When it comes to opening a bank account, you have two different choices when it comes to what type of institution you’d like to have your account in: you can go with either a bank or a credit union. So what’s the difference?
Banks deal primarily with managing the withdrawals and deposits of their customers, as well as providing those same customers with short-term loans. Individual customers usually use banks as a means to have access to the basic types of banking accounts, certificates of deposit, and home loans or mortgages.
Credit unions offer many of the same services as banks — however, where a bank will do business with almost anyone, many credit unions have requirements to join, such as being a member of a certain community or being an employee of a state agency. Unlike a bank, once you join and deposit money into the credit union, you become a partial owner of that credit union. Credit unions tend to have fewer fees and better interest rates than banks, which are ways credit unions give back to their members.
Once you’ve decided which institution you want to open a bank account at, it’s time to decide what type of bank account you want to open.
Types of Bank Accounts
There are two main types of bank accounts that most people deal with on a day-to-day basis: a checking account or a savings account.
- Checking accounts help you manage your money more effectively and enable you to store money safely in order to make larger or longer-term payments, like student or auto loans. While it is possible to get by on a cash-only basis for now, the reality is that more and more institutions are switching over to electronic-only payments. After you open a checking account, you are eligible to receive a debit card, also known as a check card or ATM card. With this, you can withdraw money from an ATM, pay electronic bills, purchase things at stores and even buy things online.
- Savings accounts are another option, primarily to help you save up money that you don’t plan to touch right away. A savings account will allow you to have a place where you can save money separately from your checking account. Savings accounts are one of the best options for someone who is learning how to save money. Most savings accounts come with several advantages, including a lower minimum balance and the ability to earn interest on your money.
Other, less-used account options include a money market account and a certificate of deposit.
- Money market accounts are much like savings accounts, except that they have higher minimum balances and higher interest rates. If you’re looking into using a money market account for your savings, consider using it for just your emergency funds — money that you’re not likely to move anytime soon. These accounts also have the ability to be used similarly to checking accounts, as checks can be drawn off of money markets.
- Certificates of Deposit or “CD’s” also offer higher interest rates than a regular checking or savings account, but the CD is “locked in” for a length of time, usually between one and ten years, after the CD has been opened. Once the specified time period has passed, the CD can be withdrawn and cashed; trying to do so beforehand can result in fees or fines. CD’s can be a good option for long-term commitments like saving for college or buying a car, or even as another “slice” of your emergency fund. These are usually the highest interest earning option without investing your money.
The Requirements for Opening a Bank Account
Now that we’ve explained what types of bank accounts are out there, you’re probably wondering to yourself, “how do I even open a bank account?” Well, nowadays the process is pretty simple, but there are still some things you should do before you even think about getting a bank account.
- List what you’re looking for in a bank or credit union. Are you looking for convenience? A large number of ATMs? Low interest rates on loans?
- See what banks or credit unions are available in your surrounding area — which ones do you pass on your daily commute?
- Look at what checking and savings account options the banks near you have. What are their interest rates, fees, required balances, etc.? All of this is important information.
Once you’ve done all of this, make a list of pros and cons for each bank or credit union on your want-to-visit list. Picking a financial institution will be much easier once you have all of the data laid out neatly before you.
After you’ve made up your mind, it’s time to actually go to the bank or credit union and set up an account. Usually, all that’s required is to approach the front desk and explain that you’re looking to open an account — the bank or credit union will then pair you with someone to guide you through the process. Some institutions have even exported the process to an online form or application, which can make the whole thing even easier. You will need to have a form of photo identification and your social security number.
Once you’ve got it all set up, a correctly-used checking and/or savings account can take a huge weight off your shoulders. Not only can they make the small things easier, like paying for gas, your groceries and other bills, but they can make the big purchases easier, too. Savings accounts and other account options like money markets and CD’s are perfect for students who plan to go off to college.
If the money in a student’s savings account, money market account or CD isn’t quite enough to get them where they need to be in terms of college tuition, other options exist. Many banks and credit unions offer loans or other financial aid options to students in need.