Banking

Better Than Your Mattress

Bank Accounts

Bank accounts can come in all shapes and sizes and now that you are an adult it is important to understand the basics of them to help you make decisions and prepare for the future. The accounts you should be aware of are a savings account, checking account, a Certificate of Deposit or CD, and an investment account.

  • Savings account: This account is pretty simply meant for saving money and is not intended for day to day use. This account can earn interest over time based on the bank’s current interest rates.
  • CD: A Certificate of Deposit or CD is a type of savings account. However, when you open one it is generally for a specific amount of time. A CD can have a higher interest rate that is locked in when you start the account, but you cannot pull the money out early.
  • Checking Account: This account is meant for your day to day purchases such as food, gas, rent, or going out to eat. This type of account allows you to make purchases with a debit card, send a check, or take cash out of an ATM.
  • Investment accounts: Also known as retirement account, these come in many different forms and are too complex to dive into here. You should speak to a financial advisor for more information, but these are important to think about in preparing for the future. They can be useful when planning for retirement, and generally involve bonds from the government or the stock market.

Opening a Bank Account

Before you open a bank account there are several questions you should ask:

  • Is there a minimum balance requirement on the account?
  • Are there any charges for check processing, online bill pay, or monthly service fees?
  • What is the bank’s funds availability policy?
  • If you have more than one account, such as a savings and a checking, there can be a charge for making more than a certain number of transfers within a given time period. If you have multiple accounts, make sure to ask how many transactions you can make without being charged.

Keep in mind that your total account balance may not be available for your immediate use. Your bank may have a policy to hold some of your funds for a period of time. While funds are on hold, they are not included in your available balance. As of 2010, all checks from the US are considered local, meaning with the Expedited Funds Availability Act of 1987, a bank can not hold any part of a check for more than 2 business days.

Bouncing a Check

Once you have an account, you can access the available funds by using your ATM or debit card, using online bill pay, or by writing a check. If you write a check for more than the amount you have in your checking account, your check will “bounce,” which is slang for a check that cannot be processed because the person who wrote the check does not have enough money in their account to pay for it. Writing a check when you don’t have enough money in your account to pay it may also be a crime and can range from a misdemeanor to a felony.

The bank may handle a bounced check in a couple of ways:

  • The bank may charge you a fee and return the check to the person or company who attempted to cash it. That person or company may notify you and may charge up to three times the amount of the check in penalties.
  • The bank may pay the check, require you to make a deposit to cover the difference, and charge you a fee or a penalty. Damages for insufficient checks cannot exceed $500 plus the value of the check.

The bank may charge you a fee and return the check to the person or company who attempted to cash it. That person or company may notify you and may charge up to three times the amount of the check in penalties.

The bank may pay the check, require you to make a deposit to cover the difference, and charge you a fee or a penalty. Damages for insufficient checks cannot exceed $500 plus the value of the check.

Another important thing to be aware of is overdraft fees. When using a debit card, while the money is taken straight out of your account, some transactions have something of a delay. For instance, when you fill up for gas using a debit card you will be charged after you fill up. If you charge more than your account has, depending on what the bank’s policy is, you could face overdraft fees from the bank.

ATM v. Debit Cards

ATM stands for automated teller machine. An ATM card can be used for basic banking transactions, like depositing and withdrawing funds from your bank account. Transactions can include surcharges or fees, depending on your bank and the ATM you are using. Generally, these charges come from using a different bank’s ATM. If there is a charge, you must be warned and given an opportunity to quit the transaction without charge.

A debit card can make deposits and withdrawals from your bank account like an ATM card, but you can also use it to make purchases both online and in stores similar to how you use a credit card. However, unlike a credit card, when you use a debit card, money for the purchase is immediately taken from your bank account.

Many banks will allow you to use your debit card to make a cash withdrawal or purchase, even if it is for more money than you have in your account. This is called overdraft protection. However, the bank cannot enroll you in overdraft protection without your permission. You should keep in mind that if you choose this feature, the bank will likely charge you significant overdraft fees for each item processed in overdraft and may also charge you a fee for each day your account remains in overdraft.

Whether your card is an ATM or debit card, be careful when carrying or using it. Always keep it in your possession and never share your personal identification number (PIN) with anyone. If you do lose your debit card or someone uses it without permission and you notify the debit card company within 60 days, federal laws limit liability to the lesser of $500 or the sum of $50 or the total amount of unauthorized transfers made in the first two business days, added to the amount of unauthorized transfers occurring after two business days and before notice is given.

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