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Banking in USA |
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Most banks and savings institutions are federally insured. The Federal Deposit Insurance Corporation (FDIC) protects bank and savings association depositors up to $100,000 at each institution. FDIC-insured institutions must display an official sign at each teller window or teller station. You can also verify whether an institution is FDIC-insured by searching insured banks on the FDIC's website or calling the FDIC's Division of Compliance and Consumer Affairs (DCA) toll-free at 800-934-3342.
- Checking Accounts
- Money Market Accounts
- Savings Accounts
- Certificates of Deposit
Checking Accounts
The checking account is the account type used for regular, daily use. It is excellent for frequent deposits and withdrawals. In most cases it earns you no interest. Checking accounts are usually free to open, but many banks will charge you a monthly fee if the average monthly balance of the account will drop below a certain amount. In other words you have to keep in the bank all the times a certain minimum amount of money (varies from bank to bank, but it is usually a few hundred dollars) if you want the monthly fee waived. These monthly fees are usually around $10/month. However some banks offer free checking accounts with no imposed limits called free checking accounts. The best way is to shop around, visit a few banks and ask them.
You should be aware of a "dirty trick" the banks make with your checking account if you are not careful. Usually you won't be warned about this. Here it is. If you spend more money from your checking account than you have available, and the difference is not more than $50-100, the bank will accept your transaction and will "lend" you the difference. For this service you will be charged a $25-30 flat fee called overdraft fee. You will have to pay back not only what you overspent, but the overdraft fee as well. So be careful, monitor your checking account limits and don't go below zero.
What I suggest, from my personal experience, for safety reasons try not to go below $100 on your checking amount balance. In America is quite common to pay for things in "easy monthly payments". This is how TV commercials are luring their customers in buying. Easy monthly payments. And let's say you bought your favorite wonder widget for $300, but instead of paying it off in full, you decide to go for 3 easy payments of $100. Now the problem with this is if you don't write it down to remember it, within two months you will forget it. And by any chance if that time you are running low on money on your checking account, such an "automated charge" can overdraw your account and trigger the overdraft fee. So watch your checking account limits.
Money Market Accounts
Most institutions offer an interest-bearing account that allows you to write checks, called a money market account. This type of account usually pays a higher rate of interest than a checking or savings account does. Money market accounts often require a higher minimum balance to start earning interest, but they frequently pay higher rates for higher balances. Withdrawing funds from a money market account may not be as convenient as doing so from a checking account. Each month, you are limited to six transfers to another account or to other people, and only three of these transfers can be by check. As they do with checking accounts, most institutions impose fees on money market accounts.
Savings Accounts
A savings account is the account type used for savings. If you want to keep your money in the bank for a longer time this is what you should open. Because the number of withdrawals is limited only to a few free transactions per month only, it is not suitable for daily use such as a checking account. For parking your money in the savings account the bank will pay you a monthly interest. You won't get rich this way, the interest is pretty low, starting anywhere from tenth of percents to a few percents (e.g. from 0.5% to 2% typically), depending on the amount deposited. This interest rate is below the rate of the inflation. This is the reason why keeping money long term in the bank actually will result in loss of money, despite of all contrary beliefs.
If you have at the same bank a checking and a savings account as well, you can even link them together. Do you remember how painful overdrawing your checking account can be? Well, here is way how you can avoid it. You can set up an overdraft protection. Here is how. Let's say you want to buy an expensive piece of furniture and you are not sure if you have enough money left in your checking account or not. If your checking and savings accounts are linked together, whatever amount is missing from your checking account, the bank automatically will take it from your savings account. This way you can protect yourself to overdraw your checking account. For this service the bank will charge you a fee (about $2-3 fee) but it is much less than the previous overdraft fee.
How you can set up the overdraft protection? When you open up your savings account, assuming you already have a checking account the banker will ask you about it. If not you can tell him about and request it to get set up. Ask about their fees as well.
How you can access our money? You can access your money in person in the bank, or via an ATM (Automated Teller Machine). The ATM is a banking terminal on the street or in a public location and allowes you to withdraw, deposit money or to check your balance on the account. With most of the banks you can check your account balance online, via the internet.
