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February 8, 2021

What Do You Need to Open a Bank Account?

Are you planning to open a bank account? The good news is it’s a fairly simple process. But before you get started, you’ll need to do a little legwork and gather some important documentation to ensure you won’t hit any roadblocks.

How to Open a Bank Account

Read on to learn more about what to expect when opening a bank account.

Step 1: Explore Your Options

Not all banks are equal. Offerings, qualification criteria, and account holder benefits vary from institution to institution. And some tack on heavy fees to boost their bottom line. So, before choosing a bank and opening a bank account, consider the following:

Location

Will you be visiting the branch often? You’ll need to find a brick and mortar bank within near of your home or job. Local credit unions may also be a good fit if you can meet the qualification criteria.

If you prefer to handle all your banking needs online, an online bank may be a viable option. Online banks are convenient if you’re always on the go, and most of your banking needs can be handled from a computer or smartphone.

Citizenship Requirements

Non-US citizens may still qualify for a bank account. However, you’ll need to speak with a banker to learn more about banking products and services that may be available to you.

Fees

Banks usually assess monthly maintenance, overdraft, and NSF fees. Some banks also assess fees for wire transfers and cashier’s checks. The lower the fees, the better.

ATM Availability

If the bank has many ATMs in your area, you won’t have to worry about fees. But if they don’t, inquire to determine if they reimburse for fees incurred at out of network ATMs.

Product Offerings

Most banks offer the following:

Checking and savings accounts, certificates of deposit (CDs), money market accounts, interest-bearing accounts and prepaid cards
Loan and credit products, including credit cards, auto loans, mortgage loans, student loans, and lines of credit
Investment accounts, such as ETFs, mutual funds, and bonds
Small business banking, payroll, merchant and retirement planning services

But some have limited offerings, so confirm that their offerings will best suit your needs before applying for a new account.

Rate of Return

Online banks typically have the highest rate of return since their overhead is minimal. But if you prefer a brick and mortar bank, be mindful of the rate of return.

Financial Literacy Resources

Are you interested in learning more about ways to improve your financial situation? Check to see if the bank has educational resources available to customers.

Services

Does the bank you’re considering offer a 24/7 customer hotline? This could be important if you travel often or only have time to call after hours. How about online banking and mobile banking capabilities, such as remote check deposits?

Step 2: Apply for a New Bank Account

Once you’ve decided on a bank and type of account you’d like to open, you have to submit an application. To open a bank account, you’ll need:

Name, date of birth, and Social Security number or taxpayer identification number
Contact information, including your mailing and email address
A government-issued ID, such as a driver’s license, Social Security card, passport, or state ID to prove your identity
Co-signer’s information if you’re under 18 years of age
Identifying information of your co-applicant if you’re opening a joint account

Step 3: Fund Your Bank Account

Upon approval, you’ll need to fund your account by making what’s known as the initial deposit. In most instances, there’s a minimum amount required for the account to be placed in active status. Review the bank’s policies to determine if you can make the initial deposit in person using cash or check, or over the phone.

If you have a bank account online, an electronic funds transfer (EFT) will usually suffice. Also, keep in mind that the opening deposit requirement could be higher if you pose a high risk to the bank. More on that shortly.

What if you’re denied for a bank account?

Some financial institutions run credit checks before approving consumers new accounts. They do this to confirm that you don’t have any major outstanding debt obligations to other banks.

But it doesn’t stop there. The bank may use ChexSystems or Early Warning Services to look at your banking history if you want to open a checking account. If you have a track record of excessive overdraft fees or account abuse, they may deny your application.

Keep in mind that some banks offer second chance checking accounts.

Step 4: Close Dormant Accounts

Planning to bank with more than one financial institution? If not, you should close your other bank accounts. Doing so streamlines the management of your finances. Plus, it minimizes monthly account maintenance fees.

Closing a bank account is as easy as visiting the branch or submitting a request in writing. But before you pull the cord, be sure to:

Reroute all recurring billings to your new account
Update your direct deposit information with your employer
Allow all incoming transactions, such as checks that have not posted yet, to clear
Deactivate your online account and unsubscribe from real-time text alerts

Most importantly, retrieve written documentation that includes the date the account was closed. This will serve as proof in case you have to file a complaint if improper fees are incurred after the fact.

What if your bank account was closed involuntarily?

Are you searching for a new checking account or savings account because your last one was closed by the financial institution? This typically occurs when your account sits dormant for too long. Most banks will also close your account if it is overdrawn for an extended period of time.

So, It’s in your best interest to sort everything out to protect your banking history and avoid being denied for a new account.

If your account was closed due to unauthorized use, file disputes to recoup your losses. But if your account was closed because of an overdrawn balance, make payment arrangements with the bank. (The latter could also prevent the unpaid balance from going to collections and tarnishing your credit rating).

Helpful Tips and Tricks

To successfully navigate the banking system once you open an account, there are some helpful tips and tricks to keep in mind.

Minimize Overdrafts

Banks make billions of dollars each year in overdraft fees. In fact, Bank of America, Chase, and JP Morgan Chase raked in over $6 billion in 2016 alone, notes CNN Money.

