Personal Finance presentation, checking account selection factors prepare to get financially fit by practicing personal finance, we’re thinking about different factors, we can compare and contrast for different institutions. If we’re comparing the checking account specifically, these are also just factors that we want to be aware of with regards to the checking account. First, we have restrictions, like minimum balances. So oftentimes remember how the bank in essence is going to be making money for something like a checking account, which if you think about it, they’re giving us a lot of services in order to manage our money within the checking account for fairly low costs. How can they do that?
Well, they’re going to take some of the money that we have in the bank, keep a reserve of it, they’re loaning the rest of it out, typically trying to get a return on it typically for things like small business loans, and mortgages, earning interest on that. So therefore, they want to have some balance in the account, and at least know that it’s not going to be going over balance and have a negative balance, because there’s no benefit, in essence to the bank for that.
So they might then require some type of minimum balances, those minimum balances may change from institution to institution, you want to think if you’re comfortable with that minimum balance, because you would like to be operating with your cash level above that minimum balances so that you’re not paying the fees if it goes below that. So if that is a concern for you, then you want to be looking at the institutions and what the different minimum balances would be for them. fees, do they increase over time, we’ll talk a little bit more about different types of fees at a future slide.
But in general, we want to know what are the fees one of the listings of the fees that are there? Are they scheduled to be increasing over time, meaning do they increase or after 60 days of having the account or something like that. And also, they may just change with regards to the policy of the bank over time, meaning we might have to reevaluate from time to time and see if we if this is still the best option for us interest rate and computation. So if we have interest that is going to be earned in the checking account, then we may have very little to no interest in the checking account as opposed to possibly savings accounts.
Note that if you’re in a time of low interest rates, then you might say, well, that’s almost insignificant at this point. But that could change, we could end up in a time with with higher interest rates, where they could be quite important to know what the interest rate options are at that point. And when if that happens, then you basically want to make a reevaluation and see if that’s an changing factor. It’s a game changer with regards to your decision making process, we might talk about that a little bit more in a future slide.
Special Services like overdraft protection, we’ll take a little bit more look at special services in a future slide. But overdraft protection would be thing something to me, I would want to have a must have with regards to the checking account so that if there was a problem, I went into the negative, I’d have some protection to make sure that the payments that I make beyond that point are still honored, hopefully, and possibly lower the costs of that. And note that you could have something happen, like someone steals access to your account or something like that, too, even if you’re managing your account well, which could result in this overdraft happening.
And where you’d like to have the protection, I would think in that event, I’ll be careful a bundle deal that may include services you do not need. So this is a typical type of sales strategy. World we’ll put all these neat things together into a bundle. But you really don’t need everything in that bundle, you might be familiar with this with things like buying cable or something like that, or the cable and the phone and so on. It might be a good thing if you’re using everything in the bundle. But if you’re paying things for things over on the bundle that you would if you just bought them individually, just buying the things that you need, then it can be a bad thing.
So it’s kind of you got to weigh those two options out hours and locations. So you also want to see if it’s FDIC insured, so this is kind of a must have, I would think for your main checking account to make sure that you have the safeguard of FDIC insurance for it, and hours and location of branch locations. This may or may not be an important factor for you. But you want to know do you have when you know what other locations there and one of the options for me to get service at a location if that’s an important point for me. Now let’s go into the fees a little bit more closely.
So we could have monthly fees, you may or may not in the checking account to have have the monthly fees, they might be lower. If you have basically the minimum balance you’ll you’ll recall, but these are the types of fees that you might see fees for each check or deposit. So are they charging you for basically checks and deposits and print so these are the types of fees that could apply. You may not have these fees there if you’re if your bank account is over the minimum balance for example, printing of checks is For the printing of checks, note that these days you can access possibly canceled checks and so on using your online services.