Certificates of Deposit
They usually offer a guaranteed rate of interest for a specified term, such as one year. Institutions offer certificates of deposit that allow you to choose the length of time, or term, that your money is on deposit. Terms can range from several days to several years. Once you have chosen the term you want, the institution will generally require that you keep your money in the account until the term ends, that is, until "maturity". Some institutions will allow you to withdraw the interest you earn even though you may not be permitted to take out any of your initial deposit (the principal).
Because you agree to leave your funds for a specified period, the institution may pay you a higher rate of interest than it would for a savings or other account. Typically, the longer the term, the higher the annual percentage yield.
Sometimes an institution allows you to withdraw your principal funds before maturity, but a penalty is frequently charged. Penalties vary among institutions, and they can be hefty. The penalty could be greater than the amount of interest earned, so you could lose some of your principal deposit.
Institutions will notify you before the maturity date for most certificates of deposit. Often certificates of deposit renew automatically. Therefore, if you do not notify the institution at maturity that you wish to take out your money, the certificate of deposit will roll over, or continue, for another term.
banks can issue you debit cards, in the form of basic Automated Teller Machine (ATM) cards, that let you obtain 24 hour access to money in your bank account through ATM cash machines, or more sophisticated debit cards that let you use ATM machines plus use your debit card for purchases.
When you use a debit card, funds come directly out of your bank account (just like writing a check). And because ATM withdrawals and purchases are listed on your monthly statement you can track your spending.
Certain debit cards may have the logo of a familiar credit card company on them. Do not be confused. These cards are designed to provide you the convenience of making purchases wherever such credit cards are accepted (millions of businesses worldwide), but the purchase amounts are subtracted directly from your bank account and listed on your monthly statement. Debit cards do not extend you credit or generate separate bills. They also do not help you build a credit record, which may be important if you intend to purchase a car or home.
Your bank will provide you with a personal identification number (PIN) to use with your card, which is essentially a password for electronic access to your account. With your debit card and PIN, you can withdraw cash, make deposits, or transfer funds between bank accounts, and pay for retail purchases with certain cards.
When you withdraw cash, some ATMs charge a fee if you are not a member of their network or are making a transaction at a remote location. ATMs must disclose the fee on the terminal screen or on a sign next to the screen.
Report a lost or stolen ATM or debit card to the issuer immediately. If you report an ATM card missing before it is used without your permission, you are not responsible for any unauthorized withdrawals. Federal regulations limit your liability to $50 if you report the loss within two business days after you realize your card is missing, and to $500 if you report the loss between 2 and 60 days. Under Federal law you could lose all the money in your bank account and the unused portion of your line of credit established for overdrafts if you fail to report an unauthorized transfer or withdrawal within 60 days after your bank statement is mailed to you. However, self-imposed industry rules limit your liability to zero if you report the loss within two business days, and to $50 if you report it more than two business days after realizing your card is missing.
Purchases made with a debit card are handled in one of two ways: either you enter your personal identification number, as you would at an ATM, or you sign for the purchase, similar to a credit card transaction. Ask for a debit card that must be used with a PIN to make it harder for thieves to use your lost or stolen cards or account numbers.
Keep your PIN a secret. Do not write your PIN on the card or on a slip of paper kept with your card. Take your ATM receipt after completing a transaction. Reconcile all ATM receipts with bank statements as soon as possible.
When you use a debit card for purchases, these purchases will be shown on your periodic statement from your bank account. If there is an error on your account, contact your bank or the issuer of the card at the address or phone number the company provided. When you use an electronic funds transfer, federal law does not give you the right to stop payment. It is up to you to resolve the problem with the seller.
Stored-value cards, issued by some financial institutions and merchants, contain cash value stored electronically on the card itself. Stored-value cards and the transactions you make using them may not be covered by the Electronic Funds Transfer Act, which means you may not be covered for loss or misuse of the stored-value card.
Here is a list of possible questions you might want to get answered before opening a checking account.
What type of checking accounts do they have?
