You probably don’t use up a lot of brainpower thinking about your bank. After all, you just deposit your money, then swipe your debit card or visit the ATM when you need it, right?
Not so fast. To really get the most out of your bank—and your money—it’s important to fully understand a few key facts. We looked at six common pearls of conventional wisdom to uncover what’s fact or fiction. You may be surprised.
Online banks offer higher interest rates than brick-and-mortar institutions.
True, generally. Since they save money by not operating storefront branches, online banks can afford to offer much higher rates than the national average of .06 percent. That’s why you’ll almost always find leading online banks among the institutions with the highest-yielding savings accounts.
Remember, though, when choosing a bank, you also want to weigh other features, like customer service, fees and whether it’s FDIC insured. Speaking of which…
Banks aren’t required to have FDIC insurance.
True. FDIC insurance guarantees that, in the unlikely scenario that your bank collapses, the federal government will make you whole up to $250,000. While not legally required, the majority of U.S. banks are insured, including just about any bank that’s a household name. But it’s worth checking. Visit your bank’s website and look for the FDIC logo or phrases like “Member FDIC” and “FDIC Insured.”
Prefer to stash your savings in a credit union instead? Credit unions aren’t insured by the FDIC, but the National Credit Union Administration. Like FDIC insurance, NCUA insurance guarantees depositors up to $250,000 per institution.
The Federal Reserve sets the interest rate on your savings account.
False. The Federal Reserve does influence the rate you earn, however. The “Fed” controls something called the federal funds rate, which is the rate at which financial institutions lend money to one another overnight. That rate influences other short-term interest rates, including those for savings accounts.
So when the Fed raises the federal funds rate, savings account yields might get a bump—although the increase probably won’t be immediate or in lockstep. (And in fact, banks don’t have to raise your interest rates at all.)
If you notify your bank of fraudulent activity, you won’t be on the hook for it.
True—but only if you act quickly. If you lose your debit card or discover your PIN or password has been stolen, say something immediately: Federal regulations limit your liability to a maximum of $50 as long as you notify your bank within two business days. Wait longer, and your liability can jump to $500 or more.
Similarly, if you spy a fraudulent charge on your statement but you were unaware of your information being stolen or lost, call your bank right away. If you don’t notify the bank within 60 days, you could be on the hook for 100 percent of the unauthorized charges.
There are no more free checking accounts.
False, fortunately—although it’s true that consumers are paying more than ever in fees, and free checking accounts have become harder to find.
Do some digging online to find a truly fee-free account. And be sure to read your account’s fee schedule closely to make sure you avoid unexpected charges, such as fees for using a live teller instead of an ATM.
Overdraft protection can help you avoid huge fees.
False. When you open a new checking account, you’re typically given the option of opting in for overdraft protection. But it comes at a steep price.
Suppose there’s only $20 in your checking account, and you try to buy $30 worth of groceries with your debit card. If you have overdraft protection, your bank will cover the $10 difference on your behalf—either by transferring money from another one of your accounts or by opening a line of credit in your name—but charge you a fee, often about $35. If you don’t have overdraft protection, the transaction will be declined, and you won’t owe any fees.
If you have multiple checking accounts or a credit card, overdraft protection is almost certainly a bad deal because you can simply swipe a different card should you accidentally overdraw one account. The only time it might be a nice feature is if you have a true emergency and no other way to access funds.
Bottom line? If you decide overdraft protection is right for you, be sure to keep regular tabs on your account balance.
July 20, 2016