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8 questions to ask before opening a bank account

Even as our world gets more digital, banks play a key role in our ability to manage our money. Whether you're completely new to banking, moving to a new town, or simply not satisfied with your current bank, these eight questions will help you make the right choices about your money.

1. Is there a monthly fee, and if so, how can I avoid it?

Many banks charge monthly fees for their basic checking and/or savings accounts. Those fees are often easily avoided, however, by qualifying for one of the bank's exceptions. For instance, Bank of America charges $12 per month for its "core checking" account. You can avoid that fee, however, if you're a student, have at least $250 per month direct-deposited into the account, or maintain a minimum $1,500 daily balance in it.

2. Which ATMs can I use for free?

Most banks allow you to use their own ATMs at no cost, but your bank may not always be the most convenient way to access cash when you need it. Using an out-of-network ATM could cost you fees from your bank as well as from the ATM owner and/or network.

Some banks, however, belong to networks that allow you to access all ATMs within the network for free. Fifth Third Bank, for instance, belongs to the Allpoint network and allows its customers to access all Allpoint ATMs in the U.S. at no charge.

3. Is there a cost to pay bills online?

Your account may be known as a checking account, but with online bill-pay services, you may never have to actually write a paper check. Many banks offer absolutely free online bill-payment services, but a few have fees attached. JPMorgan Chase charges $5 per month, for instance, for online bill-pay for customers who use its "Chase Customized Checking" accounts.

That said, many banks do charge fees for online payments if you want expedited processing, so be sure to set up your bill-payment schedule to allow enough time between paychecks and due dates to avoid those costs.

4. Can I make mobile deposits for free?

Your bank likely has a mobile app that lets you deposit checks from your phone. Most banks offer that service for free, but some may charge for the convenience. Still others offer mobile deposits for free but put a hold on the money for several days, though the bank might then offer you access to a given deposit faster for a fee.

5. What interest rate will I earn?

Most banks offer some interest on their savings accounts, though the current national average is around 0.09%, according to Bankrate.com. On checking accounts, if interest is available, rates are frequently lower than savings accounts, and you need a larger balance to qualify for the best rates. Bank of America, for instance, currently advertises 0.01% interest on balances less than $50,000 in its interest checking account, though that does step up to 0.02% on balances above that amount.

6. What happens if I spend more than I have in the account?

If you overdraw your account, your bank may deny the withdrawal and charge you fees, and those fees may very well hit on every attempted overdraft. Many banks will allow you to link your checking and savings accounts so that there's an automatic transfer if one account is overdrawn, though those automated transfers may come with a fee, too.

If your bank also allows you to link a credit card to your account to avoid overdraft fees, be cautious. In addition to whatever "activation" fee the bank charges for using the overdraft service, the draw from your credit card will likely be considered a cash advance on that credit card. That will subject you to your credit card's cash-advance charges and interest rates, which are typically higher than you pay when using it to make purchases.

7. How can I get help if something goes wrong?

Your bank may have nearby branches that you can walk into to ask for help. If you have an internet-only bank or use a bank from out of town, you'll be reliant on phone, webchat, or email to resolve any problems that may arise.

It can be scary -- and expensive -- to see unauthorized withdrawals from your account, or to see a deposit not clear your bank in time to cover scheduled withdrawals. Knowing in advance how your bank will work with you in the event problems arise can help you come to a resolution that much more quickly, making you more confident in your choice of banks.

8. What's in it for me?

In addition to interest on your accounts, many banks offer rewards programs for things like using your debit card to make purchases, or having a credit card as well as deposit accounts with the bank. Bank of America lets you select from a menu of available rewards for using your debit card, and Discover Bank will pay you $0.10 for each of the first 100 check, debit-card, or online bill-pay transactions you have in a month.

When you open and fund a deposit account, it's your money in the bank. The better that the overall package the bank offers can meet your needs, the happier you will be entrusting your hard-earned cash to that institution.

What is a savings account?

It’s not particularly secure to save large amounts of cash on your person, or in your home. It’s much better to keep those bills locked away at a bank. Your local lender is happy to oblige by offering you a savings account.

The savings account is often the first type of account parents open for their children. This, ideally, teaches them how saving works, and the basic functions of a bank. People of a certain age, like your humble correspondent, remember when savings account holders kept track of their credits and debits with a passbook that came with them on every bank visit.

CD basics

In a way, the CD is an unusual banking product. After all, most accounts are meant to provide at least some access to a customer’s money. By contrast, the CD -- known as a “share certificate” when sold by credit unions -- is designed for the money to stay there for the full length of the CD’s term.

What is a CD’s “term”? -- A CD is a time deposit, meaning that it lasts for a fixed period of time -- the term. CD terms tend to range from 28 days to five years. The expiration date of a CD, by the way, is known as its maturity. As you’ll see below the general rule of thumb is, the longer the term, the higher the APY.

Once released following maturity, the money invested in a matured CD can immediately be plowed into a new one. This process is called the “rollover” and is common practice among aficionados of CDs.

Early withdrawal penalty -- You’ll want to keep your money locked away in a CD to maturity, unless a financial emergency makes it absolutely, unavoidably necessary to withdraw funds. This is because the bank (or other financial services entity selling it to you) imposes stiff penalties for early withdrawal of funds.

A typical example is Bank of America, which will penalize an account holder six months of interest if he or she takes out money from a one-year CD -- i.e., exactly half of the earned interest. With terms five years and over, that charge climbs to one full year of interest. Mirroring the term/APY dynamic discussed above, generally the longer the CD’s term, the higher the penalty for early withdrawal.

Types of CDs -- CDs have been on the product lists of banks for decades. Over that time, variations have appeared on the market. Here’s a list of some of the more high-profile types:

  • Jumbo CD -- A product in which at least $100,000 is invested. Almost needless to say, APYs tend to be slightly higher for jumbos.

  • Step-up CD -- The interest rate earned by the CD holder rises at different intervals determined by the seller.

  • Bump-up CD -- Similar to a step-up CD, the holder has the right to make one request for an increase during the CD’s term, as long as market interest rates are on the rise.

  • Liquid CD -- As its name implies the liquid CD allows investors to draw funds from the CD, although this privilege is fairly limited.

Checking account basics

A checking account is the most basic type of bank account. It’s designed to be the go-to account for spending, the source of funding for both regular and occasional purchases.

Checking account holders have numerous ways to draw from their account in order to make purchases and settle bills. Here are several major ones most of us have used at one point or another:

  • Checks -- These familiar rectangles of paper not only give this account type its name, they remain a widely-used instrument of commerce in the U.S. That might not last forever, as they’re declining in popularity with the rise of payment cards and e-payment solutions. Still, they remain a go-to means of payment for many, particularly when taking care of major cost items such as rent, or car loan installments.

  • Debit card -- Even in the more remote parts of the country there’s usually an ATM lurking somewhere nearby. This ubiquity and convenience is ideal for the checking account, which is why most come with linked debit cards. Typically, the included card carries the brand of one of the two monster global payment processors, Visa or Mastercard. The debit card can be used not only to draw cash at the ATM withdrawals, it can be utilized for purchases in person or online.

Online banking bill pay -- These days, it’s rare to find a bank that doesn’t include online banking access, via website and mobile app, to account holders. One of the more useful of these services is online bill pay, in which recurring bills can be paid directly from the account. This is relatively easy to set up, and when implemented provides a frictionless way to automatically take care of regular expenses.

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