As interest rates begin to rise, consumers will begin to see the pros and cons of changing the terms of their account.
“Financial institutions such as banks and credit unions provide safekeeping for our money and easy bill paying, but we need to be smart consumers when choosing the best for our financial needs,” said Carol Roberts, one of many UF/IFAS extensions. agents specializing in the development of community resources.
Here, Roberts offers five tips for avoiding fees and taking advantage of changes in today’s banking environment that can keep money in your wallet and accounts.
1. Know that there are common bank charges you can avoid. Fees are everywhere. When choosing a bank account, make sure you understand what activities charge fees and how to avoid them. Start by reviewing your account terms. In many banks, certain types of accounts require a minimum balance to avoid fees. In others, a minimum number of transactions or deposits in a month may be required to avoid fees. The bank you are considering may simply charge a monthly fee for account maintenance. Whatever the case, understand these fees. Avoiding fees keeps money in your accounts and even accrues interest – a plus as banks consider raising interest rates.
2. Look for the highest annual percentage return on savings. The annual percentage yield (APY) that a bank will pay to hold your money begins to rise. When the Federal Reserve raises bank interest rates, it passes it on to its customers through higher rates for borrowing money, but also higher rates for savings, checking and other accounts in many cases. If you’re looking for a new savings account, you’ll want to find the highest possible APY compounded as often as possible. Look for accounts with no monthly fees. These tend to undermine our earned interest benefits. You can find the account that’s right for you by searching bankrate.com/banking/.
3. Maintain accessibility and security on your terms. Make sure you can access your money when and where you need it. This is an important part of choosing a bank and the type of account you need. If you prefer to support a small local or online bank, watch for limited locations or fees for using ATMs. If you prefer to bank with an online institution rather than a traditional physical institution because they offer more benefits and higher returns, find out how they keep your account secure. Think about how you prefer to do your banking so you know which online banking features will be most important and beneficial to you. Look for the convenience of locations and times for in-person banking. Look for account security with two-step verification to log in when banking online.
4. Understand overdraft protection. The bank account you select may include an overdraft protection option. You will notice that you have to subscribe to this feature, but you cannot unsubscribe. Here’s the concept: your bank will cover you if you make a transaction for more than what you have in your account – for a fee in some cases. The bank does not cover you. The bank takes the overdraft from the linked savings account or the bank credit card that you must keep to take advantage of this service. The fees are generally considerably lower than overdraft fees, the current average overdraft fee is $33.47 per transaction. Consider that many big banks are dropping overdraft fees as a policy. Consider that joining this service, if you choose a bank that always charges, could be a slippery slope to overspending.
5. Need a second chance to verify? Some of us, at one time or another, have had a problem with a bank account and may have given up on it. The fees kept piling up and it just didn’t seem worth keeping, but now it’s hard to get another bank account. Banks are convenient because they help us track our income and expenses. They allow us to pay bills for free in some cases quickly and easily. Some companies require employees to directly deposit their paychecks, so it can be expensive or cumbersome to go unbanked. Be aware that many banks offer a second chance current account. These are not free. There will be monthly maintenance fees, but if you can keep the account in good standing for the required period, you can upgrade to an account with better terms. Also, be aware that many banks are now offering short-term, low-interest loans as alternatives to payday loan services which can be expensive. Carefully research the pros and cons of these features and services to get an idea of the true cost.