One of the most basic resources for money management is the humble checking account. Access to a checking account gives you the ability to direct deposit your paycheck, pay bills online, track spending, and make purchases with a debit card. In the past it was relatively easy to find a bank offering a free account, however, today most accounts come with fees and very strict rules regarding account use. Understanding and following the banks guidelines will keep checking account costs at bay and provide an effective money management tool.
In addition to checking accounts, banks generally offer a full range of services including savings or money market accounts, investments, and lending. Most customers begin their banking relationship with a checking account and expand from there if the experience is positive. Those without bank accounts are commonly referred to as the ‘unbanked’ and may be vulnerable to alternative products and services that come with even higher fees than the average checking account.
Understanding how checking accounts operate is the best way to reduce fees and take full advantage of all the benefits these accounts have to offer.
- Account Application. Qualifying for a checking account involves a short application accompanied by a government issued ID. The bank then pulls your credit file and reviews the banking industries version of the credit report, through ChexSystems. This report provides a summary of how you have handled previous bank accounts including any history of overdrafts, bounced checks, or accounts left in the negative. A poor record with another bank could prevent you from opening an account. Local banks or credit unions are often more lenient with application requirements than national banks. Some companies specialize in helping those with previous financial trouble get back on their feet even though the credit and/or ChexSystems report may contain negative information.
- Account Maintenance Fees are the most common fee consumers are aware of because it is often what determines your choice of accounts. The key to keeping maintenance fees low is to select an account that closely mirrors your actual account activity. If you find yourself paying a monthly fee on a regular basis, move to another account. This is often a simple re-coding process, and may not require you to change account numbers. Account balances can generally be met through funding a savings account, opening a credit card, or having a loan with the bank. Low fee and accounts with low balance requirements tend to have more restrictions regarding how the account is used and might include limits on the number of transactions or requiring direct deposit. Pay attention to the details to avoid monthly maintenance fees.
- Debit Cards Operate Differently Than Credit Cards. Debit purchases are deducted from your checking account whether you select debit or credit at the store. A PIN transaction goes through the ATM system and a signature goes through the Visa system. PIN purchases, however, do not offer the same liability coverage as signature purchases. For cash back transactions, you must use your PIN number. Other purchases may be converted from PIN to a signature transaction, by hitting cancel when the system asks for a PIN number. You will then be allowed to sign for the purchase and use the Visa system which may also give you more protection over using the ATM system.
- Tracking Spending Is Still Necessary. Balancing your account and tracking expenses will prevent overdrafts. Relying solely on the available balance the online activity is showing could result in fees, because debit card transactions may take several days to post to the account and not all holds are accurate. Sometimes a ‘hold’ does not show up until the purchase posts, several days later. Transactions at gas stations and restaurants will often have a final dollar amount that is different than the hold amount.
- Foreign ATM Fees Can Always Be Avoided. When you need to withdraw funds from your account, it is easy to make your way to the closest bank for a withdrawal. If that bank is not ‘your’ bank you could pay upwards of $5 or $6 dollars for the money, because both ‘your’ bank and the ‘foreign’ bank will charge a fee. To avoid this fee, always use ‘your’ banks ATM. In the event, this is not convenient, go to a grocery store, gas station, pharmacy, or department stores like Walmart or Target, and make a small purchase with cash back. This will avoid any fees and still give you convenient access to your funds.
- Disputed Charges Are Handled Differently with Credit and Debit Cards. When a credit card purchase is disputed, you are not responsible for the bill or interest. Once the investigation is complete the charge is removed from your account and the money is not owed. Debit card disputes require you to get your money back and can take up to two weeks to investigate. It is also more difficult to get money back with debit card This is especially true with auto drafts that have been canceled but pay anyway. Returned items from debit purchases are also not immediate and may take several days.
- Choose Bill Pay Over Auto Drafts. Bill Pay is generally a free service that makes paying bills convenient. You initially set up the account, entering the account number and billing address. Then enter the amount and date to be paid and payments become automated. Re-occurring bills of the same amount can be set for automatic payments. The bill pay process gives you more control over funds because changes can be made to payments until the day before the bill is paid. Auto pay is much harder to change which can result in overdraft fees on the account.
- Overdraft Protection is not as straight forward as it seems. An overdraft account can be set up through a savings account, a line of credit, credit card, or a specific overdraft account. Fees are typically charged when the overdraft is used, which are lower than typical Not Sufficient Funds (NSF) fees. Current laws require debit purchases to be rejected if there is not enough money in the account. However, if you have an overdraft account established, a debit purchase may be approved, even if you do not have enough in your checking and overdraft accounts combined, resulting in fees. Overdrafts to a credit card are considered a cash advance resulting in cash advance fees, higher interest rates, and transfer fees. It is generally possible to manually move money into the checking account the same day and avoid the transfer fee when an overdraft on the account is made.
- PIN and Passwords Matter. Selecting a PIN and password that cannot be found in your wallet will protect your account in the event your wallet is stolen. Getting a wallet with RFID protection or RFID protection sleeves will prevent remote readers from gaining access to your information. Changing passwords and PIN numbers frequently provides greater protection on your account.
- The Changing Face of Banking. Technological advances are increasing banking options providing remote access for many transactions. This transition is allowing online banks to be more competitive and reducing reliance on your local branch.
Checking accounts have many benefits and when used judiciously, they can save money and help improve your money management skills.
If you are burdened with high amounts of credit card debt and are struggling to make your payments, or you’re just not seeing your balances go down, call Timberline Financial today for a FREE financial analysis. Our team of highly skilled professionals will evaluate your current situation to see if you may qualify for one of our debt relief programs. You don’t have to struggle with high interest credit card debt any longer. Call (855) 250-8329 or get in touch with us by sending a message through our website here http://timberlinefinancial.com/contact-us/.