[toc]In the previous training lesson you discovered how to select the right credit card company to suit two main goals:
1) To obtain a credit score of 740 or better by properly managing your credit debt and monthly service contracts.
2) To research the benefits that credit card companies offer such as; rewards programs, interest paid, trip cancellation reimbursement, and product warranty extensions.
Once you have made your selection and obtain your first or one of many credit cards, it’s time to properly set up your bank accounts. This is a very important step, and one that deserves a lot of thought. There are a few options to choose from concerning your checking and saving accounts, consider this juicy preview:
– Bank of America, Wells Fargo and Chase bank offer a 0.01 % yield on your savings. We’ll show you which banks offer 1.0%.
– How to obtain ATM and overdraft fee reimbursements and discounts at over 60,000 hotels all over the world.
– How you can negotiate for lower fees and fee reversals.
– Why you should always use the “credit” payment method of your Debit bank card when available.
– How to lower your risk for overdraft fees as well as eliminating them altogether.
We will dive into the details below, but first here’s a quick infographic summarizing this guide
Billions Earned Annually – Don’t Be A Victim!
You might be thinking; “Tell me something I don’t know.”
Banks are making billions a year from your savings and checking deposits. Most banks are all about their bottom line, and that’s pretty much it. They are all about the high interest rates they can make off the money you deposit and the fees collected from account holder’s mishaps. While the average banking customer is willing to give the banks barely a questioning glance, you are taking the steps to stop being a victim of banking ignorance.
It’s time to take a stand and demand more from where you deposit your hard earned money. While it’s true, all banks come with similar advantages and disadvantages; there is more at stake here than finding a bank with good customer service and easy-to-manage banking through mobile apps on our digital devices.
Benefits of Having a Checking and Savings Account
Knowing how checking and savings accounts work is essential to managing your money. Almost everyone has a checking account. Typically, these accounts see the most activity. Since the advent of the debit card the checking account is probably the most used by consumers.
There are banking fees, variable interest rates, account minimums, and overdraft protection services that can work for and against the money deposited into your account. Most people associate all of the above with checking accounts. For many people the benefits to opening a checking account are obvious.
To the average account holder, the benefit to opening a savings account is far more obscure. However, there are plenty of reasons why you should open a savings account…saving money is just one.
Your savings account differs from your checking in that what is deposited is meant to stay. That’s why it’s called savings. Think of it as a long term investment. And traditional banks have always paid interest to hold your money in a these accounts, although today it doesn’t amount to much.
In fact, when you factor in inflation, you may actually be losing money in your savings. This is because the cost of living grows faster than the interest in your savings account. Over the course of a year this may not amount to much, depending on the size of your account, but you’re essentially paying the bank to make a profit on your money.
So is it Really Worth Opening Up a Savings Account?
For simplicity sake many opt to have just one type of account, typically a checking account. Paychecks are deposited, bills are paid, money goes in and money goes out. It is simple. But for long term goals is it practical?
There is a real benefit to having two separate accounts; one checking, and one savings. This is true regardless of how much or how little money you have. Think of a savings account as the place you put money in and watch it grow. It may not grow fast, but it should be consistent. Now think of your checking as a sort of way-station. You put money in and from there it is directed to various places; rent or mortgage, utilities and other expenses, food, and hopefully a portion to savings.
When your accounts are separated it is easier to see what is available after your debts have been paid. If there is not enough in your checking for a night out, don’t be tempted to take it from your savings. Online transfers from savings to checking are a quick way to shore up your checking account if you come up short. It is very easy to do this with the intention of replacing the money with the next paycheck. Often what happens is something else comes up; an unexpected repair, medical expense, or forgetfulness, you get the idea. If you are not careful, then any surplus that could go to savings might easily be spent.
This is an area where online banks can be advantageous, because to transfer money from savings to checking can take several days. This puts a damper on impulse spending. It also allows you to think twice before accessing your savings.
Personal Choice – What works for one, may not work for another
With so many banking choices it can be overwhelming to choose how to best organize your accounts. There is no one solution that will work for everyone. For some, simpler is better. If that sounds attractive then having a savings and checking account at one local bank may work well for you.
Another option would be to open a savings account with an online bank, which pays higher interest, while having a checking account with a traditional bank. You may opt to open several accounts at various banks, both traditional and online. The important thing to remember is that you need to be aware of how the bank you select operates.
Do research and if you’re not sure about added or hidden fees don’t be afraid to ask questions.
