Who you bank with and the account you choose can impact your financial health and quality of life in many ways. In this comprehensive guide, we’ll explore many banking facets to help you decide where to open your first account, enrich your banking knowledge, and much more. Before we delve into your personal banking decision-making, let’s explore the history of American banking:
Table of Contents
History of Banking in the United States
The first American bank was the Bank of Pennsylvania, founded in 1780 to fund the Revolutionary War. At the time, Americans were still trading with British currency and relying on English banks. However, this wasn’t compatible with waging war against the British for control of the colonies. In 1781, the Congress of the Confederation founded the Bank of North America. The Bank of North America was given a monopoly to issue bills of credit as currency for the nation. Robert Morris, the nation’s first Superintendent of Finance, wanted the Bank of North America to be a commercial bank, meaning it would be run for profit. This choice has impacted banking in America to the present day. Morris also wanted the Bank of North America to accept deposits, make business loans, and offer primary investment products.
After the war ended, state banks were chartered, but there wasn’t a single currency in the United States. There was a common belief that a government-owned bank that controlled one American currency would lead to tyranny.
In 1791 Congress founded the First Bank of the United States. FBUS was owned by the federal government and private stockholders, served the government and individuals as a commercial bank, competing with state banks. The First Bank’s congressional charter was for twenty years. This proved problematic in 1811 when that charter expired. At the time, in theory, banks issued notes that were backed by gold and silver coins. When the First Bank’s charter was up for renewal, state banks were against it. This was because the First Bank wanted the state banks to back up the notes they issued with gold that the state banks might not have. Being tied to their stockpiled gold stopped the banks from dispensing notes and maintaining reserves.
Once the First Bank’s charter expired, state banks picked up the slack, issuing notes that they couldn’t back with gold and silver coins. There were no comprehensive regulations or supervision, so different banks issued different notes, and banks could give more notes than they had gold or silver to back. This led to massive inflation, which devalued currency in the country. The Second Bank of the United States started operating in 1817, but it was too late. America’s credit and borrowing status had drastically fallen. The country had difficulty financing military operations and likely would have lost The War of 1812, were it not for the United Kingdom’s exhaustion from its decades-long war with France.
This lack of credit and inflation led to America’s first financial crisis: the Panic of 1819. When customers wanted to redeem their notes for specie, the SBUS couldn’t supply enough gold from its reserves to cover what it had issued. This led to a ripple effect where smaller banks began foreclosing on mortgages and business loans they’d financed. The financial panic that followed crippled America’s economy. It didn’t recover until 1822.
The SBUS was also granted a 20-year charter, so it was up for renewal in 1836. Unfortunately for the SBUS, the state banks envied its relationship with the American government, and President Andrew Jackson was against its renewal. Jackson thought gold and silver were the only currencies that mattered. He blamed the SBUS for inflation and other financial troubles of the era. The dissolving of the Bank of the United States once again empowered state banks, which evolved into the “Free Banking” era. Before 1837 a bank charter could only be created through legislation. But the Michigan Act of 1837 allowed automatic chartering of banks without the approval of the state legislature. New York followed suit, and “Free Banking” began. This era was defined by low security, blooming credit, and bank failures. The value of bank bills was often lower than their written value. States took steps to curb these excesses, but once again, Congress stepped in to legislate banking.
National Banking Acts of 1863 and 1864 created a system of banks that were chartered by the federal government. It founded the Office of the Comptroller of the Currency within the United States Department of the Treasury. This office examined and regulated national banks. Congress had issued greenbacks to finance the North’s military efforts in the Civil War. Now these greenbacks would be retired in the new system, and state bank notes were taxed at 10%, incentivizing state banks to seek federal approval. These steps were aimed at unifying American currency under the federal government’s supervision. However, state banks created the demand deposit account, or what is known today as a checking account. Checking accounts became the primary revenue source for many banks, stabilizing state banks and allowing them to function without submitting to the blossoming federal system.
The following decades saw the rise of investment banking, American industrialism, and a return to specie standards. There was a battle over whether the currency should be based on silver AND gold, or gold alone. Wealthy East Coast interests supported the gold standard. By the late 19th and early 20th century, banking was dominated by a cabal led by JP Morgan & Co., Kuhn, Loeb & Co., Brown Brothers, and Kidder, Peabody & Co.
