Around this time interacting with money and paying bills is now a big part of your life. You may have or are thinking about opening a bank account. You may be offered a student bank account or the banks low cost free checking account. But sometimes free or low cost may not end up being either.
Even in the modern world of electronic banking, all banks still offer checking accounts. Even though they can cost the bank more expense as opposed to debit cards, banks continue to offer them because they are an enormous source of profit.
Banks Make Money on Check Fees
Most banks pay little, if any, interest on their checking deposits. As a result, the deposits they receive cost them very little rather than funds deposited in a certificate of deposit which have bigger interest rates. These low cost funds are one justification that banks have managed to improve their net-interest margin, the difference from the cost of funds and the rate of interest charged when those funds are given out.
Among one of my complaints is the "complimentary" checking account that, when you read the small print, is anything but free. Minimum required balances, direct deposit guidelines or minimum use guidelines are all generally connected with these so-called "free" accounts. Here are some key questions to ask when asking about a bank's "free" checking account offer:
- Is the account "totally free" for the life of the account or is it simply a short-term promo?
- Are there minimum use conditions? Do you have to write a minimum number of checks every month? Will your account be switched to a more conventional, fee-based, checking account if it's not used in a given period of time?
- Are there any kind of monthly expenses connected with the account?
- Do you need to pay for your new checks? Are the checks also free? If not then order checks online.
- What are the costs for doing your banking business over the telephone or in person? Banks have been known to charge for talking to some one in person.
- Do you have to have direct deposit of your paycheck set up to benefit from the "free" checking?
- Does the bank offer "courtesy" overdraft account protection to cover your bounced checks automatically and after that charge you for it? This is simply a cover for a high-priced overdraft loan.
- Are there fees to use the bank's debit card? Is there a different treatment of debit transactions with a signature versus those using a PIN number?
- Does the bank pay interest on the money deposited in their "totally free" checking account?
These are key questions to ask your bank prior to signing up for their "free" checking offer. By being well-informed before you go into the bank you stand a far better probability of getting a good deal on your checking account.