Looking for a place to deposit your paycheck? Thanks to the mobile and online options that now come with even the most basic checking account, accessing and transferring your cash is easier than ever. Before you choose, it's important to look under the hood first and see exactly what you’re getting. Otherwise, you'll pay a higher price. Here are a few aspects to consider.
How Much Interest Will You Earn on Your Checking Account?
Checking Accounts have what is called APY (annual percentage yield) and it tells you how much money the bank or credit union will pay you for allowing them to hold your money. For example, pretend you put $10,000 in a checking account. The financial institution offers you an APY of .05%. At the end of the year, you will have earned $5.00.
Now imagine you put that same $10,000 in a checking account that offers 2% APY. At the end of the year, you would have earned $200. That's $195 more a year just by picking the right institution. Much better, right?
Rates differ dramatically between institutions. The national average is .12%, and the three biggest banks (Bank of America, Chase, and Wells Fargo) only offer .01%. You can see that this makes a big difference to your bottom line, so try to find the account that has the highest APY.
What Rewards does My Checking Account Offer?
It's not just interest rates that will differ between checking accounts, the type of reward and the way in which it is earned will vary. Before you sign up, take a look at your financial habits and figure out which account will offer you the highest rewards. The two most common type of rewards for checking accounts are:
- Interest - Just like we discussed in the first section, many checking accounts provide interest (APY). This is money the bank pays you. The amount you earn is usually a percentage of your account balance.
- Example: You have a balance of $10,000 and an APY of .05%. At the end of the year, you will have earned $5.
- Interest accounts are best suited for people who carry higher balances in their checking accounts.
- Cash Back - Unlike interest, the amount you earn from the bank doesn't depend on your balance, it depends on how much you spend. With cash back rewards you get a percentage of the cost each purchase credited back to your account.
- Example: You spend $100 this month using your debit card. Your bank offers 2% cashback on all debit card purchases. At the end of the month, you would be credited back $2.00
- Cashback accounts are best suited for people who carry lower checking account balances but make a lot of debit card transactions.
Those are the most common type of rewards for checking accounts, but banks and credit unions are starting to get more creative. Some other types of reward checking are:
- Airline miles
- Digital credits at stores like Amazon and iTunes
- One time sign up bonuses
- Contributions to nonprofits
- Discounts at local businesses
What Fees Apply to the Checking Account?
Before you sign on, it’s a good idea to become familiar with the three common fees, or else your so-called free account won’t seem so great.
ATM fees: In 2017, the average ATM fee was $4.69! Remember that $5 interest you earned... bye bye.
Most people believe they can avoid ATM fees only when the bank logo on the debit card matches the logo on the ATM. That’s certainly true for national mega-banks, but here’s the secret behind credit union ATMs: They network with other credit unions, so even if you drive to the opposite coast, you can still get access to your cash for free.
Maintenance fees: Sometimes, high-interest checking accounts come with a costly caveat: Keep a minimum balance or get soaked with a monthly fee. This should be a red flag to stay away from the account. It is pretty essential to have a checking account in today's world and there are plenty of free accounts out there (like Kasasa!).
Overdraft fees: Always ask about overdraft fees and how they’re assessed. Some banks and credit unions have attractive alternatives. For example, instead of charging one fee per overdrawn transaction, they treat it as a line of credit. In the long run, the daily interest rate you pay is far, far less than an overdraft fee.
There are more, less common, fees that banks and credit unions might apply to your account. TrueFees.com allows you to search for financial institutions in your community and quickly see exactly how expensive their fees are. It's great if you want to comparison shop on fees.
Does the Account Come with Digital Tools?
It's 2018, no one has time to go into a branch to deposit their paycheck, and luckily at most institutions, you won't need to. At a minimum, try to find a bank or credit union that offers:
- Remote Deposits: The ability to take a picture of a check and deposit it into your account.
- Online Banking: The ability to see all your accounts, balances, and transactions through an online portal.
- This should be both part of the institution's website and a mobile app.
- Peer-to-peer payments: The ability to transfer money electronically to someone in your network.
- The ability to create automatic payments and spending alerts.
Does the Bank or Credit Union Have Good Service?
Would you go to a restaurant that had a 1-star rating? What about one where the comments said: "The food is good, but the service was terrible."
If you wouldn't do that for a meal, why would you do that with something as important as your money? If something goes wrong with your finances, you'll want to be confident knowing that there are people who are knowledgeable and eager to help. Even if it isn't a worst-case-scenario, staff members can be a resource for answering everyday questions.
What does the Bank or Credit Union Stand For?
It’s important to understand your bank’s core mission. Banks make a certain amount of profit. If you understand where their profits are going, it can tell you a lot about their values and ethics. National mega-banks give their profits to shareholders. Which explains how a certain scandal came about, where employees created fake accounts (racking up more fees for customers) so they could meet their aggressive sales goals.
At a credit union, you’re one of the owners — so you’re one of the bosses. Credit unions return the profits to you, which means you pay less on fees and get higher interest rates on your accounts. Plus, a credit union places a high premium on investing in the community.
Unlike the big banks, community banks typically serve a small locality, which means their success is directly tied to the success of the community they serve. In fact, community banks fund more than half of all small business loans. Those businesses create 2 out of every 3 jobs. If you want a thriving local economy, you need a thriving community bank.
What Else does the Institution Offer?
Finances are something you'll be managing for the rest of your life and as you get older your needs are going to change; You might need a new car, maybe you'll want to buy a house, or perhaps you just want some identity theft protection. Having your finances spread out across many institutions makes it much harder to keep track of, so it makes sense to plan for the future whenever you're comparing institutions.