How to Secure Your Money
It is unsafe to walk around with large amounts of money or to keep an excess of cash in your house.
The safest way to protect your personal funds is to deposit your money into federally insured establishments. The vast majority of U.S. banks and savings institutions are federally insured, which means they are protected by the Federal Deposit Insurance Corporation (FDIC). If your bank is a member of the FDIC, your money is insured up to $250,000 USD per account. (NOTE: recent U.S. legislation increased the amount from $100,000 to $250,000.) In the event that your bank closes, your money will still be safe. To find out more, call the FDIC's Division of Compliance and Consumer Affairs (DCA) toll-free at 800-934-3342.
Be aware that the FDIC secures deposits but does not insure investments (such as mutual funds) against possible losses. Also, remember that not all banks are FDIC-insured. Be careful of uninsured establishments—you may see these firms advertising attractive high-rate interest accounts over the Internet.
Types of Banking Accounts
Checking accounts
A checking account makes it easy to spend money using checks, ATM cards or debit cards. You can open a checking account for yourself or a joint account with your spouse or another person. There are various advantages to having a checking account. Most commonly, people find check useful for paying bills, buying products, sending money to friends and family, and transfering money into accounts at other financial institutions. When you open a checking account, your bank will give you a supply of checks—to order more checks your bank will generally impose a flat charge.
Checking accounts are often linked to Automated Teller Machine (ATM) cards, which allow you to withdraw money directly from your checking account at Automated Teller Machines. Your bank will allow you to choose a secret code for your ATM card—this code is called a Personal Identification Number, or PIN. Remember never to give anyone your PIN.
Many checking accounts also issue debit cards, which can be used widely at stores to purchase items. More and more banks issue one card, which serves as both an ATM card and a debit card. Always remember to keep your ATM cards, debit cards and checks in a safe place to prevent theft.
Do checking accounts pay interest?
Not all checking accounts pay interest, but some do. There are generally two types of checking accounts; the most common type is a demand deposit account. These accounts do not pay interest and the fees are generally lower. A second type of checking account—a negotiable order of withdrawal (NOW)—does pay interest. NOW accounts often require you to maintain a higher minimum balance. Moreover, although NOW accounts pay interest, the fees are routinely higher than regular checking accounts. Be careful that you aren’t paying more in fees than you are earning in interest. Ask your bank for more information.
Some banks and financial institutions charge fees on checking accounts, in addition to the regular charge for the checks you order. These fees vary from bank to bank; some accounts operate on a flat fee, which is usually imposed on a monthly basis. Other banks require your checking account to remain above a minimum balance. If your balance drops below the minimum, you might be charged a fee.
Using an ATM or debit card can also incur fees. Most banks do not charge an ATM withdrawal fee if you withdraw money at your own bank’s ATM. There is almost always a withdrawal fee if you go to another bank’s ATM. Some institutions impose a fee for every transaction you make with your debit card. The best way to avoid these extra fees is to ask your bank about its checking account fee policy.
Many places offer cash-checking services and overseas money-wiring services. Check first to see if your bank offers these services at a lower cost.
Money market accounts
Money Market accounts are savings accounts that generally pay a higher rate of interest than standard checking and savings accounts. While money market accounts allow you to write checks, there are restrictions on how you can access your money. These accounts often require a higher minimum balance to start earning interest. Normally, the higher your balance the higher your interest rates will be.
Savings accounts
Savings accounts allow you to withdraw your money but they do not issue checks, ATM cards or debit cards. As all savings accounts earn interest, many people consider savings accounts a safe and financially sound way to store money over a long period of time. Savings accounts may limit the number of withdrawals you can make per month. Interest rates vary depending on your bank.
There are a number of different kinds of savings accounts. A passbook savings account, for example, allows you to receive a record book of all the transactions you make. Another type, a statement savings account, regularly mails (or e-mails) you a statement that shows your account activity.
Banks and financial institutions may charge various fees on savings accounts, including flat annual fees or minimum balance fees. To open a savings account, you are usually required to make an initial deposit.