In 1913 Representative Arsène Pujo, a Democrat from Louisiana and chair of the House Committee on Banking and Currency, took on the banking oligarchs. The Pujo Committee Report that followed found that bankers took control of manufacturing, mining, transportation, telecommunications, and financial markets. Three men, George F Baker, James Stillman, and J.P. Morgan, owned at least eighteen major financial corporations and controlled $2.1 billion. Bankers like Paul Warburg, Felix M. Warburg, Jacob H. Schiff, William Rockefeller, and Benjamin Strong Jr. owned more than $22 billion in resources and capital controlled by J.P. Morgan.
These discoveries led to the Sixteenth Amendment in 1913, allowing Congress to impose income taxes without apportioning the money taxed between states based on population. It also created the Federal Reserve that same year, and the Clayton Antitrust Act. These moves were seen as curbing the Gilded Age’s excesses and abuses and as preventative measures against financial panics and depressions.
The Federal Reserve was designed as a private central bank that served as a lender of last resort for banks facing liquidity crises. Congress created Federal Reserve notes that offered the nation an elastic, consistent currency supply. It brought all banks in the country under the authority of the Federal Reserve. The Fed is a semi-governmental organization made up of twelve regional Federal Reserve Banks supervised by the Federal Reserve Board. This built the blueprint for the modern era of American banking. Over the following century saw the massive expansion of credit and financial speculation, and repeated failed attempts to rein in banking monopolies and irresponsible banking practices.
So how do you bank responsibly and avoid the worst consequences of this system? Let’s start with what you need to begin banking:
What’s Required to Open a Bank Account
Requirements vary based on what kind of account you want to open and what bank you’re hoping to join. But let’s say you’re looking to start a checking account. Generally speaking, you’ll need:
- Two forms of approved identification, including a Social Security card, state ID, passport or birth certificate, and driver’s license.
- You’ll also likely need proof of address and an opening deposit (between $25 and $100).
- You may need to fill an application, which will allow a bank to run a credit check on you and look at your previous banking history to decide whether they want to approve your account. If you don’t have a banking history, don’t worry. Banks are eager to get you started, and usually have special accounts for college students or new customers.
- Once approved, your bank will send or give you personalized checks, deposit slips, and a debit card. You need to activate the debit card and probably want to set up online banking with your bank.
- It’s often helpful to set up a direct deposit to make sure your wages are automatically dropped in your account. This will involve a process with your employer and help you avoid monthly fees, among other potential benefits.
Now that you know what is required to open a bank account, let’s explore how you choose one:
How to Choose a Bank Account
Consider the following:
Does your bank make you pay to use ATMs they don’t own? How prevalent are your bank’s ATMs?
Many banks charge a fee if you want to withdraw your money from ATMs operated by other banks or third parties. Some banks that don’t have many ATMs reimburse you for ATM fees you might accrue. Consider whether you’ll have constant access to your bank’s ATMs, or if it’s better to choose a bank that reimburses you for using other banks’ and companies’ ATM fees.
What are your bank’s overdraft rules?
If you take out more money than you have, your bank might prevent you from doing so. Some allow you to cover overdrafts with money from another account. However, some banks will allow you to overdraft your account, but charge you a fee and interest on the funds withdrawn. Some banks require a minimum balance at all times and will charge you a penalty if you go below that number.
What are the fees?
Some banks charge monthly fees just to have an account with them. There are many other fees banks may impose on you, so whenever you’re opening an account, inspect those fees closely. Prioritize information from bank customers who have your same account over discussions with bank employees or go through the fine print on your account.
Where is the closest branch of a bank you’re considering?
You’ll likely want a branch near your house and your work. You also might want to choose a bank with branches and ATMs throughout your area. A quick search of any bank you’re considering will show you how prevalent their branches and machines are.
What are a prospective bank’s online services like? Is there a good mobile app?
Most banks allow you to do most of your banking online and offer other services through their app, like check deposits through picture submission. You may want to check on what online and mobile services are provided by a prospective bank, depending on your needs.
Is there a fee for transferring money?
Many banks don’t charge a fee for paying bills from your checking account. However, there may be some charges for transferring money. You should inspect any transfer fees before choosing a bank.
Does a bank you’re considering charge you for checks or replacement cards?
Some banks will offer you a free book of checks when you open an account but might charge you for more after that. If you lose a debit card or get robbed, you might be charged as well. Some banks put a cap on how many checks you can write each month, then charge you more if you go over that cap.
What is the interest a particular bank offers you on your checking account?
A checking account offers interest, but it’s generally very low. There are higher interest rates for some checking accounts, but they usually require higher balances. A savings account offers higher interest rates, but there will likely be limits on how much you can withdraw from them each month. You may also be charged for exceeding those limits.
These are just some of the questions and considerations you should mull before deciding on a bank. Make sure you’re inspecting any banking agreement and the disclosures within it to see what applies to you. Reading reviews from people who have the account is another way to ensure you understand what you’re getting into.
