you can tap into when needed. These lines of credit offer more flexibility than loans, allowing you to borrow and repay as necessary, which can be especially useful for managing larger expenses or covering cash flow gaps without relying on high-interest credit cards.
Your banking needs will change as your financial goals evolve, so you must review your accounts and services regularly. Don’t be afraid to switch banks if your current one isn’t meeting your needs—loyalty to a name shouldn’t come at the cost of your financial well-being.