So, stay on top of your account balances and always make sure there are more than enough funds on hand to cover transactions. And in the event that you incur an overdraft fee, call and request that it be waived as a one-time courtesy.

See also: Best Checking Accounts With No Overdraft Fees

Understand How Overdraft Protection Works

Overdraft protection helps minimize the fees you’ll incur each time your account is in the red. But there’s still a fee assessed if the bank has to pull funds from one account to another for the transaction to clear.

And in the event the backup account does not have enough funds to cover the transaction, the bank may still clear the charge and assess an overdraft fee. In that situation, you’d be on the hook for the amount of the initial transaction, overdraft fee and subsequent fees on any other transactions that post.

A better idea: keep track of your scheduled online payments at all times. Also, call the bank and ask that they reject any debit card transactions that exceed your available balance to avoid incurring fees.

Be Vigilant of Account Activity at All Times

Fraudsters are always looking for ways to steal money from innocent consumers. And a debit card is one way to do so. That’s why it’s important to pay close attention to account activity at all times. Balance alerts can assist, but you want to keep an eye out for unauthorized transactions.

In the event your card is lost, stolen or compromised, call your bank immediately and follow it up with a letter in the mail. They should close the card right away and issue a new one with a different card number.

If the compromise is reported within two business days, you’re only liable for up to $50. But between day two and 60 calendar days, it increases to $500. And after this point, your liability is unlimited.

Understand Your Bank’s Policies

You’ll need to read the fine print to know what to expect from your bank account. This helps avoid surprises later on down the line. And you may discover there’s a better account or fit for you elsewhere.

Having issues with your bank?

Your first order of business should be to speak with a branch or customer service manager directly. If this doesn’t resolve your issue, you can use the Consumer Financial Protection Bureau’s (CFPB) online tool to file a formal complaint.

Source: crediful.com

January 23, 2021

Money Market Account vs. Savings Account: Which Is Best for You?

It all depends on your financial goals and how you plan to manage your money.

Reasons to save money seem to be never-ending—college, emergencies, retirement, vacation. However, about 20 percent of Americans don’t save any of their annual income at all, according to a Bankrate survey. So if you’ve buckled down, cut your expenses and finally saved up a nice chunk of change, great! Now, the next step is finding a good place to put it.

While researching where to store your hard-earned cash, you’ll probably come across two potential account types: money market accounts and savings accounts. Many banks offer both types of accounts, but deciding between a money market account and a savings account may depend on your particular savings goals and needs, says Jeff Rose, CFP^®, founder of the financial education blog Good Financial Cents.

“Both types of accounts have different rules about maintaining minimum balances,” Rose says. He adds that these factors can vary depending on the particular bank.

Deciding between a money market account and a savings account? Follow our guide to determine which fits your financial situation and goals.

You may even find that making a decision between a money market account vs. a savings account is too hard and you want both types of accounts. (Don’t worry, we’ll get to that later). For now, asking the question, “How is a money market account different from a regular savings account?” is a good place start.

Here’s what you need to know to decide between a money market account and a savings account:

Money market account: Maintain growth and easy access

Not to be confused with money market funds, which are a type of investment, money market accounts are a type of deposit account.

“A money market account, traditionally, has been a high-yield savings account with higher-than-usual opening deposit requirements and/or monthly minimum balance requirements,” says Brynne Conroy, blogger for the women-focused personal finance website Femme Frugality.

You can think of the benefit of a money market account as a savings-checking hybrid. This is an important piece of the money market account vs. savings account story. On the savings side, with a money market account, you can typically earn interest on the balance you have stashed away. If the bank offering the account is FDIC insured, then your deposits are insured up to $250,000 or the maximum allowed by law.

When you’re thinking money market account vs. savings account, note that one of the unique features of a money market account is that you can access funds with a debit card as well as through an ATM and checks—just like you would with your checking account. It’s important to note that federal law does limit certain types of withdrawals and transfers from money market accounts to a combined total of six per month per account. There are no limits on ATM withdrawals or official checks mailed to you. You can also make an unlimited number of deposits.

Money market accounts may require that you open the account with a minimum amount, as well as maintain a minimum balance. If your balance falls below the required minimum, you could be charged a fee, and your account could actually be closed if you regularly dip below the minimum.

Not all banks have these requirements, though. When considering the difference between money market accounts and savings accounts and shopping for a money market account, you may be able to find one with no minimum balance requirements and with tiered interest rates, Conroy says.

A Discover Money Market Account, for instance, doesn’t charge account fees, including minimum balance fees.¹ Plus, a larger deposit can put you in a higher interest rate tier, allowing you to earn even more on your savings. These are all things that can guide you when deciding between a money market account and a savings account.

A key difference between money market account and savings account is knowing how often you’ll want access to your funds.

Still need some help weighing money market account vs. savings account? See if any of the following scenarios jump out as describing your financial needs.

