Opening a Bank Account: What You Need to Know
Why Open a bank account?
- Your money will be kept safe from theft, damage or loss and as long as the bank is insured by the Federal Deposit Insurance Company (FDIC), your accounts will be insured for up to $250,000. If your credit union is insured by the National Credit Union Administration (NCUA), your accounts will also be insured for up to $250,000.
- Over the long term, a bank account can be less costly than using a check casher or other non-bank service.
- You can start to build a relationship with a bank and a financial history that will help you in the future.
- A bank account can help you save money.
Choosing a financial institution:
Shop around to find a bank that fits your needs. Call or visit at least three different banks before making a decision. Factors to take into consideration include:
- What type of accounts does this bank offer?
- What sort of fees does it charge and for what?
- Is the bank conveniently located close to home or work?
- Does this bank have convenient operating hours?
- Does the bank have convenient Automated Teller Machine (ATM) locations?
- Do any of the employees speak my language?
- What type of identification will I need to open an account?
- Can I do my banking over the phone or online?
- Do I belong to a group that has formed a credit union and am I eligible to join?
- Is the bank FDIC insured, or if it is a credit union is it NCUA insured?
Types of Banks:
- Savings Banks (also called thrifts) are for-profit businesses that take deposits of money, invest that money and pay interest to the depositor out of the money generated from investments. They also may make credit available to those depositors.
- Credit Unions are non-profit, cooperative financial institutions owned and controlled by the people who use them. Members share something in common, such as where they work, live, or worship.
- Commercial Banks used to deal only with businesses but now also offer individuals most of the same services and benefits as savings, savings and loans and credit unions.
- Savings & Loans accept deposits in savings accounts, for which they pay interest. The banks then use that money to make loans, usually to residential home buyers in their community.
- Investment banks are companies that give investment advice. They buy and sell stocks and bonds. Investment banks may not accept deposits or make loans and they are not FDIC insured.
Choosing an Account:
There are different accounts from which to choose depending on your needs and your financial limitations.
- Basic Banking - All New York State banks are required by law to offer low-cost or "lifeline" accounts called Basic Banking Accounts. Basic Banking accounts can be opened with $25 or less, can be maintained with a balance of one cent and must permit a minimum of eight free withdrawals per billing cycle and a maximum charge per cycle of $3 per month. If you want a Basic Banking Account the bank may require that you be a New York State Resident and that you not maintain any other transaction account at the bank. Learn More about Basic Bank Accounts.
- Savings - A savings account is a deposit account that earns interest. That interest is known as an annual percentage rate or APR. The APR is the amount your money will earn if left in the bank for one year.
- Checking - A checking account allows you to deposit money, withdraw money and write checks to pay for purchases and bills. Most banks will also provide a debit or ATM card and a checkbook to allow you to withdraw cash and make deposits at your bank's ATM machines.
- Certificate of Deposit (CD) - This account is deposit only and offers a guaranteed interest rate for a specified term usually ranging from 6 months to 5 years if you promise not to touch the money for the agreed upon term. Most banks charge a penalty for early withdrawal.
- Money Market or Negotiable Order of Withdrawal (NOW) Accounts - These are deposit accounts that pay interest. These accounts provide a higher interest rate than traditional savings accounts and usually come with high minimum balance requirements of $10,000 or more.
- Individual Development Account (IDA) - IDAs are matched savings accounts that are used by low-income families for specific purposes including job training, education, small-business development or home buying. Deposits made to these accounts are matched by a government entity, a corporation or a foundation and are used to encourage financial independence. Find out more about IDAs at www.idanetwork.org
Decide what kind of account or combination of accounts is right for you:
- How much money do I need to have to open an account?
- Is there a minimum amount of money that I need to keep in the account at all times to avoid fees?
- How much interest will I earn?
- Does this account include a debit or check card?
- What are the charges for using my debit card at my bank? At another bank?
- Can I bank online or by phone?
- What fees are charged for bounced checks?
- How many checks can I write each month without being charged a fee?
- Are there any other fees that I should be aware of?
Protect your bank account:
- Be careful about the type of information you provide on your personal checks. Never print your driver's license number or your Social Security number on your checks.
- Balance your checkbook and read your statement every month to check for errors and avoid overdraft or "bounced checks." Immediately report any errors you find.
- An ATM card can sometimes be used to make purchases as a debit card linked to your checking or savings account. Remember that it is not a credit card and money spent will be deducted almost immediately from the bank account to which it is attached.
- Exercise caution when making ATM withdrawals, particularly from a machine that is located in a non-bank environment, such as a grocery store, deli or shopping mall. These locations are not regulated by the Department of Financial Services.
- Choose a PIN that is unique. Don't use your birthday, social security or another obvious number. Don't use your mother's actual maiden name. When asked, substitute a different password.
- Never store your PIN with your ATM card and never give out your PIN number to anyone.
- Before proceeding with a transaction, look around to see if you see anyone who may arouse your slightest suspicion. Use your free hand to cover the ATM keyboard while you type your PIN number.
- Never leave your transaction receipts behind at the ATM.
- If your card is lost or stolen or if you suspect it is being used fraudulently contact your bank and then contact the three credit reporting agencies to put a fraud alert on the card.
Frequently Asked Questions:
The bank stopped sending me my original cancelled checks. Can they do that?
Yes. Check 21 is a new Federal law that changes the way banks process paper checks, substantially speeding a check's clearance through the system. Banks can now process and deliver checks electronically and send you electronic reproductions of checks instead of sending you the original paper checks. This electronic reproduction is called a 'substitute check'. The substitute check is considered the legal equivalent of the original check and should contain an image of the front and back of the original check, your account number and bank routing number (also known as MICR) and the statement "This is a legal copy of your check. You can use it the same way you would use the original check". Only a substitute check issued by the bank is legally equivalent to the original check to prove payment; photocopies or other images are not considered valid. All checks, including personal checks, business checks, payroll checks and cashier's checks, are subject to Check 21.