So you want to see how you know how good is the access for you to be able to look at that more detail fee to obtain canceled checks. So it used to be that you would write more checks, right, you’d be writing the check. And then you’d see the amount that’s going to decrease from your checking account in the bank statement. But all you really have on the bank statement is the check number and the amount that decreased, you don’t know who you paid to it. Because you don’t have the check where you actually wrote the vendor, it wasn’t in the detail on the bank statement.
So So nowadays, oftentimes, you can get access to those canceled checks, if you have online checking, and they’ll give you a nice little link to the check. It used to be that you had to actually get the canceled check then, and so that you can, that you can verify it was which was an added process, you can see why that would be an added pain to do but now oftentimes, you can get access to that possibly digitally. And so you want to see if you have to sophisticated enough online banking, especially if you’re using checks to double check and see the canceled checks.
So you can see who you paid for that check if you have a question about it, or if you want to see if something has cleared. Also note that a lot of times you have the online payments now, which of course means you’re writing less checks, which of course means the canceled checks and acquiring them becomes less important. And when you pay for something with a online transfer, you will tip whether it comes out of your checking account or whether you do it through a credit card you will typically have more information, like the vendor information, at least in part will typically be in some way there in the description or memo line of the check.
So so you know keep those two things in mind overdraft once again, did you pay for the overdraft? Note that the overdraft is kind of like an insurance your your OPT, you do not want your checking account to go below zero. But if it does, so either by an error on your side where someone steals, you know, access to your account and it goes below zero, then it would be nice to have the protection there. What are the costs with relation to it? Stop payment order.
So if you have to put on a stop payment order, what’s going to be the cost of that hopefully, this isn’t something that you need to do often. But if you do need to do it, you know, you might want to see what that what that cost is. and certified check fee. So is there a cost for certified check. Note that you might need the certified check for certain types of payments when you’re dealing with people that want that double verification that your check is valid. So if you rent and rent somewhere or something like that, the first check, they want might be a certified check.
Or if for whatever reason, a larger dollar amount, they might want it certified, meaning they have more, they have more verification that your check is good that it won’t bounce so that you have sufficient funds fees for online banking. So clearly these days online banking is becoming more and more important for many people. And so what are there any fees with regards to the online banking, then we have special services like the direct deposit. So clearly, if you’re working somewhere as a W two employee or something like that, or these days, even from the IRS or in other places that you’re that you’re working with, they might want you might want to direct deposit going directly, of course into your checking account.
So do they have the available availability of that availability of ATMs, so if you need to go basically get cash at a regular basis, then they might charge you if the ATM is not the their ATM, of course. And if so you want to make sure that you have a local ATM, if you want the relevant cash on hand that may or may not become more and more, more or less important, as things become more digital in the future. But I think it’s still an important factor for many people. It’s nice to be able to pay some things in cash, nice to tip people in in cash and whatnot. So it’s good to have, you know, some cash there for you and not have to pay for it getting it.
So overdraft protection. So what’s going to be the cause for overdraft protection once again, I think that would be a must have type of thing, given you some safeguards, in my opinion, given you some safeguards as to whether your account goes below zero, and so that your payments are still honored. In that case, hopefully up to a certain point, so that you don’t get an A credit problem, especially in the event that someone steals access to your account or something like that, and not only steals your money, but then draws you into an overdraft and then ruins your credit score, right?
Unless you can stop barring that hopefully discounts or or free checking for some groups. So they might have free checking or discounts for like students and senior citizens. So if you fall into some of those groups that might have special services, then take a look at those and see if you can get get access to them. Interest rates minimum so if you get interest rates on the checking account right now they’re they’re pretty minimal if they’re at all But no, these things could change. So if interest rates become important at this point time they’re thinking inflation is one of those things that’s continually debated at this point, if inflation goes up, interest rates will typically go up.