Now let’s inspect the different types of accounts you can choose to open:
What are the Different Types of Bank Accounts?
There are many distinct accounts you can open at most banks. Here are some of your options:
This is the most common bank account. Checking accounts are for daily spending. They typically offer you a debit card for purchases or ATM withdrawals and come with checks you can use to pay bills. You can also use checking accounts to pay bills online. Many of these accounts don’t earn interest, but some do. They often allow you to keep a relatively low balance. They may be subject to fees, restrictions and have minimum balance requirements. However, there are checking accounts with low or no monthly payments.
These accounts are used to save money to be used in the future. They’ll typically have higher interest rates than a checking account. If you have a goal you’re saving for, like buying a home or in case of emergency, this is an excellent account to open. It’s also a great way to begin a relationship with a bank or teach your kids the value of saving money. Some negatives about savings accounts include a lower interest rate than money market accounts or CDs, no debit card for purchases, and a limit on how many withdrawals you can make in a month.
Money Market Accounts
Money Market Accounts are a mixture of savings and checking accounts. They allow some check-writing abilities and have higher interest rates than checking or savings account. These versatile accounts are outstanding for people who have higher balances in their checking accounts, want to earn more in interest for their deposits, and need to write some checks. They have a higher minimum balance requirement than other types of accounts. There may be extra fees for these accounts, and there’s likely a limit on how many withdrawals you can make each month.
Certificate of Deposit (CD)
A CD is a savings account that holds money for a fixed amount of time. It can be as little as months, or five years or more. You’ll earn more with your money in a CD than in any of the accounts we’ve covered so far. The downside is you can’t take the money out without incurring a hefty penalty. These accounts are outstanding for financial goals that have a specific timeline. Let’s say you want to make a down payment on a house in 3 years. By placing your money in a CD, you can ensure you’ll have a predetermined amount of money when it’s time to put in your offer.
These are accounts that hold your earnings until you’re ready to stop working. Most banks have Individual Retirement Arrangements (IRAs), and some offer 401(k) accounts, among other retirement accounts for small businesses. These accounts generally have tax advantages. These include no income tax on the money that accrues in these accounts. However, you’ll probably need to pay taxes on the money you earn in these accounts at some point. Generally speaking, these accounts lower taxes in the short term, but you’ll be required to pay taxes when you withdraw funds later on. In one option, a Roth IRA, you won’t save money on taxes in the short term, but won’t need to pay taxes on withdrawals made later on. These accounts let you invest money in the stock market, creating a higher return than your bank’s interest.
These accounts are like retirement accounts, except they might not be used to retire. There may be tax advantages similar to retirement accounts. You’ll be able to invest in mutual funds, stocks, bonds, and other financial products. One area you should consider investing in is municipal bonds. With munis, you are guaranteed a predetermined return on your investment. Municipal bonds let you avoid federal taxes and are often tax-free at the state and local levels. They also help build local infrastructure.
Now that we’ve covered the most common bank accounts, let’s explore some of the major banks you can open an account with:
The Pros and Cons of Major Banks
Chase is the consumer wing of JPMorgan Chase. Unlike some competitors, Chase is focused on expanding its branch network, especially in major markets. It has approximately 5,000 branches and 16,000 ATMs in America. It claims that almost half of American households use Chase. Bankrate notes that its pros include convenience (read: availability), and high ratings for its website and mobile app by real users.
There may be rewards for banking with Chase as a new customer. However, Chase doesn’t have reasonable interest rates and won’t reimburse you for using out-of-network ATMs. In fact, Chase has exorbitant out-of-network ATM fees. It also points out that Chase only has branches in 26 states.
Bank of America Corp.
BofA serves approximately 66 million consumers and small businesses across the globe. It’s known for its digital options. More than 37 million clients bank with BofA through their app or online. Bankrate writes that BofA has approximately 4,400 branches and over 16,000 ATMs. It has been commended for its app and access to Zelle, a person-to-person payment service. BofA’s artificial intelligence virtual assistant, Erica, can help customers budget, manage their money, and track expenses.
Negatives at BofA include low savings and CD yields and unnecessary fees. Some of these fees are avoidable but might hurt specific customers. They’re also chided for closing branches in specific regions and usurious overdraft charges. However, some customers can opt for a SafeBalance account to avoid overdraft charges.
Wells Fargo & Co.
Wells Fargo has the most branches in America. It has a main app, a savings app, and a mobile banking app aimed at younger customers. Wells Fargo is also intent on mending its relationship with customers after being exposed in 2016 for committing massive fraud.
