Checking Accounts
Financial intermediaries all offer checking accounts. They typically do not pay interest on checking accounts, but some commercial banks charge a fee if the account does not hold a minimum amount of money or has no activity. Some commercial banks charge you $2.00 or more if you request a paper account summary each month. Commercial banks might also offer fee-free checking accounts for students, but as soon as you graduate, they put the standard fee structure in place. As a rule, credit unions do not charge you fees on checking accounts.
Ideally, you only need to keep money in your checking account to pay bills. Any extra money should be in a savings account. Arrange a “sweep” of your checking account at a certain time each month. A “sweep” is a banking term that means your financial institution will transfer any excess money from your checking account into your savings account, where it will earn interest.
Some securities firms, like Charles Schwab and Goldman Sachs, also offer checking accounts. These firms are insured by the FDIC for up to $250,000 per account. They often will pay interest on checking because they will invest your balance in money market funds. They both are insured by the FDIC up to $250,000 per account. The idea is to have one-stop shopping for banking and stock or mutual fund investing.
Saving Accounts
Savings accounts are where you should transfer any money that you do not need to cover daily expenses. Savings accounts pay interest, but the interest paid is very close to the federal funds rate. The federal funds rate is now 0% to .25%, so savings accounts pay about .5%. This is better than nothing. When you join a credit union, you automatically get a checking and a savings account. I have explained above how to use these to create a budgeting vehicle to nudge you to save each month.
Credit Cards
All financial intermediaries offer credit cards. They will be lending you their own funds but will contract with VISA or Mastercard to do the billing and collecting. I have an entire chapter on credit cards, so I refer you to that. However, allow me to repeat the cardinal rule for credit cards: only use credit for a purchase if you can pay it off completely at the end of each month.
Safety Deposit Boxes
Commercial banks and credit unions offer safety deposit boxes for rent at their branches. These offer security for important papers like auto titles and house deeds and valuable jewelry. They are completely confidential.
ATMs
Commercial banks and credit unions have automated teller machines at their branches for cash withdrawals. You need to be aware of what fees these charge. Commercial banks will charge a fee for withdrawing cash, but credit unions usually do not. In addition, if you withdraw money at an ATM at a convenience store, you will pay an additional fee on top of the bank’s fee. This could add up to $4.00 or more to withdraw cash. However, certain retailers like grocery stores will allow you to withdraw cash without fees.
Cashier’s Checks
Certain legal transactions, such as your payments at closing on a house, require a cashier’s check, also called a “bank check.” A cashier’s check is a guarantee to the receiver of the check that your account will have money to cash it. When you ask the financial intermediary to issue a cashier’s check for a certain amount (assuming you have the money in your account), the intermediary will put a hold on the corresponding amount and issue a check under the bank’s name.