Some banks have 4-5 types of checking accounts and the service they offer with them differs. For e.g. with some checking accouns you can make deposits only via an ATM using your card, and only a limited number of deposits are allowed via the tellers (people who work in the bank). They might have different monthly maintenence fees. In some cases you can write only a limited number of checks free of charge, and the bank charges you a fee for the rest of your checks. Ask the banker to tell you more about the options. Don't be shy. Tell them you don't know anything about their various accounts, and ask their help to explain you the best they can.
Do you need a social security number?
in order to open a checking account. Many banks do, but some don't. If you don't have a SSN, keep shopping, you can find everywhere a bank which doesn't require a SSN. But you can keep asking the questions, you will learn a lot.
What is the minimum to open the account?
In other words how much money do you need to deposit at the moment of opening. Usually this is about $100, but for student checking accounts it can be as low as $25.
Do they have a monthly maintenence fee? If yes, how much?
The banks sometimes charge a fee just for keeping your account open.
Do you have to have a minimum daily balance in order the monthly maintenance fee to get waived?
In other words if you keep in the bank a certain amount of money (hundreds of dollars) all the times, you don't have to pay the monthly maintenence fee.
Do they charge any fee to deposit at the tellers?
Do they limit the number of free deposits? If they do you must do most of your deposits via an ATM (Automated Teller Machine, a banking terminal).
Do they have a limit on how many checks can you write a month free of charge?
If you don't know too much about checks don't worry, you will learn a lot more in detail about checks later.
Do they offer you free checks?
Usually the bank will print you free of charge a batch of 250 simple checks, but in some cases you have to pay for those, too
Which states is the bank operating in?
Most of the banks operate locally in a few states only. If
by any chance you are travelling a lot, even coast-to-coast
you might need a bank which is everywhere or
almost everywhere .
They are present in lots of states both on the East Coast and
the West Coast, and keep expanding. They have a comprehensive
free online banking system as well
Do they offer online banking
(to be able to check your accounts on the internet)? Is it free?
Most banks offer free online banking, which makes banking veryconvenient. In most cases you can make transfers between your checking and savings accounts online for free. However if you want to pay bills online, you can optionally enroll to bill payment services for a small monthly fee.
Some suggestions:
If your bank offers free checks at the opening, say yes and order the checks even if you never used checks in your country before. Having your checks ready will give you additional flexibilty.
Always, always inspect your new checks. Verify and double check if your name, address, telephone number on the check is printed correctly, and check the account number on the checks (more on this on the Checks section, a bit later). If you have any discrepancy call your bank, tell them you have a problem with your checks and they will reorder and print a new batch of checks for free.
You will receive automatically an ATM card as well. This way you can deposit and withdraw money via an ATM. Ask if this card is a VISA checking card or just a regular ATM card.
Why is this important, what is the difference between an ATM card and checking card?
The usage of an ATM card is very limited. You can use your ATM card only in your bank's ATMs. If you have a Bank of America ATM card you can't use it in a First Bank or other's banks ATM. With a simple ATM card you can't shop online.
To be able to access your money worldwide you will need a checking card with the VISA or Mastercard logo on it. Most banks offer VISAs. This gives you tremendous flexibility because you can access your money at any ATM in the US and worldwide which displays the VISA or Mastercard logo on it. Plus you can use these checking cards to buy stuff on the internet (if you are a computer fan just like me).
Sometimes the bank gives the checking card automatically. Sometimes you have to ask for it. Some banks require to have a social security number in order to issue you a checking card.
If your bank issues checking card with photo and copy of your signature on the card, ask for it. It is more secure and prevents fraud. Your photo and your signature is displayed on the card. Usually this is allowed only with a valid Social Security Number.
You will get your checks, your ATM and/or checking card in the mail, usually within 2 weeks. Some banks like Bank of America might give you a temporary ATM card valid for only 1-2 months. Don't forget to sign your new check card on the back.
What to have with you when opening a bank account
Usually the following items are required:
1.
Two pieces of ID, one of them must have photo (passport, drivers licence etc.). The other one can be a non-photo ID, like another bank card, social security card etc.
2. $100 in cash
(or a checkbook)
3. If is
necessary, your social security card. If you don't have a
Social Security Number, shop around and find a bank which
doesn't requires a SSN. There are lots of them.
Indian banking information for NRIs
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