The bank was caught opening millions of fraudulent checking and savings accounts on behalf of its clients without approval. Bankrate praises its accessibility, the ease with which customers can avoid checking account fees, customer-friendly overdraft policies, and safe access to money management apps like Mint. Yields on CDs and savings accounts are lower than optimal, checking account customers will incur a $2.50 out-of-network ATM fee. There’s a higher monthly fee for money market accounts unless users maintain a predetermined balance.
Citibank is Citigroup’s retail banking division. It has around 700 branches in America, and over 1,800 in the rest of the world. American customers can use over 65,000 fee-free ATMs through Citibank. Bankrate praises Citibank’s global options for branches and ATMs, the intuitive nature of its mobile banking and financial management apps, and customizable alerts to manage accounts.
They also note that Citigroup has among the lowest interest yields for customers, monthly fees for accounts below minimum balance thresholds that Citigroup sets, and savings accounts must begin with at least $100.
U.S. Bancorp runs U.S. Bank, the fifth-largest commercial bank in the country. After several mergers, U.S. Bank is dedicated to its extensive branch network and is investing in digital options. Bankrate compliments U.S. Bank’s variety of CD terms, up-to-date technology, and “generous access” to ATMs and branches.
Bankrate is not so thrilled with U.S. Bank’s monthly fees on some products, lower savings APYs than other banks, and lack of a presence on the East Coast.
Truist Financial Corporation
This bank began through a merger of SunTrust and BB&T. It serves approximately 10 million American households. Bankrate has yet to weigh in on Truist. The bank is now the sixth-largest in America. In late 2019 it combined the 11th and 12th largest banks in the country in late 2019.
PNC Financial Services Group, Inc.
PNS is a regional bank that serves parts of the Northeast, Midwest, and South. It acquired National City Corp in 2008, doubling its size. Today it has almost 2,480 branches. Bankrate’s review of PNC praised its competitive APY on online-only savings accounts and above-average digital banking options. It criticizes the $36 overdraft fee, the difficulty of using and comparing some of its bank products, and the requirement that a CD can only be opened at a physical branch.
We encourage you to check out Bankrate’s reviews (among others) in more detail at your convenience. You’ll find a much more thorough breakdown of the different accounts offered by all of these banks, and others. Once you know what type of account you’re looking for, you’ll have an easier time comparing banks. You want to find a bank that combines beneficial terms, services, and conveniences that make your life easier and empower you financially.
Now let’s look at banking with a significant bank like those listed above, and banking with a smaller bank:
Banking with Big Banks vs. Banking with Small Banks
There are many trade offs that tend to be associated with small local banks and credit unions compared to national or global banks. Below we’ll detail a few of each.
Big Bank Pros
- Accessibility: you’ll find far more branches and ATMs with bigger banks than with smaller ones. You’ll also enjoy cutting-edge digital apps and tools that smaller banks may not offer.
- Variety of Accounts and Services: The bigger the bank, the more products it will likely offer. Whether you need a checking account, want to invest, get help with wealth management, or have another banking need, bigger banks have you covered.
- New Options and Technology: Larger banks are continually offering new accounts, products, and investing in new digital features. Smaller banks can’t compete with the money larger banks have to throw at these perks.
Big Bank Cons
- Personal Service: At a big bank, you’re just one of the millions of customers they serve daily. It can be harder to speak to someone to help you open accounts or deal with issues you might be having.
- Corruption: Large banks aren’t known for their morality. Many of the larger banks have been caught defrauding their customers, making risky speculations that put our entire economy at risk, and creating accounts in their customers’ names without consent. For the most part, they avoid any real punishment by paying fines that aren’t commensurate with the crimes they’ve committed and relied on legislators to protect them. Despite some regulatory acts like Glass-Steagall and Dodd-Frank, big banks have amassed incredible political power and financial control.
- Fees: Large banks will often charge more and have more conditions under which they can charge you than small banks.
Small Bank Pros
- Interest Rates and Fees: Community banks and credit unions often offer better interest rates to consumers than big banks. Studies have shown these smaller banks charge less interest on their credit cards and give customers higher interest rates on checking accounts, CDs, and other deposit accounts. They also charge customers less in fees than big banks do. Bankrate has noted that checking accounts at big banks charge twice as much in fees compared to smaller banks.
- Superior Customer Service: Smaller banks are far more likely to cater to their customers because they have less. If you’re looking to work with a banking representative on a loan or opening an account, this can be an incredibly attractive feature.
- Lending Generosity: A big bank will comb through your personal history if you want a mortgage or significant loan. Smaller banks are far more apt to use your family history and character to calculate risk when offering you loans.
