Banking

Overview

Banks are institutions that provide services to help corporate and personal customers manage their finances. These services include accounts, loans, credit lines, and investment options that allow customers to meet personal and financial goals.

Many banks are one stop shops for a variety of investment products. At the same bank, you can open a checking account, line of credit, bill payment service, mortgage, and student loan account. Consumers who use many products at a bank may benefit from lower interest rates. For example, Wells Fargo Bank offers interest rate reductions to customers who make student loan payments from their checking accounts and waives service charges when certain checking and savings accounts are linked together.

For the most part, banks will allow you to open a checking or savings account free of charge. Many of these free services are available for free or as promotional offers. You may need to maintain a minimum balance or link certain bank accounts.

Banks are like businesses and will make money through their financial products. Loan interest allows banks to profit by lending customers money. Banks also charge ATM transaction and overdraft fees for additional revenue.

Federal Deposit Insurance Corporation (FDIC)

During the Great Depression, the United States suffered from an economic crisis that worsened due to failing banks. United States citizens with bank accounts scrambled to their banks to retrieve as much money as possible. If banks failed, account holders would lose a substantial amount of money up to an entire lifetime's savings. Many United States citizens were financially ruined after losing some or all of their money.

In response to the failing banks during the Great Depression, President Franklin D. Roosevelt established the FDIC as a temporary government institution that insures bank deposits.

Years later, banks are still insured by the FDIC. Until 2013, depositors are insured for up to $250,000. In 2014, depositors are insured up to $100,000, excluding certain retirement accounts, such as IRAs. If a bank fails, account holders have some degree of protection.

Checking Account

Checking accounts are ideal for everyday transactions. For most people, a portion of income funds daily, monthly, and weekly expenses while another portion goes to savings. Checking accounts help people manages their finances for everyday transactions, bills, and payments. Users can deposit and withdraw cash as needed without any limits, and users can pay for items directly from your checking account using a debit card. Think of a checking account as your disposable income.

If you take out too much money, you risk overdrawing your checking account. With overdrafts, your checking account will show a negative balance, and you may need to pay a penalty fee.

To open and maintain a checking account, you will need to maintain a minimum balance. This minimum balance varies based on the type of bank account and the bank of your choice. Typically, banks ask for a minimum amount of about $300. Most checking accounts do not pay interest on balances. In any case, there are some banks that provide checking accounts with very low interest rates.

You may receive a debit card that is linked to your checking account. A debit card is not the same as a credit card. With a credit card, you are spending money from a line of credit, and with a debit card, you are spending your own money from your bank account. You can also write checks to pay people with money from your bank account. Account holders are responsible for ensuring that their bank accounts have enough money to honor these checks.

Savings Account

Savings accounts help customers save money and meet financial goals. Banks pay interest on the money that is in these types of accounts. For the most part, users cannot take money out of bank accounts. If you do need money from your savings account, you can transfer or withdraw cash without a penalty. If you take money out of your savings account more than six times in a month, you may be subject to a penalty, or you may not be able to withdraw the cash. Some banks may even shut down accounts that are repeatedly in violation.

Investment Accounts

A variety of investment options are available through banks. These include Individual Retirement Accounts (IRAs), certificate of deposit (CD) accounts, and mutual funds. Many of these types of accounts have certain tax applications, so it is important that users work with a financial advisor at a bank or elsewhere. These accounts have very strict limitations for withdrawing funds.