Using a Bank or Credit Union

Using a bank or credit union allows you to keep your money safe and start building a credit history.

Most banks are insured by the Federal Deposit Insurance Corporation (FDIC), while credit unions are insured by the National Credit Union Administration (NCUA). This means if you are a victim of identity theft, or someone uses your account without authorization, then you won’t be held liable for those funds.

Having a bank account also allows you to deposit paychecks for free and gives you access to monthly account statements.

Consider the different types of banking options:

• Local banks are typically located in your regional community. They may offer better loan rates and lower fees than some larger banks.
• Large banks with many national branch locations may be a good option if you travel frequently or plan to move. Large banks offer a variety of both in-person and online banking services for your convenience.
• Credit Unions are not-for-profit, member-owned, and may specify the target group they serve (like teachers). Credit Unions typically have higher interest payouts on savings and lower interest rates on loans.

When choosing your bank, consider the following:

• What account fees will you be charged?
• What is your savings account interest rate?
• Is there a minimum balance requirement?
• Is there an ATM withdrawal fee?
• Is there a foreign transaction fee?
• Is online banking available?
• Does the bank have convenient operating hours?

There are a variety of factors to consider when choosing the bank that’s right for you. Decide which are most important and look for banks or credit unions that provide them.

Options for Saving

Most financial institutions will offer several options for your savings. Depending on how much money you have to save and how much access you need to the funds, you’ll set up any of the following:

Savings Accounts: Your funds are FDIC- or NCUSIF-insured and readily available in a branch or through an ATM. You typically earn a small amount of interest in these accounts.

Certificates of Deposit (CDs): Your funds are FDIC- or NCUSIF-insured. You typically earn better interest rates with a CD than with most savings accounts, but unlike savings accounts, you commit your money to the account for an agreed-upon period of time in exchange for that higher return. Longer=term CDs generally generate a higher rate of return. If you need to withdraw funds before the agreed-upon time frame, you’ll likely have an early withdrawal fee.

Money Market Accounts: These accounts typically provide higher rates of return, but also require a larger balance.

Individual Retirement Accounts (IRAs): These are long-term retirement investment accounts. You can’t access these funds until you are of retirement age without incurring penalties and tax consequences.

Why a Checking Account?

A checking account is built for movement, with your income entering the account and leaving it as you pay for expenses. The defining features are liquidity and access. “Liquidity” just means how easily you can use your money. Checking accounts are highly liquid. You can withdraw cash from an ATM, write checks, or pay online instantly.

Checking accounts typically pay little to no interest. That’s because they’re designed for transactions, not growth. Some banks offer “interest checking,” but the rate is usually modest. The tradeoff is convenience. Many checking accounts also come with fees — monthly maintenance fees, overdraft fees, ATM fees — unless you meet certain requirements like maintaining a minimum balance or setting up direct deposit.

An overdraft is worth understanding. If you spend more than you have in your checking account, the bank may still approve the transaction and charge you a fee. Think of it as a very expensive, short-term loan you didn’t mean to take. Some banks allow you to link a savings account as backup to avoid this. It is important to keep an eye on your checking account to make sure that you have sufficient funds to cover your expenses.