I deposited a check but the bank has not credited my account. How long does it take for a check to clear?
Availability of funds generally depends on three things: where the check is drawn (e.g., local or out-of-town institution), the amount of the deposit and the issuer of the check. A check can take from one to five days for all of the funds that it represents to become available. For deposits of $10,000 or more the funds and they are made available in increments. Even with the passage of Check 21, banks are not obligated to make funds available any sooner than in the past.
What is the difference between overdraft protection and bounce protection?
An overdraft occurs when the balance of your checking account is negative, resulting from writing a check or making a withdrawal for an amount totaling more than the amount in your account.
- Overdraft protection is an optional banking service. With overdraft protection, a line of credit or another account that you have at your bank is linked to your checking account so that, when an overdraft occurs, funds are automatically transferred to cover the negative balance.
- Bounce protection is a service that banks will sometimes automatically attach to your checking account. With bounce protection the bank covers overdrafts up to a certain limit and charges the account holder a fee for each overdraft. These overdrafts must be repaid or accounts brought to a positive balance within a set period of time, generally within 30 days. In addition to the overdraft fee, some banks will charge a daily fee until there is a positive balance in the account. Some banks will include the bounce protection amount you have available when they give you your available balance.
I wrote one large check and two smaller checks. I only had enough money in my account to cover the two smaller checks, but the bank bounced them all, resulting in over $100 worth of fees. Can they do that?
In New York, banks are required to inform consumers before they open a checking account, the order in which checks will be cleared, whether it is by the dollar amount of the check (largest first or smallest first) or any other manner. Be very careful about having the funds to cover the checks that you write. Be aware that if you have bounce protection on your account and your bank clears checks in this manner you will be subject to fees for two checks.
I deposited a check in my account. The teller gave me back a stamped copy of a deposit slip, and then the bank lost my check and would not credit my account until I contacted the writer of the check. Why?
The funds represented by the check are not credited to your account until your bank is paid by the check writer's bank. Any credit you receive until the check clears is temporary. If your bank loses the check after the deposit, you are responsible for contacting the writer of the check to see if the check was cashed or to have them put a stop payment order on the check.
What's the difference between a credit card and a debit card?
Making a purchase with a credit card is like taking out a loan that you must pay back later. You may charge up to the limit posed by the issuer and interest can be accrued. A debit card is an ATM card that allows you to make purchases. Debit cards look just like traditional ATM cards, but they are often confused with credit cards. Think of it as cash or immediate access to a checking account. The money is quickly deducted from your account. Debit cards do not carry the same consumer protection as credit cards. Federal law permits a maximum liability of $50 if the lost or stolen credit card is reported within two days of discovery. The liability increases to $500 after if reported within 60 days. After 60 days there is no limit on liability. Keep in mind that many banks do not allow you to stop payment on a debit card transaction.
My bank statement showed a debit that I didn't make - what can I do about it?
Call your bank immediately - report problems within 60 days of the date of the statement. Contact a customer service representative or a bank manager for assistance. They will take down the details of your complaint and initiate an investigation. The bank must let you know the outcome of the investigation.
Can I bank online?
If you have a computer with Internet access, you should be able to bank online. Connect to your bank's Website and sign up for an account, a user name and a password. Before you deposit money in any bank, use the FDIC institutions search engine (www.fdic.gov) to determine whether the bank is an FDIC-insured depository institution.
What is the difference between Internet banks and regular banks?
The key difference is that Internet banks exist only on the Internet - with no physical branches. Most online banks are actually the online counterparts of brick-and-mortar parents, from small regional banks with few branches to large national or multinational corporations.
What is online bill payment?
Online bill payment is a service offered by banks that allows you to pay your bills by entering the names of companies to which you owe money, your account number and the amount you'd like to pay. You can program the service to either pay certain bills automatically every month or enter specific amounts each time the bills are due. There is usually a fee for the service, but some banks waive the fee when you meet minimum balance requirements. The money earmarked for bill payments is deducted from your checking account on the day you specify the bill to be paid.
What is direct deposit?
Direct deposit is a service that employers, payroll companies, brokerages and government benefit programs use that will deposit money due to you directly into your bank account using electronic transfer of funds. Direct deposit is a safer, faster and less expensive alternative to issuing paper checks. When you have direct deposit, many banks may waive or lower monthly checking account fees.
How long is a personal check valid?
Six months. A bank is not obligated to honor the check after the validity date has expired.
What is the maximum amount in my account that is insured?
Up to $250,000 per depositor is insured. Multiple accounts at a single bank are added together for insurance purposes. For more information visit the Federal Deposit Insurance Corporation at www.fdic.gov.
The bank I went to would not cash my payroll check. Can they do that?
If you do not have an account at a bank, it has the right not to cash your check. However, your employer can make arrangements with a bank to cash payroll checks.
How do I reconcile my checking account?
- Record all the deposits to and withdrawals from your checking account in your checkbook register.
- Go through the check register when you get your bank statement and make a mark next to the record of each check that is included in the statement.
- Record any monthly service charges or fees that are in your statement in your check register.
- Total all the checks you have written that were not included in the statement.
- Look for the ending balance shown on your bank statement. Add to that any recent deposits not reflected on your statement. This is your 'new ending balance'.
- Total all withdrawals, debits, checks written and fees that are still unchecked in your register. Subtract that number from the 'new ending balance'.
This final number should match the ending balance in your checkbook. If the numbers do not match, repeat the steps above to find any missed transactions or miscalculations.