Recent conversations with students have caused me to reflect on my own journey toward financial independence. One of my earliest memories is opening my first bank account. I was 18 years old and uncertain about many things in my life, especially money. If you find yourself confused by the seemingly endless amount of information surrounding personal finance, you’ve come to the right place. Today, I’ll cover a few key things to keep in mind as you decide which financial institution is the right fit for you, as you begin or continue your financial journey.
The Right Account for You
Banks and credit unions offer a range of financial products and services. It’s important to understand which type of account best aligns with your goals. For everyday transactions, such as buying coffee or paying for a monthly subscription, a checking account may be the best option. Checking accounts allow customers to make purchases with a debit card, pay bills online, and withdraw cash from ATMs.
Savings accounts are a bit different, they’re designed for, you guessed it, saving. These accounts are ideal for working toward short or medium-term goals, such as future academic costs, spring break travel, or purchasing a used vehicle. A defining feature of a savings account is interest, which is the reward you earn for keeping money in the account. Interest is often expressed as Annual Percentage Yield (APY), which indicates how much your money can grow over the course of a year. Savings accounts may have limits that encourage you to save your money, such as an allowance of withdrawals available per month.
A savings account with a balance of $10,000 and a 4% interest rate would earn $400 in one year.
One additional account worth mentioning is a High-Yield Savings account (HYSA). These are a popular option for savings use-cases, and for good reason. HYSAs operate similarly to traditional savings accounts but typically offer a significantly higher APY, allowing your savings to grow at a faster rate. While not all financial institutions offer HYSAs, they remain a popular option for building savings and establishing an emergency fund.
Don’t Sleep on the Fees
Many banks charge fees for a variety of reasons, but it’s possible to find an institution with minimal or no fees. Online banks, in particular, are often known for having fewer fees than brick-and-mortar institutions because of their lower operating costs. Some of the most common fees to watch for include:
- Maintenance fee: A one-time or recurring monthly fee for maintaining your account.
- Minimum balance fee: Charged if your account balance falls below a required amount.
- ATM fee: Charged when using an ATM outside of your institution’s network.
- Overdraft fee: Assessed if you spend more money than you have available in your account.
Reviewing an institution’s terms and conditions can help you know which fees may apply to your account and whether there are ways to avoid or waive them.
Additional Features to Consider
It’s important to choose an institution that aligns with your lifestyle and preferences. Do you like the idea of walking into a physical branch and speaking with someone in person? If so, a bank or credit union with local branches may be a good fit. If you are comfortable handling your banking through phone, email, or online chat, an online bank may better suit your needs.
You should also consider the institution’s digital features. While most banks provide access to mobile apps and websites, not all digital tools are created equal. Features to look for may include the ability to pay bills online, transfer funds between accounts, and my favorite, deposit checks using your mobile device. Customer reviews can also be useful in identifying recurring pain points or issues other customers have experienced.
Lastly, it’s important to make sure your financial institution is federally insured—FDIC for banks and NCUA for credit unions. This insurance protects your funds up to $250,000 per depositor, per institution, in the event that the institution fails.
To help identify the bank or credit union that is right for you, consider using this checklist to compare your options and make an informed decision.
A Trip Down Memory Lane
It’s one thing to know which institution or account is right for you, but it’s something else entirely to use it effectively and responsibly. Take it from me. I learned that lesson the hard way.
When I was a first-year student at Binghamton, my checking account at a local bank was where I deposited the money I earned from my part-time job. My debit card functioned more like an extension of my arm than a payment tool. As I made purchases throughout the week, without a clear understanding of where my account balance stood, something was happening in the background: I was repeatedly overdrafting my account without realizing it. In short, I was being charged the difference between what I had in my account, which wasn’t much, and the cost of what I was purchasing, plus a $30 overdraft fee for each transaction.
When I finally opened my mobile banking app, I saw a large red negative number, and that is when I started to panic. Why is my account overdrawn? I thought I had more money. What do I do? Those were the thoughts racing through my mind at the time. I’d love to say I changed my habits overnight and immediately learned my lesson, but that’s not what happened. I called a loved one for help, and they were kind enough to step in. Not everyone has that option, which is why it’s so important to understand these risks ahead of time.
With stronger financial habits, that stressful experience could have been avoided. I should have been checking my balance before making purchases, linking another account for overdraft protection in the event of insufficient funds, enabling text alerts to warn me of a low balance, or simply opting to have the bank decline transactions that exceeded what I had available. At that point in my life, that is what I needed.
If this brings up memories of your own, then you probably know better than most how difficult that situation can be. And if it hasn’t happened to you, there’s a good chance it doesn’t have to.
