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Smart banking and saving basics
It's all about saving the money you earn by banking smart, and using your banking for financial growth.
In Lesson 3
1. Money in a bank account is safe.
A bank is one of the safest places to stash your cash. In the wake of the financial crisis of 2008, the federal government increased the level of insurance on bank accounts -- it's now $250,000 per depositor.
2. You pay for the convenience of a bank account.
Banks generally pay lower rates on interest-bearing accounts than brokerages and mutual fund companies that offer check-writing privileges. What's more, bank fees can be high -- account costs can easily add up to $200 a year or more unless you keep a minimum required balance on deposit.
3. Inflation can eat what you earn from a bank.
Even at a low rate of inflation, the annual creep in the cost of goods and services usually outpaces what banks pay in interest-bearing accounts.
4. Not all interest rates are created equal.
Banks frequently use different methods to calculate interest. To compare how much money you'll earn from various accounts in a year, ask for each account's "annual percentage yield." Banks typically quote both interest rates and APYs, but only APYs are calculated the same way everywhere.
5. You can get better rates
Certificates of deposit (CDs) offer some of the best guaranteed rates on your money and are insured up to $250,000 each.
The catch: you have to lock up your money for three months to five years or more. If 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 rate.
Also online bank and money market accounts can be an attractive option, too. They can pay more than banking accounts and you don't have to lock up your money for a specific amount of time.
6. ATM fees can take a significant bite out of your budget.
The convenience of using automated teller machines is an increasingly pricey one. On average, the fee your bank charges you to use another institution's ATM is $2.00. That's on top of the fee that the other institution will charge you to use its ATM.
7. Getting the best deal takes work.
You won't get a great deal on a car if you just walk into a dealer and plunk your money down. Likewise, you won't get a great banking deal unless you comparison-shop and ask about price breaks. For example, a bank might offer free checking if you are a shareholder or if you direct deposit your paycheck.
8. Use the Internet to shop for bank services.
You can use the Internet to compare fees, yields, and minimum deposit requirements nationwide. Sites like Bankrate.com allow you to search and compare the highest yields and the lowest costs on banking, savings, loans and deposit rates nationwide. You can also search by geographic location or use CNNMoney.com loan center.
9. Banking online can make bill-paying easier.
Electronic bill-paying can save you the monthly hassle of paying your bills. And if you couple 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. But be careful. Some vendors only warn the consumer of price hikes in the fine print of a bill.
10. You can bank without a bank.
A number of financial institutions offer accounts that resemble bank services. The most common: Credit union accounts; mutual fund company money market funds; and brokerage cash-management accounts.