Wednesday, May 4, 2016, AM | Leave Comment
When opting for various financial products, consumers are most often interested in the interest rates that will result in the largest growth of their money.
This is the case for “nest egg” funds that you do not plan on spending any time soon, but not for money that is needed for regular payments such as everyday purchases, rent, or other bills. For these purposes, the checking account is king.
Interest rates are the last thing you should be concerned with when choosing a checking account. You should, instead, focus on choosing one that best suits your banking needs.
The sheer number of different checking accounts on offer can be dizzying, but by following these tips you should be on the right path to finding a checking account that is perfect for you.
A Brief History
A few decades ago, the majority of people tended to open checking accounts at the same bank where they had their credit card, mortgages and saving accounts.
Since then, the financial services market has gotten so large and diversified that the chances of finding the best deal for all of the above at only one bank or financial institution are slim.
The 90s saw many banks going online, and like traditional banks, they issued statements, ATM cards and checkbooks. The difference is that they had no physical locations, meaning they could operate at significantly lower costs, and funnel these savings into more lucrative deals for their customers.
Credit unions are another valid alternative to banks when it comes to checking accounts.
As credit unions do not have to pay as many taxes as regular banks, they can also have more generous offers than traditional banking institutions.
A checking account that suits one person perfectly might be completely wrong for the next one; it all depends on your banking habits.
The more aware you are of how you tend to manage your money, the more likely you are to find a checking account that meets your needs.
How many checks will you need to write each month?
Do you use out of network ATMs often?
Will you need free overdraft protection?
Are free checks something that will make a difference in your day to day life?
Where to Open a Checking account?
By now, most banks have mastered the art of user friendly checking accounts that record deposits correctly and provide straightforward billing information that is not confusing.
Because of this, most people tend not to put too much thought into their choice of checking account, and often go for the bank that already has their business.
Even worse, a common practice is to simply choose a bank that is closest to your home or workplace. Although seemingly convenient, such a move can have hidden costs that will be adverse in the long run.
Banks that have a lot of branches tend to spend more on rent and operating costs, and they offset this by charging higher fees, as well as offering lower interest rates and fewer deals.
When opening your primary checking account, go with the institution that charges the lowest fees while providing the highest interest rates. This will most often be a bank with no branches that you can reach online or via phone to manage your account. This is great if you have reserve cash in your account and receive your paychecks via direct deposit.
If, however, you are paid with paper checks, or do not have any reserve in your account, you will probably need a nearby branch. This is often true for childcare workers, freelancers, handymen, and many other professions.
Finding the Best Deal
The fundamental indicators of the quality of a checking account are fees and interest rates. When shopping for an account, there are many free online resources that allow you to compare saving and checking interest rates.
Doing some basic research online can end up saving you a lot of money and hassle in the long run. In a nutshell, the higher the interest rates the better, and reversely so for fees.
Some institutions have other perks that you might find of interest, such as customizable checks and credit cards that you can design yourself.
The three most basic fees are ATM fees, account minimum fees and overdraft fees.
If your bank of choice does not have ATM machines, you can assume that using ATMs to draw money will come with a fee. The up side is that some internet banks compensate you for using ATMs that are outside your network, so be sure to ask about reimbursement policy.
Account minimum fees
Another thing to check is if whether or not there is a cap on how often or how much you can be replayed. Account Minimum fees are, simply put, the amount you have to pay per month if your balance is less than a predefined amount.
Although most internet banks do not have these fees, it is well worth checking before opening an account and learning how to avoid these fees.
The third type of fees is overdraft fees: the amount of money you have to pay when you withdraw funds when your available balance is below zero. This can be in the form of a fixed fee or interest on the overdrawn amount.
Many banks sign you up for the overdraft service without asking you, so be sure to grill them on their overdraft policy. Although you should avoid over drafting, it might sometimes be the only available option, so consider how often and how urgently you will need this service.
These are the three most basic fees, but ask around for others such as closing fees; so that you do not have any unpleasant surprises down the line.