CHAPTER 1
Elevate Your Banking Relationships

Contrary to popular belief, most people don't completely grasp banking. Sure, they know what it's for but don't truly understand how it works for them. And guess who benefits from this lack of knowledge? Certainly not you! The less you know, the more you pay in banking charges and fees.

The first lesson of the Manage Money pillar is understanding banking fundamentals, including financial institutions and their products and services. This might seem basic, but you must know them to manage your money better.

At its core, banking is both a financial service and a form of money management. Your banking accounts are the conduits through which your money flows, allowing you to perform financial transactions easily and conveniently. It's kind of like a car for your money. Just like a car takes you from place to place, bank accounts move your money from place to place too.

How does it all work? You can also think of banking as a game. Imagine yourself as a player in the banking game where there are two roles you can play: the saver and the borrower. Often, you find yourself in both positions simultaneously. As a saver, you might earn interest on your deposits, while as a borrower, you'll be required to pay interest on loans you take.

Now, banks, credit unions, and other financial institutions are masters at playing this game. They collect your deposits and then cleverly invest them, often through loans to other customers. It's a well‐oiled machine that repeats over and over, allowing these institutions to make a profit and thrive.

To illustrate, say a bank offers a 1% interest on savings and offers a personal loan at an 8% interest rate. The difference between the 1% and 8% is the “spread” in which the financial institution makes its revenue for operational costs and profit.

In this chapter, you'll learn the following steps to elevate your banking relationships:

• Step 1: Using your banking accounts effectively
• Step 2: Identifying your ideal financial institution
• Step 3: Choosing your banking partner

STEP 1: USING YOUR BANKING ACCOUNTS EFFECTIVELY

The first step is understanding the common types of banking accounts available. Financial institutions offer different accounts for various purposes. And it's more than likely you'll need a few of these accounts to manage your money. So what kind of accounts do you have? Using the right banking accounts is vital because each one serves a purpose. Let's dive into the different banking accounts one by one.

Savings Accounts

A savings account is designed to help you save money for the future while earning some interest. It's a place to store your money, and the bank will pay you a small amount for keeping it with them. Some banks may require a minimum deposit and may limit how often you can withdraw money or may charge fees for excessive withdrawals.

Checking Accounts

A checking account is a flexible transactional account that allows you to make deposits and withdrawals whenever you need to. It's handy for everyday spending and paying bills. While most checking accounts don't earn interest, some may offer a minimal interest rate. Be aware of transaction limits, minimum balance requirements, and fees associated with these accounts.

Debit Cards

A debit card is linked to your checking account and allows you to purchase conveniently at stores and online. You can spend only the amount of money in your account, which helps you manage your spending. Additionally, you can use your debit card at ATMs for deposits, withdrawals, balance reviews, and transfers between accounts.

Money Market Accounts (MMAs)

A money market account is a hybrid between savings and checking accounts. It typically requires a higher minimum balance and offers better interest rates than regular savings accounts. The interest rate may be fixed like a savings account or tied to financial market conditions.

Certificates of Deposit (CD)

A CD is a savings option with a fixed interest rate for a specific term, ranging from 30 days to several years. Your money is locked in for the agreed‐upon period, and in return you earn a higher interest rate compared with a regular savings account.

Individual Retirement Accounts (IRA)

An IRA is a specialized savings account for retirement. There are two main types: traditional IRA and Roth IRA. Both offer tax advantages to help you grow your retirement savings. You can learn more about IRAs in the Grow Money pillar.

Remember, each account serves a different purpose, so use the ones that align with your needs and financial goals.

Now, let's talk strategy: choosing the right banking partner. Selecting the financial institution that best aligns with your needs and desires is fundamental. Be mindful because they are not created equal.

STEP 2: IDENTIFYING YOUR IDEAL FINANCIAL INSTITUTION

There are many types of financial institutions out there, each with its unique brand and offerings, giving you many options to choose from. First, there are the traditional banks that we all know, available in various sizes, from national giants to local community banks. Then there are credit unions, the not‐for‐profit champions, offering products and services like banks. And finally, there are alternative financial services available.

What kind of financial institution resonates with you? Let's go over the different types in more detail.

Banks

When we think of banking, we usually picture traditional banks. They come in different sizes, such as local, online, and national banks, and are regulated by state or federal agencies. The FDIC (Federal Deposit Insurance Corporation) protects the money you deposit in these banks, giving you peace of mind.

Credit Unions

Credit unions are another type of financial institution. They are not‐for‐profit organizations regulated by state or federal agencies. Like banks, they offer similar products and services, but due to their not‐for‐profit structure, they often provide better savings rates and lower loan interest. The NCUSIF (National Credit Union Share Insurance Fund) safeguards deposits of participating credit unions.

Online Banks

Online‐only banks do everything through the internet, from account opening and management to transactions and customer support. Since they don't have physical branches, they can offer higher interest rates on savings accounts and lower fees for services, passing on the cost savings to their customers.

Alternative Financial Services

There are also financial companies known as neo‐banks, mobile apps, and financial apps that provide banking services. Examples include prepaid debit cards and mobile payment apps. These alternative services may or may not have a banking charter but often work with traditional banks and credit unions to hold your deposits securely.

As you've read, there are many different types of financial institutions. And there are even more potential banking partners in each of those types. For instance, there are over 4,000 credit unions in the United States to choose from.

STEP 3: CHOOSING YOUR BANKING PARTNER

If you didn't know better, you might still be paying more for subpar banking services, paying unnecessary monthly fees, or using check‐cashing services. Now that you know better, you can use a better banking partner. I want you to make a conscious effort and shop around.

• Consider banking locally with community banks and credit unions.
• Ask your family and friends what banking services they use.

Use the following questions to help narrow your banking choices:

• What's the company culture? Its mission?
• Where are they located?
• What products and services are available?
• Are there monthly or transactional fees?
• Are there minimum balance requirements?
• How can you access your money? What are the ATM network and fees?
• Can you set auto‐transfers, auto‐payments, and transaction alerts?
• Do you require a physical location (like a branch) or prefer a robust mobile app?
• Does community banking matter to you, or do you want the nationwide presence of a big bank?
• Are deposits FDIC or NCUSIF insured?

Take your time and explore your options to find the perfect match. And if you happen to choose a financial institution and learn it's not the right fit, find another. Again, you have options.

WHAT HAPPENS IF YOU GET DENIED A NEW BANKING ACCOUNT?

In some cases, a negative banking history can affect your ability to open new accounts. If, in the past, you've had multiple insufficient funds (NSFs), overdrawn accounts, or closed checking accounts because of abuse, these activities may be reported.

There are a few little‐known consumer reporting agencies that many financial institutions use to determine if a new account should be opened. One such agency is ChexSystems, which collects and aggregates your banking...