Time deposits (“Certificates of Depositâ€)
Time deposits—also known as Certificates of Deposit (or CDs)—are deposit accounts that give you a fixed rate of interest for a particular period of time. Certificates of Deposit offer higher interest rates than regular savings and checking accounts but your account is still federally insured by the FDIC. Interest rates are generally higher the more money you deposit and the longer you opt to leave your money in the account. Banks allow you to select the length of time for your deposit; periods of deposit can range from a few days to several years. Your deposit (known as “the principalâ€) cannot be withdrawn until the time period ends, unless you pay a penalty fee. Penalty fees can be considerable and you can even lose part of your initial deposit. But some establishments do let you withdraw the interest you earn even as your deposit remains.
Certificate of Deposit accounts restart automatically when the account cycle ends (or, reaches “maturityâ€). Your bank will send you a notice before your account comes to an end. If you do not want to continue a new deposit cycle, be sure to notify your bank, otherwise your account will be renewed.
Ask the following important questions about your time deposit account:
- What is the penalty fee to withdraw before the account reaches maturity?
- What is the date at which the account matures?
- Does the account renew automatically? If so, does the bank send a notification to you?
- Is there a grace period for withdrawing your money? How long is it?
If you want to receive the interest on your time deposit account before it reaches maturity, how will the bank pay you?
Does the bank transfer the money to another account or send you a check?
Basic (“no frillâ€) accounts
Basic (or “No Frillâ€) accounts are similar to checking accounts; they allow you to cash checks and pay bills, but they may restrict your withdrawal and transfer activity and limit the number of checks you can use. Basic accounts often feature lower fees but most do not pay interest. However, basic accounts are often the best option for people who do not write a lot of checks. It is advisable to compare your bank’s basic accounts to its checking accounts in order to find the type of account that’s best for you.
Credit union accounts
Credit unions offer account options similar to regular banks, but there are some differences. Credit unions refer to savings accounts as "share" accounts and Certificates of Deposit as "share certificate" accounts. Credit unions typically pay higher interest rates on deposits and lower interest rates on loans than banks—they also generally charge fewer fees. But not all credit unions are insured. Check to see that your credit union is federally protected by the National Credit Union Association (NCUA), which insures accounts up to $100,000.
What Kind of Bank Account Fits You Best?
Finding the accounts that’s best for you
Choosing a bank account that’s right for you depends on your needs. Savings and checking accounts are good options if you want to be able to access your money with frequency and ease. Savings accounts, as you might guess, are popular ways to you’re your money. Checking accounts give you numerous ways to pay bills and spend money, either using checks, ATM cards, or debit cards. Certificates of Deposit are a safe way to earn money on a deposit, but since CDs have minimum time limits, it can be less convenient to reach your money.
If you find that you only write a few checks each month, a money market account might be a better option than a checking account, but keep in mind that minimum balance requirements are often higher for money market accounts.
Compare different accounts
As the consumer it is your right to know your bank’s policies regarding interest rates, fees and other bank account requirements. Ask your bank representative about the details of your account.
Information that banks are required to disclose
According on United States law, all banks and depository institutions must disclose certain information to you, the consumer.
This information includes:
- the annual percentage yield and interest rate
- all cost information and fees
- account features and restrictions
Typically, banks will issue you periodic account statements, which are required to include interest rate and fee information. Below is some important information about bank account features that may help you find the best option for you.
Rates and Fees
What is the interest rate?
The rate of interest is the amount of money a bank pays you to deposit your money. Interest rates vary, but they are always a fixed percentage of the funds in your account. Ask your banker to find out your account’s interest rate. Some banks may change their interest rates after you open your account, so be sure to ask whether the bank can change its rates. Also, check to see if interest rates vary depending on how much money is in your account. Some interest rates are higher based on the amount in your account.
What is compound interest?
Compound interest is a process that allows you to earn interest on both your deposit amount and your earned interest on your deposit amount. In other words, the bank pays you interest on your interest. The frequency at which your interest compounds determines your account’s annual percentage yield; the more often your interest is compounded the greater your annual percentage yield.
What is the Annual Percentage Yield (APY)?
The APY is the percentage of your deposit that you will earn on an annual basis. Each bank and each account may have a different APY. Some accounts require a minimum balance before interest can be earned. Ask your banker whether your account starts earning interest on the day you deposit a check (“ledger balanceâ€) or later (“collected balanceâ€), as this affects how much money you earn and when your interest begins to grow.
Fees and charges
Many banks charge various fees for operating your account. Banks are required to disclose fee information to you, but the details of an account can be complex. Protect yourself against unwanted fees by asking the following questions to your banker:
- What is the fee for bounced checks?
- Is there a flat monthly fee?