Go with a money market account if…

You want to easily access your funds.² As you consider the difference between a money market account and a savings account, note that the debit and check-writing capabilities of money market accounts make them great for accessing your money conveniently. “A money market account makes more sense when you want to maintain liquidity and to grow your savings over time,” Rose says. Need to pay the handyman for a new water heater or access cash from your emergency fund? You don’t have to worry about keeping a ton of cash in your checking account—simply write a check directly from your money market account, or stop by the nearest ATM.
You have a large balance. Since money market accounts can require a higher minimum balance than regular savings accounts, it might be a good fit for you if you plan to keep enough money in your account to meet the requirement and avoid fees. Plus, if you plan to make large withdrawals from your account, it’s important that you keep enough funds in it so that you don’t dip below the minimum balance. “Know that if you’re not meeting minimum balance requirements, you’re more likely to have to pay a monthly maintenance fee,” Conroy says.
You want one account with the flexibility of two. If you’re liking the ability to swipe a debit card and write checks—but are also looking to earn interest on the cash you’re parking in the account—then a money market account could be for you. “A money market account may offer you the higher interest rates you would get in a savings account, plus the debit card and check-writing abilities of a traditional checking account,” Conroy explains.

Savings account: Get your nest egg started

Savings accounts are a basic deposit account where you can keep extra cash. Like money market accounts, you can earn interest on the money you have parked in the account. If you have a savings account with a bank that is FDIC insured, you’ll have that same insurance on your deposits as was described above.

Savings accounts are also subject to the same limit on withdrawals and transfers, Conroy notes. Similar to money market accounts, there are no limits on ATM withdrawals or official checks mailed to you.

Now on to the differences between money market accounts and savings accounts. For one, you can’t write checks or pay for things with a debit card when using your savings account. To access your funds, you’ll need to transfer them to another account, visit the bank or ATM to make a withdrawal or withdraw via official bank check.

Another key difference between a money market account and a savings account: The minimum deposit to open a savings account and ongoing minimum balance required for savings accounts may be lower than money market accounts. You may even be able to find savings accounts with no minimum balance requirement.

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Still deciding between a money market account and a savings account?

Go with a savings account if…

Earning interest is a goal. When debating money market account vs. savings account, know that some savings accounts could offer higher interest rates than you’d find with money market accounts. “Historically, money market accounts have offered higher interest rates in exchange for higher minimum balance requirements,” Conroy says. That’s not necessarily the case anymore, she notes. “The lines are blurring as high-yield savings accounts, typically those offered by online-only banks, get ever more competitive with money market accounts.” The Discover Online Savings Account, for example, offers a competitive interest rate and no minimum balance requirement. Plus, there are no account fees.¹
You don’t plan to touch the money often. Though it’s easy to transfer money in and out of a savings account, there are more limitations to accessing your money if you’re considering the difference between a money market account and a savings account. So if you’re working on building up your emergency savings or simply don’t want to be tempted to dip into your funds regularly, a traditional savings account might be the better option. “If you know having access to your funds is not a good thing because [you tend to spend more than you should], then leaving them in a savings account makes more sense,” Rose says.
You are concerned about balance requirements. Since savings accounts can have small or no minimum balance requirements, this account type could be right for you if you’re just getting started building a nest egg and don’t have a ton to deposit yet. If you plan to make a big withdrawal, such as for a down payment on a car or security deposit on your new apartment, you don’t have to worry about dipping below a minimum balance.

How to use both accounts to your advantage

Because savings accounts and money market accounts have some similar features, deciding between a money market account and a savings account can be difficult. You’ll need to look at your banking habits and financial goals when choosing where to put your money, Rose says.

It doesn’t have to be money market account vs. savings account—you can use both to achieve your financial goals.

But remember, you don’t necessarily have to choose one account over the other. Having both a savings account and a money market account can help you reach various savings goals simultaneously.

If you decide to use both types of accounts, Rose suggests assigning each a specific goal. For example, you could keep a portion of your savings in a money market account so the money is easily accessible for shorter-term goals (saving for the holidays, anyone?) and more frequent expenditures for which you might use your money market debit card, ATM access or checks.

Rose says you could then consider using a savings account for a longer-term goal (the kids will grow up and go to college some day), where the money can sit and generate interest until you need it further down the road.

“Match the financial goals to the account that will serve you best,” Rose says.

Money market account vs. savings account: The best decision for you

When deciding between a money market account and a savings account, be sure to carefully examine each account’s offerings and requirements closely, “comparing things like APY, monthly maintenance fees, minimum balance requirements and any other fees that may be associated with the account,” Conroy says.

If you're deciding between a money market account and a savings account, choose the account that will most help you successfully manage your money.

At the end of the day, whichever account you choose (or both!) should help you reach your financial goals and money management success.

¹Outgoing wire transfers are subject to a service charge. You may be charged a fee by a non-Discover ATM if it is not part of the 60,000+ ATMs in our no-fee network.

²Federal law limits certain types of withdrawals and transfers from savings and money market accounts to a combined total of 6 per calendar month per account. There are no limits on ATM withdrawals or official checks mailed to you. To get an account with an unlimited number of transactions, consider opening a Discover Cashback Debit account. If you go over these limitations on more than an occasional basis, your account may be closed. See Section 11 of the Deposit Account Agreement for more details.

Source: discover.com