For Everyday Banking: Choosing the Best Account for You
Whether you’re a 20-something just starting a career or a family or you’re still in school, a checking or other transaction account will be essential to making payments and managing your income and budget. These tips can save you time and money.
Look for a bank account that offers the services you want and low fees. Contact multiple institutions and determine which accounts are considered best for young adults or students. Look at services you are most likely to use and the related fees, including any penalties if the balance drops below a minimum. One service you should expect to use is direct deposit of your paycheck. “With direct deposit, you don’t have to worry about getting to the bank to deposit the funds because it will be done automatically for you,” said Nancy Tillmon, an FDIC Consumer Affairs Specialist. Direct deposit will arrive at your bank fast, and it may save you money on your bank account.
For guidance on what an affordable transaction account or savings account for a young consumer could look like, aspects of some low-cost accounts suggested by the FDIC may be helpful. Find a summary of these model “safe accounts” at www.fdic.gov/consumers/template/template.pdf.
Consider a low-cost banking account before settling for a prepaid card. Reloadable prepaid cards that can be used at merchants and ATMs are sometimes marketed as alternatives to traditional bank transaction accounts. while prepaid cards may be useful in some situations, they generally cannot match a well-managed, properly selected, low-cost, insured deposit account when it comes to federally-guaranteed consumer protections, the safety of deposit insurance, monthly charges and transaction fees, and the flexibility to save money and conduct a wide range of everyday banking transactions.
“Before you get a prepaid card, you should carefully read the cardholder agreement, which should be readily available on the card’s web site, to make sure you understand the terms and fee schedule,” suggested Susan Welsh, an FDIC Consumer Affairs Specialist.
Also be aware that the funds you place on a prepaid card may or may not be protected by FDIC insurance if the bank that holds the money (for you and other customers) were to fail. If you have questions, call the FDIC toll-free at 1-877-ASK-FDIC (1-877-275-3342).
Debit cards provide a great service, but understand the pros, cons and costs. Debit cards, which deduct funds directly from your checking or savings account, offer a convenient way to pay for purchases and to access cash at stores or ATMs. “Debit cards can help you stay within a budget as long as you don’t overdraw your account. Then you are spending your money, not money you have borrowed,” said Alberto Navarrete, an FDIC Consumer Affairs Specialist.
But debit cards can be costly if you’re not careful. For example, expect fees if you drop below a minimum required account balance or you use the card at another bank’s ATM. Also, you should report a lost or stolen card immediately to minimize your liability for unauthorized transactions. Welsh added that consumers who lose a debit card they rely on for all their transactions can ask for speedy delivery of a replacement card.
Avoid overdraft costs. Ask your bank if it can link your checking account to your savings account and automatically transfer money between accounts if you empty your checking account. The transfer fee will probably be considerably less than a regular overdraft fee. Also review your account frequently, if not daily, online. “Many banks have online banking services that send text or e-mail alerts when your balance reaches below a certain dollar amount that you can set,” advised Joni Creamean, Chief of the FDIC’s Consumer Response Center.
Also, think carefully before you “opt in” (agree) to an overdraft program, which can be costly. In general, opting in means that if you swipe your debit card and don’t have enough funds to cover the transaction, the bank will charge you an overdraft fee to let the transaction go through. That could result in a $5 purchase, such as a cup of coffee and a muffin, costing you an extra $35.
“Remember that your decision whether or not to opt in only applies to everyday debit card transactions. The bank could still charge a significant fee if, for instance, you write a check when you don’t have enough money in your account to cover it,” cautioned Jonathan Miller, Deputy Director in the FDIC’s Division of Depositor and Consumer Protection.
You can also avoid unexpected fees by keeping a close watch on your balance before spending money from your checking account.
Finally, if you are billed an overdraft fee that you believe is incorrect, contact your bank immediately. If the institution will not refund the fee, contact its federal regulator for assistance. “If you are not sure who regulates the bank, you may always file your complaint with the FDIC and we will make sure it gets forwarded to the correct agency for investigation,” said Creamean. You can submit your complaint online at www2.fdic.gov/StarsMail/index.asp.
If you’re a college student receiving financial aid, do your homework before choosing an account and a debit card. “Before your financial aid is disbursed, check out the program offered through your school. You need to understand the terms of that product before you are committed to use it to access your financial aid,” Tillmon said. “If you have an existing bank account with a debit card that you will be using on campus, you may be better off having the financial aid money deposited there.”
For more tips and information on getting the most from a bank account, including a 10-question self-test to help people looking for a new account, see the Summer 2012 FDIC Consumer News at www.fdic.gov/consumers/consumer/news/cnsum12.