- Is there a fee for withdrawing and/or depositing money?
- Is there a fee to overdraft my account?
- If my balance drops below a certain amount, will a fee be charged?
- Is there a charge to use ATM or debit cards?
- Is there a fee for requesting a balance inquiry?
- What does it cost to order new checks?
- If I have multiple accounts at one bank, are my fees lowered?
- Are there fees for direct deposit of checks (such as Social Security or government checks)?
- Is there a flat fee to open or close my account?
Other questions to ask your banker
- How soon does the bank permit withdrawing funds after a deposit?
- If I close an account before interest is paid to the account, does the bank give you the interest you have earned?
- Is there a limitation on the amount of each withdrawal or deposit per day? Per month, or year?
ATM and Debit Cards
The basics of ATM and debit cards
ATM and debit cards are more and more commonly used to spend money. Almost every American bank issues an ATM and/or debit card when you open a checking account. An ATM card gives you 24-hour access to money in your bank account through ATM machines, which are located at banks and many other establishments, including supermarkets and shopping malls. Debit cards are linked directly to your account; when you spend money with the card, your account is automatically withdrawn for that amount. Debit cards typically bear the logo of a major credit card company, but they are not credit cards and they do not affect your credit negatively or positively.
Many accounts issue just one card, which serves as both an ATM and a debit card. Be sure to ask your banker if your card works as only an ATM card or debit card, or whether it can serve as both.
ATM and debit card fees
Make sure to ask your bank about the fees involved in using your cards. Most one-time fees for withdrawing money with your ATM card are around $2. Any fee above $2 is too much—look for somewhere else. Remember that your own bank typically allows free withdrawals from their own ATMs.
Some retail institutions charge a one-time debit card fee. When making a purchase, ask if there are any extra charges when you use your debit card.
Overdraft fees on debit cards
Debit cards typically only allow you to spend up to the amount in your checking account. However, some accounts offer overdraft protection, which lets you spend more than you have on deposit; this may be convenient but the fees for overdrafting your account can be pricey. Be sure to ask your bank about its overdraft policy.
What is a Personal Identification Number (PIN)?
When you receive an ATM or debit card, you will be asked to choose a secret password, known as your Personal Identification Number, or PIN. Any time you make an ATM transaction you are required to enter your PIN. When using your debit card for a retail purchase, you may be asked for your PIN or you may be asked to sign for your purchase. It is safer to carry debit cards that require the use of a PIN at all times because a criminal would need to know your PIN to successfully use your debit card.
Do not tell anyone else your PIN; do not write it down anywhere. If someone else knows your PIN the person could gain access to your money.
Tear up or shred any ATM or debit card receipts to prevent the theft of your personal information.
How do I report a lost or stolen card?
To report a lost or stolen ATM or debit card, notify your bank immediately. Your bank will cancel your old card to prevent anyone else from using it to spend your money. A new card will be sent to you immediately. As long as you are prompt about reporting the lost or stolen card, you will not be responsible for any unauthorized withdrawals or spending.
If you fail to report your lost or stolen card within 60 days of your latest bank statement, your bank will not insure potential losses, which could amount to all the money in your bank account and the unused portion of your line of credit established for overdrafts.
Tips for Avoiding Bank Fees
- Open more than one account at your bank. Many banks reward you for having multiple accounts with reduced or waived fees. Find out your bank’s policy.
- Plan ahead! Since ATM fees can be pricey, think about reducing the frequency of your withdrawals by taking out more cash each time.
- Ask your bank about online banking. Many banks offer savings and reductions in fees for banking electronically.
- Join the club! Many banks offer a special club or membership group that can help you avoid fees and save money.
- Balance your checkbook to avoid overdrafting your accounts or bouncing checks.
- If you write a lot of checks, consider ordering checks from private sources, such as mail-order companies, which offer competitive prices
- If you have a good track record, banks will occasionally waive surcharge fees or offer you special deals. Don’t hesitate to ask your banker.
- Ask your banker if there are ways to save extra money; for example, if you never write checks you may want to consider a basic account.
- Research overdraft protection. Even though there are usually penalty fees for overdrafting your account, overdraft protection can save you money by allowing you to bounce checks for a minimal cost. Ask your banker if overdraft protection is right for you.
- Keep your eyes open! Every once in a while, compare your bank’s rates, fees and requirements to various other banks. Remember, though, that switching banks can be costly in some cases.
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