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Banking in the USA |
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 If you are fairly new to this country, then you probably have concerns about how to deal with your finances while living here. The media promotes different banks, credit cards, and they all promise "low interest". But what is believable, and what are your choices if you decide to deposit your money for safekeeping -what's the difference between a checking account with interest and without? What is a money market account? And do you need a credit card? How do you get one? These are all questions that you may have had as you try to sort through the maze of the American financial and banking system, which will be addressed in this article.
The Advantages of Having a Bank Account
First it helps to understand some of the advantages of having a bank account (versus having a business cash your paychecks and buying money orders to pay bills with). Most banks offer:
- A safe place to keep your money. This protects you from theft of your hard earned cash!
- It's less expensive than money orders, which cost money to buy
- It's easier to keep track of your financial transactions, since your bank will keep records and send you monthly statements (many also provide online services where you can check your account's activity over the past few months)
- You can earn interest (extra money) on savings accounts or CDs that you can buy
- You're less likely to spend money that isn't in your pocket (so you can save money for the future)
How Banks Work
It helps to understand briefly how banks work in our country. Most banks are chartered institutions that specialize in financial services. In return for safekeeping the money that you deposit, your bank will take a portion of the money given to it and invest that money in high interest transactions (that's how it makes its money). In return, the bank will often offer you a lower interest rate on savings accounts. Your bank will always have a certain amount of money in its reserve that can be taken out by customers who withdraw their accounts.
Most banks have special insurance through the Federal Government that insures deposits of up to $100,000 known as the FDIC (Federal Deposit Insurance Corporation). Any bank that you deposit funds in should be FDIC insured to protect your deposits. There will be a small logo displayed at the teller windows if it is. Some banks can insure higher amounts of deposits, so it is important to discuss this with a bank officer if you plan to deposit large amounts of money.
Types of Bank Accounts
There are several different types of bank accounts available to their customers, including:
Checking Accounts (with or without an ATM card)
- When you deposit money into a checking account, your bank will give you checks (in a small book form). You can write checks to purchase items, pay bills, or to withdraw cash (by writing the check to yourself or to "cash" and signing it). Not every store or gas station will accept checks, though, especially if they are "out of town checks" that are written on a bank from another city or locality. The back of your checkbook will often have deposit slips that allow you to deposit money into your bank account. A regular checking account (at most banks) will not draw interest, although some will offer special rates or special accounts known as negotiable order of withdrawal accounts that do pay interest.
ATM cards
- You will probably be offered the choice of having an ATM (Automated Teller Machine) card when you open your account. This card will allow you to withdraw or deposit cash at any time of day or night at teller machines that are located outside most banks and in some stores. There will be a limit on the amount of money that can be withdrawn in a 24-hour period using your ATM card (this amount will vary from bank to bank).
- Be careful because there may be a transaction fee that is deducted if you use your ATM card, especially if a transaction occurs with a teller machine that is not part of your bank or its direct network. This fee will show up when you start to use the ATM on the machine screen (it has to be disclosed by law).
- When using your ATM card, you will need to use a PIN (a Personal Identification Number which in reality may be either a number or a code word) that is given to you when you receive your card. This PIN allows you to access your bank account, and protects you from unauthorized access of your account if you should lose your ATM card. Try to keep your PIN secret, by writing it on a slip that is kept in a safe place, or better yet memorize it quickly.
- If you do lose your ATM card, it is important to report the loss immediately to your bank. Federal law limits your liability if the loss is reported: you have no liability if you report the loss before an unauthorized transaction occurs; your liability is limited to $50 if you report the loss within two business days of losing your card; and your liability is limited to $500 if you report a card theft within 2 to 60 business days after it occurs. After 60 days, you lose this protection if the loss is not reported.
Debit cards
- Special ATM cards known as "debit cards" will have a credit card logo on them, and a several digit number that can be used in much the same manner as credit cards. These debit cards are guaranteed by the credit card company that payment will be made, and most businesses will accept them in the same manner they would a credit card. But the purchases made with a debit card are withdrawn directly from your checking account as if you had written a check. If you use a debit card for something that costs more than the amount of money in your checking account, the request will either be denied, or you will be overdrawn and may have charges from your bank, just as if you had written a check for more than you have. And debit cards will not help build up your credit rating like credit cards do.
Checking account service fees
- Your bank may charge you monthly service fees for the use of your checking account and/or your ATM card. It will also charge you a fee if you order checks. Some banks only charge fees if the minimum amount on the checking or savings account drops below a certain amount. It's important to check the different fees that different banks charge and their institutional guidelines for fees when making a decision on which bank will best meet your needs.
- Some banks will charge less monthly fees if you have an ATM card, or if your monthly average balance remains above a certain amount. Other banks have special "economy" accounts that only allow you very basic services, and only a limited number of checks or ATM transactions for a lower monthly fee. If you write too many checks in a month, some banks charge extra, so it's important to be careful and be aware of your bank's policies.
- You may want to check and see if a bank has the option to "direct deposit" your paychecks into your account. This can help lower checking account fees in some instances. With this process, your employer is able to electronically transfer funds or deposit them directly to your bank account.