Small Bank Cons
- Branches and ATMs: Small banks don’t have the same presence nationally, and globally that big banks do. If you travel frequently, this can be a problem. Fortunately for you, most small banks reimburse users for ATM withdrawal fees.
- Less Capital: Smaller banks don’t have the same access to capital that bigger banks do, so if you’re looking for a multimillion-dollar loan, you might have to go elsewhere. Fortunately, that’s not an issue for most people.
All in all, you can see there’s a lot of advantages to choosing a small bank, and not too many drawbacks. After the financial collapse in 2008, there was a push for customers to move their money from big banks to small ones. It’s still a worthy goal individually and collectively.
Now let’s get into the importance of banking:
Why You Need to Start Banking
- Convenience: Banking lets you write checks, pay bills online, withdraw funds from any ATM, and much more. These features can’t be replicated with money in the mattress.
- Safety: The money you deposit with your bank will be secure from fires, theft, and other catastrophes. Your money is federally insured under $100,000 in case your bank or credit union goes belly up.
- Savings: You’ll earn interest on the money you deposit – which you wouldn’t otherwise. By finding the best bank for you, you have an impact on just how much interest you’ll earn.
- Costs Less: Without a bank, you’ll have to use money orders and check cashing businesses to send and cash your earnings. This costs far more than using a bank to send and redeem your hard-earned money.
- Build and Access Credit: Banks are frothing at the mouth to extend you credit. If you’re responsible and adept at budgeting, you can build credit while accessing funds you wouldn’t be able to otherwise.
These are a few of the reasons to open a bank account today. Now let’s get into choosing or grading your bank:
Evaluating Your Bank
There are many metrics to evaluate banks. Banks are continuously inspected by financial experts to gauge their creditworthiness. But as a consumer, the following will probably be important to you:
- Hours: When is your bank open daily, and which days are it closed? Does it match your schedule and needs?
- Location and Number of ATMs: Where are your bank’s ATMs in relation to your home, work, and social life? Is there a bank that would be more convenient for you logistically?
- Service and Friendliness: How well does your bank take care of its customers? Are customers generally satisfied or frustrated with the service they receive? Do customers feel like they’re treated as an individual or just a data point?
- New Products: Is your bank consistently updating the products and services it offers its customers? Has it grown stagnant?
- Integrity: Has your bank been caught selling information, opening accounts for customers without consent, practicing horrendous data security protocols, or offering loans and services without clear, accurate terms attached? If any of this is true, it might be time to switch banks.
- Problem-Solving: If you have an issue with your bank or a problem a bank can help with, is it resolved in a timely, helpful way?
- Technology: Are you happy with the online and mobile app services your bank provides?
- Terms: Are you offered competitive rates on your deposits and loans? Do other banks have terms that are more beneficial to you?
Answering these questions can help you decide whether or not you stick around or move on. If things aren’t coalescing in your favor, it may be time to:
Consider Switching Banks
You don’t want to leave your bank for another with overlapping issues or new deficiencies that will frustrate you and damage your finances. Your primary weapons in your search for a new bank include:
Researching: There’s a wealth of information online about banks, particularly the major ones. Bankrate is a great resource, but there are many others that can illuminate the often confounding terms, conditions, and structural realities of big banks. If you’re looking for a smaller bank, your research might be more localized. Talk to people who bank with a bank you’re considering to get their opinion and bank employees. Share what you’re looking for, and what has turned you off from a previous bank, or banking in general. This leads nicely into:
Shopping Around: Banks want your business. Depending on who you are and their customer base, they may be willing to offer introductory terms to entice you. This can include favorable rates, free cash, and credit vehicles that offer low or no APR (Annual Percentage Rate) over an intro period that might range from 6-18 months. It’s important to know what you’re looking for in a bank: long time security, immediate credit, investment assistance, among other needs. Once you can articulate your needs, you’re far more likely to find the right bank for you.
Let’s say you’ve identified a bank, and you’ve opened an account. How can you maximize your bank’s utility to you and your family?
How Do You Get the Most Out of Your Bank?
Check Your Accounts Frequently: It can be tempting to ignore your monthly transactions. However, you’re far less likely to catch fraud or get an understanding of your spending habits if you don’t analyze your statements. There are also free tools like Personal Capital or Mint that can monitor and analyze multiple accounts at once. Staying informed won’t only prevent fraud; it can protect you from overdraft fees and other charges. If someone else in your family has your banking information, you can share the responsibility of supervising your account(s) as well.
