Choosing the Right Account for Your Everyday Banking Needs
Questions and tips to help you narrow the field
It's important to have a banking product to handle everyday financial needs, from making payments to getting paid. There's no shortage of options: They range from various kinds of checking accounts to prepaid cards — which, at first glance, often seem like convenient alternatives to bank accounts but may lack the federal protections for insured accounts. How do you choose what's best for you?
FDIC Consumer News has developed a 10-question self-test to help you focus on what you want most in a bank account, plus tips to help you narrow your choices and make a good decision. Ready to get started?
Questions to Ask
1. How do I want to deposit money into an account? If you're not already having your payroll, pension, Social Security payments, unemployment benefits or other income directly deposited into your bank account, look into it. Direct deposit may save you money on fees, and you will receive the payment more quickly than depositing it in person.
For checks that you need to deposit into your account, consider how you'd prefer to do that (in person, electronically, by mail) and whether the bank you're looking at would be a good choice. For example, you might be interested in depositing checks using a smartphone, but not all banks offer that service. Or, if you like to make deposits at a teller window, find out the hours you can do so.
2. How do I plan to pay bills or purchase goods? More people are using debit cards instead of writing checks to draw money from their checking account, in part because of the convenience and speed. The FDIC recently conducted a pilot program at nine institutions offering electronic, card-based accounts and found that "checkless checking" can reduce the risk of overdrawing accounts.
If you want to pay bills online, explore what the bank offers and whether there are any fees. "The potential benefits of online bill-paying services include a confirmation that you paid the bill and, with some institutions, a guarantee that any payment you originate will be delivered on a set day," says Luke W. Reynolds, acting associate director of the FDIC's Division of Depositor and Consumer Protection. "Some banks' bill-payment services will even electronically deliver your bills from certain companies you do business with, which can save you time and hassles." These online programs vary, he notes, so check for any limitations, such as on what bills can be paid through the service.
Also, if you'd like to electronically pay other people (as opposed to companies), find out your options. They may include payment by phone, computer or smartphone. Again, ask about any limitations and fees.
3. Do I want to monitor my account electronically? Telephone and online access to accounts is increasingly becoming the norm. But if you want to monitor your account activity and balance using a smartphone or tablet computer, determine whether these features are available.
Electronic alerts from your bank can save you money. Options may include text or e-mail messages if your account balance reaches a threshold you set (say, $10), so you can curtail spending or add funds to avoid overdraft fees.
4. What are my options for withdrawing cash? Find out if the bank has branches or fee-free ATMs close to where you think you need them, perhaps near your home or work.
You also may be able to get cash from your account when you make a purchase with a debit card at certain merchants. But bear in mind: This can lead to unnecessary expenditures.
5. Are there features that can help me put more money into savings? Many consumers find that setting their savings on auto-pilot — by automatically transferring money into a savings account on paydays or at other regular intervals — is the easiest way to build a rainy-day fund or achieve other savings goals. "Paying yourself first is the most effective way to ensure that you set money aside because, as the saying goes, 'What you don't see you probably won't spend,'" says Lekeshia Frasure, acting chief of the FDIC's Outreach and Program Development Section.
6. What will the new account cost? Pay careful attention to how much money you may need to open and maintain the account. For example, what does the bank charge for falling below the minimum balance requirement?
Making Your Decision
By now you should have a better idea of the features you want in a bank account and how much they're likely to cost. The rest of this list is devoted to questions you should ask before you make a final decision:
7. Have I compared several institutions? Look at each bank's disclosure of fees and key terms. The types of fees may vary considerably from bank to bank. Also, compare the products and features a bank offers on its website to what you are told in person; it's possible that a special offer may be available through certain branches only and not online, or vice versa.
By comparison shopping — based on the fees and how you expect to use your account — you should be able to predict what each account will cost you.