- Some banks offer "overdraft protection" which means if you accidentally write a check, but don't have the funds to cover it, your bank will go ahead and pay the check (which means you will not be charged a "check bouncing fee" by the business. But your bank may charge you overdraft fees if this occurs.
- If you are older (age 55 or older), your bank may also offer lowered rates, discounts, or free services with your account.
Savings Account
- A savings account is just that: an account set up where you deposit your money to save it. Some banks will offer interest on the account. There is also usually a maximum number of withdrawals or transfers each month that can be made (this will vary from institution to institution). You won't receive checks when you open a savings account, but if you have a passbook savings account you will receive a special book in which are recorded all deposits and transactions for the month. You must show your passbook to the teller when accessing your account, and the transactions are recorded for you.
- If you have a statement savings account, then your bank will mail you a monthly statement of any activity that occurred. Sometimes there will be monthly fees, or if you keep a certain balance in your account, the fees may be lowered or waived at some banks. And some banks offer higher interest rates if your money is deposited long term.
Money Market Deposit Accounts
- Most banks have special accounts known as money market deposit accounts (MMDA), which allow you to write checks and deposit money. Normally MMDAs will give you a higher interest rate than regular checking or savings accounts do, but they also require a higher minimum balance before you start earning the interest. You are limited to six transfers in any month, including only three checks written in a month's time.
Certificates of Deposit (CDs)
- Certificates of deposit, or CDs, are deposits made that are guaranteed a certain rate of interest over a period of time (such as two years). Different CDs offer different interest rates, and the time interval your money must remain deposited will vary according to the CD. This can vary from four weeks to ten years. Normally, you cannot withdraw your principal (original money deposited) until the time limit on the CD is completed. This is what is called its "maturity" and withdrawing money from it earlier will mean paying a high penalty rate at many banks. Some banks will allow you to withdraw the interest gained on the CD before maturity without a penalty. Normally, the longer your money is deposited into a CD, the higher the interest rate that it will earn.
- Many banks automatically redeposit matured CDs into new ones, after first notifying their customers that the CD is ready to mature (giving them an opportunity to cash in the CD if they don't want it reinvested).
- When making a decision about which type of account to use, the idea of quickly available funds (such as with a checking or regular savings account) can be balanced against your desire to save long-term (through a CD, MMDA, or higher interest savings account). The account you open will depend on what your needs are.
Safe Deposit
- A bank will generally have special vaults that can be rented for the purpose of keeping valuable items, such as jewelry, documents, or other valuable items. When you rent a vault, you are given a key that only allows you (or those who you name as co-renters) access to this vault. Safe deposit vaults are created to be highly resistant to damage from fire or water (such as flooding), and are usually safer than most home vaults for guarding important items.
How to Open a Bank Account
When you have decided which bank you would like to open your account at, you will need to bring your social security card or number with you. At the bank, you will meet with a customer service representative (there may be a wait, and you may need to sign a list and be seen in the order you arrived). This representative will help you with the paperwork needed to open your checking and/or savings account. If there is a language barrier, you will want to bring a friend with you who can help translate. After opening your account, you will be given a book with temporary checks (that do not have your name, address, or phone number on them). It can take up to two weeks to receive your permanent checks.
Some merchants are reluctant to take temporary checks, but you can withdraw cash from your account with these checks.
Credit Cards
In order to receive a credit card, you must first qualify for one. There are certain qualifications that must be met by all applicants, including:
- Age 18 or older
- Have a valid social security number
- Be a resident of the United States
When applying for a credit card, you will need to supply the credit company with information about yourself, such as your place of employment, yearly income, and social security number. The credit company will also look up your credit history (which is available through credit agencies) to see if you have any problems with your past credit history such as bankruptcy (which will mean credit will be denied or only offered at a very high interest rate for a limited amount), or late payments. Your history of making payments on car loans, student loans, and other items will also be noted on your credit history. The credit card company will look at your reported earnings, and your outstanding debts (such as car payments, mortgage or rent) and then determine how much credit to extend to you. Your card will have a "limit" or ceiling to how much you can charge. It will often be around $500 for a new card, and as you build up a credit history with the company, may increase to thousands.
Once you obtain a credit card, the card will allow you to make purchases even if you don't have the available funds. It is a type of "loan" and the credit card company will charge you interest on the balance that remains each month. This interest rate will vary from company to company, or from bank to bank (which is why it is a good idea to compare both interest rates and any fees on different cards).
Some of the major credit card companies in the United States are Visa, American Express, Master Card, Diner's Club, and Discover.
Sending Money Out of the Country
There are reputable agencies, such as Western Union that can be used to transfer funds to your native country. You will want to investigate them by asking your friends and others who have successfully sent money to your country which method they used. It is important to remember that sending money or cash through the mail service is illegal, and also very unsafe, since cash can become lost or stolen, and you will have no protection at all.
Instead, investigate wiring money as mentioned above, or a bank-to-bank transfer if your family has a bank in your native country that they use. You will need to meet with your customer service representative to find out whether this can be done through your bank. |
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