Interest Rates – A Tiny Consideration
Today interest rates offered on your savings are of little if any value in deciding where you deposit your money. Even with the highest interest rate offered at 1.10% (a teaser rate, by the way) you would be wise to consider other factors that will benefit you more.
Some fees are unavoidable, but others, like overdraft fees, can quickly add up. Remember, you’re not making much interest on the money in your account. So a single overdraft fee can eat up years of interest earned which is just pathetic.
If you have $5,000.00 in a savings account earning 1.05% interest you would earn about $26 in 6 months. This is assuming you have moved your money from the bank that was giving you that pathetic rate of 0.01%. All it takes is a bounced check, or a monthly service fee coming out a day before you expected it. One single overdraft fee could wipe out that little bit of interest accrued in your account.
Another example would be if you make a purchase for more than you have in your checking account. Your bank will “kindly” (insert sarcasm here) allow this purchase to go through. The bank, in effect, loans you the funds to make the purchase. But what you don’t find out until later is that you’ve been charged an overdraft fee. If you make several purchases in a day, each time going over your account limit, you will be charge for each overdraft. That can be anywhere between $25.00 and $35.00 for each.
Imagine getting charged $35 for a small $5 purchase! It does and has happened to even the most responsible account holders. You can see where this is going: Fees can add up quickly and eat away at the money reserved for paying your monthly bills. Added fees vary from bank to bank so be sure and pay close attention to not only the interest rate, but especially to the fees associated with the account.
Banks count on you not asking, just paying. So it is essential to be familiar with your banks operating procedures and how they relate to your finances. It would be a mistake to assume that a traditional bank is more concerned with you over their bottom line. They’re in business to make money off you, not the other way around. By simply asking the right questions and shopping around you can find solutions that suit your needs.
This probably sounds complicated. Even the thought of moving your checking and or savings account from one bank to another could seem a bit overwhelming. The prospect of reigning in your finances can appear daunting, especially if they’ve been neglected or ignored altogether. But it takes relatively little time to set your accounts up and once that is done, you only need to maintain them.
Do You Need Overdraft Protection?
Overdraft Protection is a service provided by your bank that allows a purchase to go through even if you do not have enough money to cover it. If this happens your bank will cover the difference.
Before 2010 banks automatically allowed purchases to go through even if your account would become overdrawn. Today this is a service that banks offer, but only at your request. It is a free service; however, it is costly when utilized.
Even though you can set your account up to stop overdraft protection on purchases, your account can still become overdrawn. A personal check, an automatic payment, a reoccurring service fee or debt can all cause your account to become overdrawn. This can result in one if not many overdraft charges.
So basically the only type of overdraft fee you can avoid are those that occur when you make a purchase with your debit card. If, for example, you try to buy $50.00 of groceries and only have $20.00 in your account, your purchase will be denied. On the plus side, this prevents an overdraft charge. On the other hand, there is something to be said for avoiding that embarrassing moment in the grocery store when your debit card is denied.
Overdraft Protection – Your Savings Account to the Rescue!
Why banks keep this gem hidden from their customers is obvious: They enjoy being the recipient of the billions of dollars in overdraft fees handed over each and every year by uneducated and misinformed customers. You don’t have to be one of these customers. The solution to this problem is simple.
Option 1: Overdraft protection that can be managed by linking your savings account with your checking account. You deposit $500.00 or more into your savings account and let it sit there guarding your checking account balance like a pit bull. When a charge or purchase cannot be covered with the amount of money in your checking account, money is transferred from your savings account into your checking account.
Option 2: Overdraft line of credit. This works the same way as it does with your savings account only in this case you are borrowing money from the bank rather than transferring funds from your savings into your checking account.
The brilliant aspect of option 1 is that you can set the transfer of funds to any amount you like. Let’s say your week has been full of too much work and far too little time to do it. You have been exhausted beyond caring what is happening in your world of finance. The last time you looked you had $236.00 in your checking account. In your mind you have at least $200.00 in there to spend.
You have lunch with your friends which cost you $35.00. After that you and your friends go to the movies where you buy tickets as well as popcorn and soda. It’s early in the evening, so before you go home you stop at the store and pick up a bottle of wine so you can have a nice relaxing evening before you go to bed.
The problem is you forgot about that one bill that comes around every 6 months which happens to be coming out the very day you decided to take a break and have lunch with your friends.
During the night your account was overdrawn after paying off that $250.00 biannual bill. Even though you had been responsible and faithfully marked it down on the bright yellow post-it. The same post-it that had unfortunately fallen behind your office desk about 2 months after you pinned it up there.
