Banks provide a range of financial instruments and accounts to fit the diverse needs of individuals and businesses.
Commercial banks make their money from the interest and fees they charge customers and on the investments they make. Banks, like any business for profitA financial gain, the excess of returns over expenditures, income over expenses. The opposite of loss. , are always looking for customers and so they advertise and offer products, services, and conveniences to attract new business. For an alternative to a commercial bank, see credit unionNot-for-profit cooperative of members with some common bond who, in effect, save their money together and make low-cost loans to each other. A financial institution. in the previous section.
Another institution offering banking services is the savings and loan, which traditionally invests its funds primarily in home mortgages.
“Shopping” for a Bank
It is important that consumers shop around for the goods and services they need, keeping in mind key features such as quality, good service, and the right price. The same applies when “shopping” for banking services.
Skills for Banking
- Understand the services provided by banks and other financial institutions.
- Review the questions you should ask before selecting a bank.
- Compare the difference between a credit union and a commercial bank.
- Describe ways that banks help you manage your money and analyze how your banking needs change over a lifetime.
Before selecting a bankAn institution, chartered by the state or federal government, that takes deposits and provides credit and other financial services. , consumers should compare and understand the services provided by at least three banks and other financial institutions. It is also important to keep in mind how your banking needs may change over time.
There are many factors that may contribute to your final choice including the location of the closest branch, the bank's hours of operation, as well as any fees and rewards associated with your account. Remember to ask the following questions before selecting a bank:
- Is this bank close to my home or my work?
- Does this bank operate during hours that are convenient for me, and/or is the bank’s ATM network convenient?
- Do any of the employees speak my language?
- Does this account offer the services that I need and want?
- Does this account pay interestAn amount of money paid for using funds over a period of time, generally an annual percentage rate. Bank interest is both an amount paid to depositors of funds and a finance charge for money that is borrowed. The price that someone pays for the temporary use of someone else’s funds. Interest is also a compensation that someone receives for temporarily giving up the ability to spend money. and at what rate? What kind (compound interestInterest that is calculated not only on the initial principal but also the accumulated interest of prior periods. or simple interest)?
- What fees are associated with this account? Is there a monthly service charge? Are there fees for automatic bill payingA service which allows consumers to have bills paid automatically from their bank accounts (e.g., utility bills). Also known as direct debit, direct payment, or automatic debit. – where bills are paid automatically by a bank (available at almost all banks)?
- What does the bank charge for overdraftA check written for amounts “over” what consumers have in their accounts (i.e., the checks are called overdrafts). Checks are returned unpaid and are usually said to “have bounced.” Some depositors select overdraft protection, which is a line of credit to write checks for more than the actual account balance. A draft or check written for an amount that exceeds the funds in the account on which the check is drawn. (Draft, in this sense, means a document for transferring money.) protection?
- What type of identification will I need to open this account?
- Do I have to maintain a certain balance to avoid paying fees? Can I afford to maintain that balance?
- Is this account protected by the Federal Deposit Insurance CorporationAn independent agency of the federal government that insures accounts up to $250,000 per depositor at almost all United States depository institutions. This deposit limit was increased from $100,000 by the FDIC in October, 2008, in response to the banking system crisis. The insured amount of $250,000 is effective through December 2009. The FDIC has primary federal supervisory authority over insured institutions that are not members of the Federal Reserve System. (FDIC)?
- Does the bank offer secure Internet access to accounts (i.e., online bankingConducting bank transactions from a computer over the Internet. )?
Your banking needs will change over the various stages in your life. Banks, credit unions, and other financial institutions offer a range of services and financial products to meet your needs.
Types of Accounts
As discussed above, there are several types of accounts, primarily a checking accountAn account that allows the customer to write checks on the money in the account. or savings accountAn account at a financial institution that earns interest and allows regular deposits and withdrawals. The minimum required deposit, fees charged, and interest rate paid vary among providers. , in different types of banks (commercial banks, credit unions or the savings and loan). To research more information on credit unions in your area, visit the National Credit Union AdministrationThe NCUA is an independent federal agency that charters and supervises federal credit unions and insures savings in federal and most state-chartered credit unions across the country. (NCUA) at www.ncua.gov. For a good resource to compare checking or savings accounts in your area, you can visit www.findabetterbank.com. This site provides a helpful comparison of fees and requirements and you may search by city or zip code. Also, some state governments have mandated that banks provide low-fee accounts to individuals with lower incomes. These type of programs are not often advertised. You can find more information on special programs by contacting your state banking department.