Use Your Bank’s Best Features: Banks will allow you to pay bills online, deposit checks from your phone, and set up automatic payments, so you don’t have to worry about making manual payments. Far too many people don’t use mobile banking despite having a smartphone. It’s understandable to be skeptical of online banking, but if you’ve done your due diligence, your bank likely has security measures to protect your digital transfers, deposits, and payments.
Link Your Accounts: Mobile banking platforms should let you efficiently manage and move money between accounts. Some banks will even allow you to transfer money between accounts at competing banking and investment institutions at no cost. This can make the challenge of organizing cash in different places much simpler.
Split Direct Deposits to Automatically Save Money: Many employers let you split your direct deposits between multiple accounts. This means you don’t have one lump sum hitting your checking account each payday. Instead, you can allocate a percentage of your earnings to a savings account, an investment account, a vacation fund, your monthly bills, or wherever you need your money to go.
Educate Yourself About Your Bank: Your bank isn’t going to spoon-feed you, especially if it’s a big one. The more you’re familiar with terms and features a bank offers, the better off you’ll be. You also need to know where your money is spent each month. It seems simple, but the more you pay attention to your accounts, the more you’ll discover about yourself. What you learn about your habits is the first step in changing them and improving your long-term financial health.
Now let’s look at some general advice about banking smarter:
Tips and Tricks With Banking
Know What You Want and Be Demanding: This is a guide for people new to banking. But even people who are experienced can be mystified by banking. It’s easy to see banking as dark sorcery that only learned Mages can comprehend. This leads to a trusting, defeatist attitude (“I don’t like this or that about my bank, but that’s just the way it is”). No. Educate yourself. The better you know your options, the easier it will be to recognize when something’s off, or where there are greener accounts.
Also, remember: banks want you! You have options, and you need to be wooed. You wouldn’t buy the first car you saw for the price the car salesman quoted you, would you? Treat banking the same way.
Monitor the Federal Reserve for Long-Term Savings: When the Fed cuts rates, the annual percentage yield (APY) of savings accounts goes down. This impacts your savings, but there’s a way around it. If you open a CD account, it has a locked-in APY, guaranteeing your money earns more for you throughout a landscape of lower interest rates. Some basic online calculators can show you exactly how much you’ll gain by storing your money in a CD with different institutions over different time periods.
Be Careful When Closing Accounts: This is especially true with savings accounts and money market accounts. These accounts have limits on withdrawals, but also often feature “early closeout fees.” For the most part, these fees occur when you close a money market or savings account during the first six months of use. These closeout fees can apply to checking accounts as well. Make sure you know the time commitment you’re getting into when you open one an account.
Automate Whenever Possible: It’s easy to see the value of direct deposit and automatic payments on your bills. However, far too few people are saving money automatically. Numerous programs will automatically take a percentage of your earnings or spending and put them in savings accounts. If you’ve had trouble saving money, this is a great way to guarantee you bite the bullet. Some apps like Digit analyze your income and expenditures multiple times a week to give you a constantly updated savings amount. The app also incentivizes you to keep money in your Digit savings account by paying you a bonus every three months for meeting certain thresholds. The only downside is there’s a monthly fee to use Digit after a 100-day free trial period.
Do Your Frivolous Spending with Cash: Using plastic can make spending way too easy. If you build habits of spending cash on eating out and other unnecessary spending, you’ll see when the money you withdraw runs out, and likely make more conservative spending decisions. You can also create an envelope system where you place money for various activities weekly or monthly. Once you’ve run out of your allotted amount for superficial spending, fun’s done until the next cycle.
Use Online Savings Accounts: Online banks have less overhead than banks with branches all over the country. This means they can offer customers more interest on savings accounts. They also have to attract customers. Some of these online savings accounts don’t come with ATM withdrawals, preventing you from taking your money out on an impulse.
Pay Attention to Your Bank: Banks have a social media presence and update their customers on news, tips, upcoming projects, and unique offerings. However, most people don’t follow their bank. Keeping tabs on your bank can yield rare opportunities and help you avoid unnecessary pitfalls. You can also receive a text or email alert about your account(s), which prevents over drafting, fraud, and other calamities.
Since you might not have opened an account yet, you could be in line for some serious perks. Let’s get into some of the bonuses that can be yours. Here are:
The Ways Banks Entice You to Open an Account
First off, keep this in mind: be careful when a bank offers you a bonus to open an account. While cash or friendly introductory rates sound great, you might be charged on the backend. However, there are still some perks you can take advantage of when you’re shopping around for a new bank account.
Free Money: Some banks will give you hundreds of dollars to open an account with them. However, they’ll likely require a minimum balance or monthly deposits over a particular threshold (otherwise, they’ll charge you fees).