And then if there’s a period of inflation, interest becomes more and more important. And like I said, we’ve been in a long period of low rates, low inflation, or so what and so forth. And but, you know, there’s been times where there’s been a long period of high inflation, and I’m in the US. So it could, you know, obviously, you want to keep an eye on that could be important. So anyway, the minimum deposit to earn the interest. So you might need like, if you have an interest in a checking account, if they were to pay you, they might say, hey, you need a minimum deposit in order to get the interest.
So what is that? What’s their method of compounding? Do they compound monthly, annually, perpetually, portion of balance for compounding interest? So meaning, are you compounding the interest on the full balance of the account, or you saying, adding interest on the amount over and above this minimum balance amount, other payment methods, so you might have other methods of payment that you would like to possibly have available to you at the institution, you’re doing your checking account with like certified checks, cashier’s checks, money orders, and traveler’s checks.
So these are just some other kind of forms of payments that are going to be common, some of them more likely, you know, than others these days, notice that with electronic transfers, some of these might may or may not be as you know, they might be supplemented more and more with electronic kind of options, but a certified check, a check where the issuing bank guarantees the availability of cash in a holders account. So if you’re dealing with someone that they’re saying, hey, I want more verification, just then just simply your check, than just simply your word I want,
I want to have a verification, in essence, verified by the bank to or a higher level, such as when you’re renting your first month of rent, or something like that, often will be an instance where you might need this information. So you might go a long time without needing a certified check. And then when you make some purchase, like a car or something like that, then all of a sudden, they want a certified check. So banks usually set aside the amount of the money listed on the certified check. And the holders account certified checks are used to reduce the risk of non payment in the event that the writer of the check does not have sufficient funds.
So you can imagine that if you’re you know, renting to someone or something like that, they write you a check, and then it bounces meaning they don’t have sufficient funds that’s frustrating for a large transaction. And they want to you know, verify that you have the funds and haven’t had double verification. downside to using certified checks include depositors not being able to place a stop payment order on a certified check as well as fees charged for issuing the certified check.
So there could be fees when you do the certified check. So it’s kind of annoying when someone asks you for a third certified check in any event where they don’t really need to because then you got to go to the bank, you got to get a certified check and you got to basically pay for part of it. And they’re basically you’re dealing with someone who’s basically saying I don’t trust your normal check, you know, but a lot of times it’s just a bureaucratic thing.
It’s not you know, so you got to do what you got to do so they are most often used for payment involving large sums of money. Then Then we have the cashier’s check. They cannot bounce generally a cashier’s check using watermark and required bank signatures a cashier’s check is hard to counterfeit. However, there are still some cashier’s check scams out there. So the funds are usually available to the payee by the next business day.
Then we have the money orders, you may have to pay to pay a small fee for the money orders you can purchase money orders at banks and credit unions may also purchase at a variety of locations like big box stores, post office, and even some gas stations. They are a safe alternative to using cash or cheques. international money orders can be an inexpensive way to send a cross border and overseas quickly. So what’s the difference between a cashier’s check versus a monies order so we can kind of compare and contrast these two things.
That cashier’s check are a type of official check that banks issue and sign so they’re issued and signed by the institution the bank whereas a money order is available in several places, including the US Postal Service, convenience stores, drugstores, grocery stores, and check cashing companies. So in other words, not simply by the institution, the bank, the bank, the financial institution, it is usually easier to buy money orders, but cashier’s checks are more secure. So cashier’s checks are not entirely foolproof because cameras can create counterfeits sometimes.
And then we have the traveler’s checks which are becoming more and more obsolete these days given the fact that we have these other options like the like the the credit cards and the Translate electronic transfers, debit cards and so on. But cash the traveler’s checks are a form of payment issued by financial institutions.
They are paper notes usually used by people when traveling to foreign countries. traveler’s checks are purchased for set amounts and can be used to buy goods or services or be exchanged for cash. If your traveler’s checks is lost or stolen, it can readily be replaced. Once widely used. traveler’s checks have largely been replaced today by prepaid debit cards and credit cards.