Don’t have a banking account? You’re not alone. Over 14 million adults do not have one. However, opening a new bank account is perhaps the most important foundation to your financial health. Without a bank account, you will lose out on many important benefits afforded to account holders.
What is a bank account?
A bank account is essentially an agreement between an account holder and the banking institution that states that the client can deposit and withdraw their money in that institution. As the bank processes deposits and withdrawals, it must also generate a record of each client’s money so they may keep track of their account balance.
Banks typically offer two different types of accounts: savings accounts and checking accounts. A savings account, is intended to help support your savings goals. As such, the funds in this type of account can earn interest over time, allowing you to grow the money in that account.
By contrast, most checking accounts typically do not allow you to earn interest because it is assumed that this money is to be used for day-to-day expenses.
What should you consider before opening a new bank account?
Once you’ve decided if you would like to open a savings and/or checking account. It’s important to keep a few things in mind.
Hidden fees and costs
Banks are increasingly tacking on tricky new fees to squeeze money out of their customers. From debit card replacement fees, minimum account balance fees, annual service fees, new account opening fees, and even costs to talk to a teller in person as opposed to using an ATM, there are a lot of potential pitfalls to be aware of.
Make sure to study the terms and conditions of the bank in which you want to open an account in order to avoid these unexpected costs down the line. Do your research to find banks that meet your needs, have fewer fees, and/or which don’t charge you to open accounts in the first place.
Location, location, location!
Consider the locations of your bank and its ATM machines. If you have to drive to the next town over in order to find an ATM machine that won’t charge you for withdrawing money, it might be a good idea to investigate a bank that has more ATMs and branches in your area.
Also consider the availability of this bank in places you frequent; the city in which you work, your favorite hang-out spots, and the state where you plan to attend university.
Investigate online-only banking
Many banks have options that allow customers to have online-only banking, meaning that they never have to physically enter a bank to access their accounts. For many of us, this can be a convenient option and can allow us to avoid some pesky fees.
However, in the event of having a banking issue you will not be able to enter a local branch to have someone answer your questions. Imagine, for example, that you lose your debit card or have a question about your account. Usually, banks with online-only options have customer service hotlines to handle such issues.
While customer service reps are usually trained to handle a variety of issues, you may have to deal with long wait-times and cumbersome verification processes in order to answer a simple question.
Save money before opening a new bank account
Before opening a new bank account, you probably need to save a minimum amount before proceeding. Some banks (especially online banks) do not have a minimum fee. However, others have strict minimum fee requirements for new customers. Make sure to read the fine print before proceeding.
Have your personal information in order
As you might have guessed, opening a bank account requires you to verify your identity. This typically requires that you present your ID (ex. passport, national ID card, or driver’s license), birth certificate or taxpayer identification number (TIN) and proof of home address.
If you are under 18, your may also need your parent or guardian to accompany you and to provide their permission for you to open an account.
To make sure you have all the requirements before opening a new bank account, check with a teller or bank representative.
Benefits of opening a new bank account
While opening a new bank account may seem like a hassle, there are numerous important benefits associated with having formal bank accounts.
- Safety: While you may have heard of folks stashing money away in a piggy bank or under a mattress, stashing your money in a savings account is considered far safer than squirreling it away in other places. Bank security and regulations on savings protect your money in a savings account far better than your faithful (but sleepy) doggo from home invaders or shifty emergency sprinklers from fire.
- Convenience: Debit cards are typically provided when you open a new bank account. Cards are now accepted at most locations and allow you to make purchases online and on-the-go without carrying around wads of cash. Mobile and online banking associated with most bank accounts also provide convenient features to keep your financial life in order.
- Interest rates. Putting money aside in a savings account is important because it mobilizes your money. Interest rates on your savings, albeit low, can help you modestly grow your savings. In a piggy bank, your money simply can’t grow. Savings accounts are a wonderful tool to accomplish this purpose, but aren’t usually a sole means of growing your money as a part of starting a diversified investment portfolio.
- Access to other perks. Once you have a bank account, you can often access other perks from the bank, like opening a credit card or taking out a loan.
While opening a new bank account may seem like a hassle, it is foundational to your financial health. Keep in mind our list of reminders before heading to your local branch to open an account to help ease the process, and remember that the safety, convenience, and the opportunities afforded by having a bank account are important to your financial well-being.
For more tips to keep your financial health in shape, check out the Academy Library!