Higher Interest Rates: Interest rates are low across the economic landscape, which is frustrating. However, some banks and types of accounts will entice customers by offering them a higher interest rate than is typical. This may run out over time, or come with potential fees, so proceed with caution.
Student Accounts: Banks understand that students have far less money than working adults. To attract younger customers, banks offer accounts with no maintenance fees nor minimum balances. They may also offer free ATM withdrawals or free access to apps that help students budget and save money.
Free Checking Accounts: This one is self-explanatory. Many banks offer free to use accounts as long as you maintain a minimum balance or meet other requirements.
Digital Banking and Onboarding: Banks understand that accessibility leads to new customers. They may allow you to open an account virtually, deposit, transfer, and access funds without much or any in-person requirements.
Cash Back Credit Cards: Another way banks draw in new customers is through credit lines. Once you have a relationship with a bank, it will be far easier to open a credit account that offers you free cash once you spend a predetermined amount in a set time period, cashback on your credit purchases, and rotating promotional deals on specific products or services.
Word of Mouth: The more satisfied a bank’s customers are, the more likely they are to recommend it to others. If you know people in similar circumstances to you who are happy with their bank, definitely consider following their lead.
Banks are continually updating the products and services they offer to woo new business. Keep an open mind and ear to capitalize on their latest offerings.
Now that you know how banks will draw you in, let’s look at what you should be cautious of:
Things to be Careful of When First Banking
Insurance: You need the money you bank to stay safe. Any bank you’re considering should be protected by the FDIC (Federal Deposit Insurance Corporation) or the NCUA (National Credit Union Administration). These banks will cover money in your account up to $250,000 if your bank fails. However, you should check on your bank’s health. Getting your money back after a bank failure can be annoying, so it’s better to bank with an institution that’s in excellent health.
Fees: What will you be charged for in a particular account your considering? What hidden fees can trip you up? You might assume that some costs are standard or unavoidable, but those perceptions are often the results of bank propaganda. Don’t get taken for a sucker by a bank with exorbitant fees while there are other, less exploitative options.
Minimum Balances: Don’t choose an account with high minimum balance requirements. You don’t know what the future holds, and the last thing you want is to be on the hook for unnecessary charges when your financial situation takes a turn for the worse. A superb checking account, in particular, shouldn’t have a minimum balance requirement, although many checking accounts do.
Poor Customer Service: If a bank is known for treating its customers terribly, you don’t want to bank with them. However, it’s not useful to find out your bank doesn’t value your patronage after you’ve opened an account. Make sure to find out what kind of customer service you can expect before you open an account.
ATMs: Are the ATMs your bank owns prevalent and accessible to you? Do they let you drive up, or offer ramps for disabled customers? Does your bank refund out-of-network ATM charges? If the answer to these questions is no, you should opt for a different bank.
Online and Mobile Banking: Not all online banking platforms are created equal. If you’ll be doing most of your banking online, you want a website and app that are simple, effective, and intuitive to use.
Low Yield: Don’t choose a bank with markedly lower APY than offered by competing banks with otherwise similar features. When you keep your money in low yield accounts, you can’t get the time and lost earnings back.
High Loan Rate: A significant piece of building a relationship with a bank revolves around loans. Some banks offer money on far more usurious terms than others. Credit is cheap in the country and should be from your banking institution as well.
Now that we’ve gone over where you should be cautious, let’s look at some of the most prominent cases of fraud and other major banking scandals:
We’ve already discussed Wells Fargo’s fraud against its customers. However, they’re not alone in their wrongdoing. Here are some of the largest scandals to hit banking institutions in recent years:
Bank of America Merrill Lynch Working Interns to Death
In 2013, Bank of America Merrill Lynch intern Moritz Erhardt was found dead in his shower. He was only 21. An investigation found that Erhardt had worked for 72 hours in a row and suffered an epileptic seizure. Through the reporting on Erhardt’s death, it became clear that investment banks routinely demand 100-hour or longer workweeks of their unpaid interns. Reports attributed this to a “hazing culture” in which interns suffer tremendously in the hopes that they’ll secure lucrative positions at investment banks.
Bank of America Creates Phony Accounts
After Wells Fargo was caught making accounts in customers’ names without their permission, the Consumer Financial Protection Bureau investigated BofA for similar practices. In fact, between 2016-2018, almost 50 large and midsize banks were given a special regulatory exam to inspect their sales practices. BofA wasn’t caught opening phony credit cards.