8. Am I giving too much consideration to "rewards" or other special offers? "One-time deals, whether they involve cash or merchandise, can induce consumers to select an account that isn't necessarily the most cost-effective," says Reynolds. "Likewise, with specials that won't last the life of the account, such as an interest rate bonus that will only last a few months, compare the regular terms and conditions of the account to what the competition is offering to decide if the account is right for you for the years ahead."
Also, carefully evaluate the requirements to qualify for any special offer, and determine if that is consistent with how you manage your finances. For example, if you expect to use a debit card infrequently, don't sign up for an account that offers a special interest rate that is conditioned on making a dozen or more debit card transactions per month.
And be especially cautious when the reward is based on making purchases, Frasure adds. "Don't let down your guard against unnecessary spending in order to earn rewards. If you are spending more than you would at another bank, those 'free' rewards may end up costing more than you think."
9. Will all my deposits be federally insured? This is important to know before opening an account or making a sizable deposit in the future. The FDIC guarantees deposits up to at least $250,000 per depositor per institution, including principal and accrued interest, if the bank fails. If you have less than $250,000 in a bank account, you can rest easy knowing that no depositor has lost a penny of insured funds since the FDIC's creation in 1933.
For help or information regarding FDIC insurance coverage, call the FDIC toll-free at 1-877 ASK-FDIC (1-877-275-3342) or visit www.fdic.gov/deposit/deposits.
10. I'm thinking about using a prepaid card to pay for purchases. Do prepaid cards have fewer consumer protections than a traditional bank account? Generally, bank checking accounts, including any cards linked to an account, are covered by comprehensive consumer protection laws that limit how long a bank may hold a deposit before making funds available, for example, or offer protections in the event of fraudulent activity.
However, some people have turned to prepaid cards — which are reloadable and can be used for general purposes (such as at merchants and ATMs) as alternatives to checking accounts — without realizing there may be hidden fees and fewer consumer protections.
"For these reasons and others, often including the inability to easily set aside money in a separate savings account, most prepaid cards cannot offer the features of a well-selected, well-managed bank checking account," says Reynolds. To learn more about prepaid cards, see Debit, Credit and Prepaid Cards: There Are Differences.
Using Your New Account
Once your account is open, remember the following:
• Overdrafts pose the largest risk for costly fees, but you can avoid them. The easiest way is to keep an up-to-date record of how much money is in your account and check your balance before making a purchase or writing a check. Also, ensure that you have sufficient funds in the account to cover any bills automatically paid from the account.
"Mistakes — overdrafts — can happen, so understand how you can deal with the consequences in the most cost-effective way possible," says Frasure. For overdrafts caused by debit card transactions, she explains, if you do not "opt in" (agree) to a fee-based overdraft program from your bank, "debit card transactions that exceed the available funds in the account would generally be declined, but at least you would not pay a costly fee for spending money not in your account."
One way to reduce the risk of overdrafts is to prearrange for an automatic transfer from your savings account to your checking account when the balance falls to zero.
• You can control whether financial companies share your information for marketing purposes with other companies. The privacy of your personal financial records is protected by law. If your financial institution intends to share this information with anyone outside its corporate family, it generally must give you the chance to "opt out" or say "no" to information sharing under certain circumstances. Consult the privacy notice of the institution for details.
• You may choose to switch from paper statements to electronic statements. If you do, be sure to immediately review your electronic statement: Timely reporting of errors is essential to limiting your liability in the event of a problem. Also, if you ever need to confirm that you paid a bill, consider saving a copy of each monthly statement in a secure, perhaps electronic location, especially if the institution charges a fee for retrieving previous statements. For more information, see Going Paperless with Electronic Statements.
• It's important to monitor communications from your bank about changes it plans to make to your account, including new fees. "These notices can prompt you to reevaluate whether you can get a better deal by shopping around," Reynolds says.
For more information on choosing and using a bank account, see the resources listed here.
Adapted from What's the Right Account for Your Everyday Banking Needs?, an FDIC publication.