Did you count how many overdraft fees occurred during this particular day? Let’s count them shall we?
- The biannual bill
- Lunch with friends
- Movie ticket
- Popcorn and soda
- Bottle of wine
That’s 5 overdraft charges. At $35 a pop your total charges would be $175!
Unless . . .
You had your checking account linked to your savings account providing you with overdraft protection.
And it gets even better…the average fee for this type of automatic funds transfer is typically $5.00 to $10.00.
How is this done?
By depositing $1000.00 into your savings account and setting it up so that every time you have an overdraft issue, your bank automatically transfers $500.00 into your checking account. It’s up to you to decide how much overdraft protection you need. Typically your bank will suggest a minimum deposit of $500 for this purpose. To get the details on the requirements of this type of protection from your bank simply call or go into your bank and ask.
Online Banking vs Traditional Brick and Mortar Banking
Traditional banks currently offer 0.01% interest on your savings, whereas, online banks are at about 1.0%.
Online banks can offer higher interest rates on both savings and money market accounts because they do not have the expenses of a traditional bank. In addition to higher interest-bearing accounts, there are no fees or minimum balance requirements. As mentioned earlier, this alone should not be the reason for opening up an online banking account. However, there are other benefits to be considered.
From time to time you may want to withdraw money from your traditional bank account. It’s not a big deal when you are home and you can easily access your local banks’ ATM machine. However, at times you may find yourself stuck without the option to withdraw money from your bank. There may be occasions when the ATM machine at your bank is out of order or you’re on vacation and the only ATM available is not one represented by your bank.
Your only option is to make a withdrawal from some other bank. And of course, this means you’ll have to pay a fee. When all you need is little cash it surely puts a damper on your day paying $2.00 to $3.00 in fees on a $20.00 withdrawal. This is when the extra perks from an online bank become more desirable.
Online banks are virtual by nature; therefore they do not require a secure area for ATM cash withdrawals. It is only reasonable that they provide their customers with a means of doing so without any associated fees. This offers you a freedom that you will find it difficult to get at a traditional bank; the freedom to withdraw your money from any ATM machine, regardless of what bank owns and operates it, without extra fees.
Online banks offer reimbursements from $5.00 to $15.00 in monthly ATM withdrawals from ATM’s that are not within their network.
Compare Benefits – It’s All In The Details
Synchrony Bank is offering 1.05% interest on savings, up to $5.00 ATM reimbursements per statement (limited to $15.00 per year), and hotel savings for accounts with a deposit of $10,000.00 or more. These discounts are provided at over 60,000 hotels all over the world.
Salem Five Direction is offering 1.10% interest until 2017. However they do not offer ATM fee reimbursements.
Ally Bank offers 1.0% interest, up to $10.00 ATM reimbursements per statement, and with a checking account will pay a maximum one overdraft fee per day.
As you can see each of these online banks offers something a little different. It is important to know how they differ so you can select the online bank that offers the best options and benefits for your personal banking needs.
The Virtual Banking Experience
If there is a downside to online banking it may be the lack personal contact. To millennials, who’ve grown up with the internet, that’s probably not a big deal; but for pre-internet parents or grandparents it could be an obstacle. No matter your age, online banking is an option worth considering if you are serious about making your money work for you.
Regardless of whether you have your money deposited into an online or traditional bank, you will be provided with a debit card; either a Visa or MasterCard. It is important to know the benefits of using either of the options; credit and or debit.
Debit vs Credit – What To Use When You Purchase
To be clear, we are not talking about using a “credit” card. Your bank card is referred to as a “debit” card. It includes the option to make your purchase without using your PIN. Your purchase can be handled as if it was a credit card. However, the money still comes directly out of your bank account.
There are times when a debit card is not accepted. In this case the only means of making a purchase is with a Visa or MasterCard. This is when your debit card is run through the merchant machine just like a Visa or MasterCard credit card.
The money deposited into your checking account can be used to make purchases in several ways. However, there are a few reasons why you may want to use your bank card as a credit card purchase rather than debit card.
Disputing a Charge
From time to time you may have reason to dispute a charge on your checking account statement. Your bank will take steps to investigate the charge and refund you the money should it rule in your favor. You can dispute a charge anytime you use either the debit or credit option of your bank card to pay for your purchase.
The problem with using your debit card is some banks are more difficult to deal with than others regarding disputed charges. Banks fall under different laws and requirements regarding disputes for debit card purchases. The way and speed at which your dispute is handled will vary from bank to bank.