However, BofA’s lawyer said the bank found “potentially unauthorized credit card accounts,” although he called the number of them “vanishingly small.” Former employees reported a culture in which there was immense pressure to sell more credit cards. “They ride their good people hard and abuse their poor performers,” a former branch manager told American Banker. “They want you to push credit cards to everyone.”
Chase Pays Billions in Fines, Settlements, and Litigation Fees
Between 2011-13 alone, Chase paid $16 billion. Of that, $8.5 billion were directly related to illegal actions made by bank executives. Chase was found to have misled investors, collected illegal insurance commissions, made pretend trades, illegally collected overdraft fees, helped drive an Alabama county to bankruptcy, wrongfully foreclosed on soldiers, defrauded veterans, and violated antitrust laws, among other crimes.
This is a small sample of the crimes committed by major American banks. If you are a victim of a banking crime or predatory practices, you deserve restitution.
Flaws in our Banking System
The two biggest financial catastrophes in American history (1929 and 2008) have a lot in common. In both cases, bank regulations were nonexistent or ineffective. Banks rapidly expanded into non-banking activities that left them vulnerable to risk and instability. Banks were increasingly directed by holding companies that drive their expansion into speculative non-banking activities. These factors are still very true of American banking today.
So what are the driving factors in these pressing issues? Experts say there are major flaws with the Federal Reserve System. There’s an inherent conflict of interest in which the Fed’s Board of Directors is made up of banking interests. Secondly, its independence from government oversight limits our government’s ability to make sure our monetary policy-making is responsible and reflects the needs of maintaining a healthy economy for everyone.
There’s not enough enforcement of regulations that are on the books. This is in part due to how many different agencies are involved in financial regulations. But even when banks are caught committing crimes, they’re often given a slap on the wrist that doesn’t reflect the damage they’ve done. The same banking executives that cycle their way through shaping our economic policies within government, working in the private sector, and working for the Federal Reserve.
These are problems at the macro level that you should be aware of as a consumer and citizen. Now let’s look at the frauds, scams, and malfeasance that’s more likely to impact you directly:
Common Scams that Target Your Bank Account
In 2018, over 50,000 people filed a scam report with the Better Business Bureau. Many of them were victims of bank scams. Victims of credit card fraud are liable for up to $50 under federal law. The same is not true for bank scams.
Scammers might ask you to deposit a fake check and give them a portion of it. Once the check is deemed fraudulent, it’s often too late, and the scammer has made off with your money. Never make any deposit you think is questionable.
You might also get a call or email from someone claiming to work for your bank. Be extremely careful following links to anything related to your accounts. If you’re giving account information, Social Security numbers, or other sensitive information over the phone or Internet, you need to know you’re dealing with legitimate parties. Don’t click email links or attachments that are dubious, and make sure you don’t call back numbers you don’t recognize.
Another way people prey on you is through soliciting donations to fake charities. Scammers might also rely on unsolicited calls or emails asking you to donate to local police or fire departments, or military families. Once again, if someone calls you and says they need account information over the phone, hang up.
If you have bad credit, scammers will prey on your need for a loan. Loan applications require sensitive information that can be used to steal from you. Make sure you check reviews and Better Business Bureau ratings for any company that offers you a loan.
A common scam now is using “skimmers” on ATMs. These machines are installed over the card reader on an ATM. It scans your card for its essential information, and then scammers can recreate a dummy card based on yours. Whenever using an ATM, check for signs of tampering, like marks or scratches. Make sure the plastic you’re inserting your card into looks like the plastic on the machine. There shouldn’t be moving parts on an ATM you’re using as well. If you see something that seems suspicious, don’t use that ATM.
How to Protect your Bank Account
Use your free hand to protect your PIN number when using an ATM. Sometimes scammers use miniature cameras to capture PIN numbers.
Always keep an eye on your card. When you pay for something with your card, make sure it’s not being taken out of your sight. Sometimes card information is stolen manually by employees.
Check your balance, transfers, and purchases regularly to ensure you’re only seeing charges you made.
If you end up the victim of bank fraud, contact your financial institution at once. Ask for your card to be put on hold or canceled.
Now let’s wrap up the guide:
Opening Your First Bank Account in Conclusion
We hope you’ve found this guide informative and clarifying your banking options. Most of all, we hope you understand the importance of banking: to save money, to establish a relationship with a credit source, and to take control of your budget and finances.
- What are your short and long term financial goals?
- Where do you see yourself in five or ten years? How can opening a bank account today help make your goals realities?
- How can a particular bank and a specific type of account help you accomplish them?
These are the most important questions when assessing a bank. Get started banking and saving today, and thank yourself tomorrow. Good luck!