Types of Institutions
Banks
Credit Unions
Credit unions offer the same services as banks, the difference being services are provided to “members” who share a common bond need to open an account. This could be military, teachers, or employees of a certain company. An example is Navy Federal Credit Union. They are owned by their members and offer personal loans as well as other services. They are insured by the National Credit Union Administration (NCUA)
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Thrift
A Thrift is another type of financial institution which tend to specialize in home loans, and serving small businesses within a community.
All of these offer very similar benefits, so when referring to a “Bank”, generally referring to all of these together.
Why use a Bank?
Some people will claim that the safest place for their money is their home where they know where it is. Some are also concerned about the banking fees. The bank is still the safest place for your money:
Safety: When money is kept in a federally insured bank, that means it can provide many protections which are unavailable at home. Let’s say for example, you have $5,000 in your house and your house burns down. You’ve lost that money and won’t be able to get it back. If you have an account at a federally insured bank, you are secured up to at least $250,000 per depositor, per bank ensured. Meaning, if the bank goes out of business or burns down and you had $5,000 there, the FDIC would ensure you got that $5,000 back. When looking at the safety offered by the bank, it’s important to discuss “deposit accounts” these are accounts into which you can add money. The two main types of deposit accounts are checking and savings accounts. I’ll be getting into them with greater detail later, but here are the basics. A checking account allows you to write checks in order to pay for goods or services. The check tells your bank to take money from your account and pay it towards the person you’re writing the check to. A savings account allows you to save money by putting it aside, and to earn interest on it. Meaning, you can earn money on the money already in the account. |
In your day to day activities, it is safer not to carry a large amount of cash and purchase items using a credit card, debit card, or a check. Why? Well this requires some prior knowledge from my unit on Credit Cards. If someone robs you, and uses your cash to buy something, nothing can be done. You’ve lost that cash. Now, let’s say you are robbed and they steal your credit card. If you are fully aware it has been robbed, report it to your bank immediately and the card will be rendered useless to the thief. Let’s say you don’t realize the card has been stolen and on your billing statement, you notice purchases you never made. You would notify the bank, and not be held responsible for those purchases. This insurance does not cover non-deposit accounts such as mutual funds, annuities, stocks, and bonds.
Fees - A bank is actually cheaper than some other options out there for managing money. This includes Check-cashing stores, and “payday lenders” which may claim to operate like banks, but are quite different. Should you choose to cash a pay check at these institutions, they will take a chunk of that check for fees and aren’t held accountable to the same laws as banks.
Fees - A bank is actually cheaper than some other options out there for managing money. This includes Check-cashing stores, and “payday lenders” which may claim to operate like banks, but are quite different. Should you choose to cash a pay check at these institutions, they will take a chunk of that check for fees and aren’t held accountable to the same laws as banks.
How to Open a Bank Account
If you know what you're doing, opening a bank account can be easy and sometimes can even be done from the comfort of your own home. Whether you're doing it at home, or within a bank, here's the information you'll need to ensure it's a smooth process.
Opening the Account
If you're opening a new account with a bank you have another account in, this can be as simple as applying for the new account and transferring money from an already existing one. Should this be your first account however, the bank may require you open it in person and place a balance in it via cash or check. Some accounts will have a required opening balance.
Information to Bring
There's some general information you'll need to have with you any time you wish to open a new account. Banks may require to see all or some of these items so it's best to be prepared.
If you're opening a new account with a bank you have another account in, this can be as simple as applying for the new account and transferring money from an already existing one. Should this be your first account however, the bank may require you open it in person and place a balance in it via cash or check. Some accounts will have a required opening balance.
Information to Bring
There's some general information you'll need to have with you any time you wish to open a new account. Banks may require to see all or some of these items so it's best to be prepared.
- Legal ID: This can be in the form of a Drivers License, a Passport, or an ID card from the Department of Motor Vehicles
- Personal Details: This is other information to verify who you are aside from your ID. This information is generally your birthday, social security number, a phone number, and/or email address.
- Money: If opening online, transferring from an existing account works. If opening at a bank, you'll need cash or a check.
- The Other Applicant: This only applies if you are opening a joint account. If the account is including two people, the information of both individuals must be available. If at a bank, bring them with you and ensure they have the same documents of identification. If online, just be sure they have their information ready when they fill out their form.
- A Parent/Guardian: This only applies if you are not yet 18 years old. Minors usually must have a legal parent/guardian with co-ownership who can sign legal documents.
How to Close a Bank Account
Let's say you decide to switch banks, you'll need to know how to close old accounts and prepare for your new ones. This can be a hassle and lead to many headaches if you don't know what to do. I'll do my best to provide the information to prevent said headaches.
Direct Deposit: If you have a direct deposit set up with an employer, make sure you give them your new account information
Automatically Deducted Bill Payments: Should you have any payments made automatically make sure to cancel the old ones, and set up new ones with your new information. Canceling old ones can be done either through the bank's bill-pay platform or the website of whatever service you're sending payments to.
Linked Accounts: This involves making sure your new checking and savings accounts are linked up, or that your PayPal information is correct should you be using PayPal.
Smartphone Alerts: Should you have any banking apps be sure to delete the ones with your old bank and install new ones for your new bank. Also delete any alerts set up for the old account.
Checks: Any paper checks from your old account should be destroyed.
Safe Deposit Box: Should you be removing everything from an old bank, be sure to go to that bank and remove all of your personal possessions from your safety deposits box. Speak to someone at the bank about terminating your rental agreements and closing the box.
Confirmation: Finally, be sure to ask for paper confirmation that all of your accounts at that bank have been closed. Also ask about account re-opening policies; some banks will re-open closed accounts for automatic payments or deposits. These can place you at risk for paying fees so make sure your switch is thorough.
Your New Account: Now that you've got a new account, familiarize yourself with it, know about all its fees and how it works.
Automatically Deducted Bill Payments: Should you have any payments made automatically make sure to cancel the old ones, and set up new ones with your new information. Canceling old ones can be done either through the bank's bill-pay platform or the website of whatever service you're sending payments to.
Linked Accounts: This involves making sure your new checking and savings accounts are linked up, or that your PayPal information is correct should you be using PayPal.
Smartphone Alerts: Should you have any banking apps be sure to delete the ones with your old bank and install new ones for your new bank. Also delete any alerts set up for the old account.
Checks: Any paper checks from your old account should be destroyed.
Safe Deposit Box: Should you be removing everything from an old bank, be sure to go to that bank and remove all of your personal possessions from your safety deposits box. Speak to someone at the bank about terminating your rental agreements and closing the box.
Confirmation: Finally, be sure to ask for paper confirmation that all of your accounts at that bank have been closed. Also ask about account re-opening policies; some banks will re-open closed accounts for automatic payments or deposits. These can place you at risk for paying fees so make sure your switch is thorough.
Your New Account: Now that you've got a new account, familiarize yourself with it, know about all its fees and how it works.