There was a time when stuffing extra money in a piggy bank or under the mattress was a viable option. However, today, this is no longer an appropriate alternative because banks offer many services that go beyond savings. Banking services today include keeping your money safe, cashing checks, paying bills, making loans for mortgages and other types of loans, investing and many other financial services.
In this session, we will discuss the basics of banking. We’ve created a list of the top nine things you need to know about banking.
- Money in a Bank is Safe
A bank is one of the safest places to stash your cash. Your account is insured against loss by the federal government.
- You Will Have to Pay for the Convenience of Banking
Banks pay lower interest rates on interest bearing accounts than brokerages and mutual fund companies that offer check writing privileges. In addition, bank fees can be high; an account cost can easily add up to $200 a year or more, unless you maintain a minimum required balance on deposit.
- Inflation Eats Away at Your Bank Earnings
Even at a low rate of inflation, the annual cost of goods and services usually outpaces what banks pay in interest bearing accounts.
- Bank’s Calculate Interest Differently
To compare how much money you will earn from various accounts within a time period of a year, you should ask for each account’s annual percentage yield.
- Certificates of Deposit, also known as CDs, Offer Some of the Best Guaranteed Rates on Your Money
They are insured to up to $100,000 each. The only catch is that you will have to lock up your money for a period of anywhere from three months to five years or even more. If the interest rates fall before the CD expires, the bank is out of luck and must give you the rate it quoted. If rates climb, you’re stuck with the lower interest rate. Also, with rising interest rates, money market accounts can become an attractive option as well. They pay more than banking accounts and you do not have to freeze your money or lock it up for a specified amount of time.
- Be Wary of ATM fees
The convenience of using automated teller machines is an increasingly pricy one.
According to Bankrate.com, the average fee your bank charges you to use another institution’s ATM is a $1.37. This is in addition to the average $1.75 that the other institution charges you to use its ATM. These are all fees that you will have to incur to access your money. So, try to use your own bank’s ATM as much as possible to avoid these fees.
- Negotiating a Better Rate for Your Business
You must comparison shop and ask for price breaks. For example, a bank might offer free checking if you are a shareholder or if you direct deposit your paycheck. Don’t be afraid to find out if there are any benefits that you can incur with opening a bank account.
- Use the Web to Shop for Bank Services
You can use the web to compare fees, yields and minimum deposit requirements nationwide. Sites such as bankrate.com allow you to search and compare the highest yields and the lowest fees on banking, savings, loans and deposit rates. You can also search by geographic locations.
- Use Online Banking
Online banking makes bill paying much easier. You can save time and stress with a few clicks. If you combine online banking with a personal finance management program, such as Quicken or Microsoft Money, you’ll be able to link your banking with your budgeting and financial planning as well. Do your research and be knowledgeable about any fees your bank may charge for the convenience of online bill paying.
Congratulations, you’ve just completed Banking 101. We hope this introduction will provide you with enough information to allow you to go out and establish your own account on you way to financial freedom.
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