Bank Account Basics

The mighty Amegy tower, up close and personal

Happy weekend, everyone! I hope you’re having a great one. The title of this post should be pretty self-explanatory. For whatever reason, a lot of people seem to get tripped up by banks. So I thought I would write a post to make sure no one who reads this blog is getting screwed. I will start with general rules and then move into what I specifically do to illustrate things a little more.

First off, if you are paying any fees, you are doing it wrong. Almost all checking accounts have monthly fees but almost all of them also have ways to avoid them being charged. Usually you just have to either run a minimum monthly amount through with direct deposit or maintain a minimum balance. I recommend a bank with online bill paying services and there again, fees being charged equals pass. It’s nice to have physical checks too just in case and many (although not all) credit unions and some banks throw in a lifetime’s supply for free. Otherwise you should pay no more than $20-25 and again, that is for a lifetime’s supply of checks if you’re doing things right. That is about it for fees aside from the stuff that should be obvious. For example, reconcile your account on a regular basis so you never overdraft. That can turn into a slippery slope quickly so just make sure it never happens. That is one of the reasons I reconcile my accounts weekly.

You should divide your money into three categories – checking account money, savings account money, and investment money. Checking account money should only be what you need in order to pay your bills each month plus a buffer of maybe a thousand or two just in case anything weird happens. Savings account money should be your emergency fund plus any other cash that you aren’t using for investments right now. And investment money should not be with a bank at all since there are far better options regardless of what you’re investing in. So the remainder of this post will focus on just the first two categories.

I have accounts with several different banks but a lot of these are holdovers from when personal bank account churning was worthwhile that I simply haven’t gotten around to closing yet. I guess that’s a “to do list” item for me. In general, I use three banks for deposit accounts. One is my primary checking account bank that I pass the money I need for my monthly bills through, one is my secondary checking account bank (more on that later), and one is my savings account bank.

My primary bank is almost always a credit union. This is because as non-profit organizations, credit unions are usually much more customer friendly than banks. Their fees tend to be fewer and lower and their rates tend to be more competitive whether you’re paying (auto loans, mortgages, etc) or being paid (savings accounts, CDs, interest bearing checking accounts). As I said, I use this account to pass my bill money through. My current credit union’s checking account pays 7.5% on the first $500 that is kept in it, meaning I get about $40 a year for using it. Nothing to get too excited about obviously but it’s free money since I would be passing my monthly bill money through a checking account somewhere anyway. Many credit unions offer a small sweetener like this one way or another but watch out for the ones that have some absurd requirement like completing ten debit card transactions per month. That reminds me, DO NOT EVER USE DEBIT CARDS. I will explain why in an upcoming post but for now, if you’re using them, please stop for your own good. Anyway, if I were going to get an auto loan again, and I might for a very specific set of reasons (more on that in yet another upcoming post), this credit union would be my first choice as their rates are excellent.

Your secondary bank can be whatever bank you want although of course another bank that pays you in some way is the best choice. Why have a secondary bank at all? Banks aren’t perfect. I once had a bank freeze my account on a Friday evening because I attempted to make an external transfer to one of my accounts at a different bank. This happened in spite of the fact that I had already completed the external account verification process. The friendly, but incredibly inept call center employees (I spoke to several over what amounted to about two hours) were unable/unwilling to restore my access even after I had correctly answered every security question they had. Why did they bother asking the questions then? I would love to know that myself. Anyway, I couldn’t touch a dollar of the money in my own account until Monday when I could go into a local branch, show multiple forms of ID, restore access, and then obviously withdraw all my money, close the account, salt the earth, etc. Another time I had $1000 deducted from an account because someone totally unrelated to me made a transfer using a wrong account number that didn’t exist and mine was the closest actual number. Seriously, that is the best explanation I ever got – and I talked to several people and demanded better because that is obviously bullshit. It took a few days to get that one resolved and my money returned to my account. These things can happen at any bank and they do. Keep in mind that the banking industry is not what it once was and today many of the employees are nothing but glorified cashiers. It’s reality. And that $1000 could just as easily have been $10,000 or any amount at all or my entire account as in the other situation. If I had needed access to my cash at one of those moments and I had only the one account, I would have been screwed through absolutely no fault of my own. The only real way to avoid a situation like that is to have a backup account at another bank to use when your primary bank does something idiotic. As a little extra precaution, I keep a reasonable amount of cash in my safe at home as well. And yes, I also have guns at home and yes, that home is in the great state of Texas where the law is comfortably on my side should anyone me an ill-intentioned visit. Enough said.

My third bank is for my online savings account. Why have an online savings account? Aside from friendly little gimmicks like my credit union has, brick and mortar banks don’t pay enough to merit keeping your savings account money with them. Don’t believe me? Go check. You will be hard pressed to find a rate above .2% without the ridiculous debit card shenanigans I mentioned earlier. Meanwhile, my online savings account at CIT Bank is paying 2.45% and I can have that money in hand in a day or two if I need it. Want a bonus? CIT’s customer service is actually very good (we’re talking Americans answering the phone here and acting as if they actually care about you as a customer to boot) and I recently discovered that they send wires for free! Wires typically cost $20 and up to send so this is amazing, particularly for a guy who needs to send them for his side business every now and again. CIT is FDIC insured up to $250k just like any other reputable bank. If you’re looking for an online savings account and you’re not sure, just look for the FDIC (or NCUA which is the same thing but for credit unions) logo. If it isn’t prominently displayed, you will want to find a different bank immediately.

There you have it – my basic bank account guide. Hopefully it helps you to either save or make at least a little bit of money. And now I have to go close some accounts and add a few more items to my list of upcoming post topics.

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