In addition, the time period you will wait to receive your money back could take as long as the time period it takes to investigate. Even if the bank rules in your favor you may end up having to wait weeks or even several months before your money is returned.
The Truth in Lending and Fair Credit Billing Act extends to consumers the right to withhold payment to a merchant until a dispute has been settled. When a dispute is filed, money is returned immediately so you don’t have to wait for a final ruling before your money is returned. Should the dispute rule in the merchant’s favor you will have to pay that money back. This only applies when you use your bank “debit” card as a “credit” card.
Let’s Make It Simple
All this information can be a bit confusing. Let’s cut to the chase and make it easy to pick the right solutions, including when and if to use cash instead of debit or credit.
When To Use Cash
Use cash for purchases such as; your groceries, quick-stop or drive through food and drink orders, or entertainment. These types of day to day purchases seldom require a dispute resolution.
Use cash when you want to limit how much you spend for predetermined expenses such as; food, entertainment, and other expenses you want to place a monthly spending limit on.
When To Use Debit
The only time to use debit is when a paying by credit is not an option. Some gas stations and grocery stores do not allow credit cards as a payment option. There really is no other benefit to using your debit payment method rather than the credit payment method of your bank card.
The Credit Payment Option
One of the more compelling reasons to opt for using the credit card feature of your bank card is because of the greater protection offered regarding disputed charges.
The laws and policies regarding the protection of consumers from disputed charges differ greatly between banks and the Visa and MasterCard networks.
Banks are not required to refund your money on any disputed charge until the dispute is ruled in your favor. This could take weeks, or even months.
Federal law requires the Visa and MasterCard network to provide customers with a refund immediately upon disputed charges. Only when a dispute rules in the merchants favor will the money be repaid to the merchant. This is a good reason why using the credit payment option of your bank card is more desirable.
And it brings up another option you have with your bank. Sometimes you may not understand what has happened in your account. There are service charges, fees, and or other activities you are confused about. This is the time when you need to call up your bank and talk to a service rep.
This is the time when you may need to become a negotiator.
Negotiating Fee Reductions or Removals
Sometimes mistakes happen and you will incur a penalty for your mistake. Your balance may fall below the minimum required and you are hit with a monthly service fee. Or perhaps you receive an overdraft charge from an unexpected bill or withdrawal in your account.
In every case mentioned above you can negotiate with your bank to lower or remove the fees. Most banks will remove an overdraft fee, even multiple fees, if you have not had any charges within the past 12 months. If you have been a long time account holder you can make your case as a loyal customer and request any fee be reversed or lowered.
The reality here is this; most people fail to have these fees reversed, removed, or adjusted simply because they never ask or try to negotiate.
You will never know what you can negotiate to make your life and financial issues better if you don’t ask!
1. Online banking offers more advantages over traditional brick and mortar banks. Because online banks have lower operating costs they can offer higher interest rates, no fee checking or savings accounts, no account balance minimums, and even reimbursements for ATM and overdraft fees.
2. Savings accounts are a good idea. By linking savings and checking accounts you can prevent high fees associated with overdraft charges. These can add up to hundreds of dollars within a single day of banking transactions, and also eat up any interest accrued on your account.
3. Using your debit card as a “credit” card offers immediate refund protection against disputed charges. Bank policies may require weeks or months for a disputed charge to be refunded.
4. You can often negotiate to have fees from overdraft or any other type of charges on your account to be lowered.
While this information may not have been as exciting as building a good credit score or obtaining great rewards for using your credit cards responsibly, it is in fact full of great tips for checking and savings account holders.
Learn More About Banking Below:
- The Best Bank For College Students: Distance & Dollars
- What is The Difference Between a Checking and Savings Account?
- How To Close A Bank Account
- What is a Savings Account?
- Savings Account For Kids: It’s Never Too Early!
- What is A Checking Account?
- Should You Open a Joint Checking Account?
- Credit Unions Vs. Banks: Learn The Differences
- Checking Accounts For Bad Credit: Here Are Your Options
- What is a Credit Union & Should You Join One?
- High Yield CD: What Are Your Options?
- What is a CD Account? The 6 Different Types of Certificate of Deposits
- What is a Money Market Account And Should I Open One?
- High Yield Savings Accounts That Have Little Risk
- What is The Best Bank For a Small Business? Here’s Our Top 4
- Our List of The Best Money Market Accounts
- Four Banks With Free Checking Accounts And Debit Cards
- What Do You Need to Open a Bank Account?
- Second Chance Banking: Is It Your Best Option?