10 Things You’re Embarrassed to Ask About Banking

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You check your Financial Inbox every day, so you always know not only what’s going on in your bank account, but where every dollar went.

But even though you know the ins and outs of your own banking universe, you may not know how the whole system works or what you should do if something goes awry. Read our answers to 10 questions you might be embarrassed to ask about banking so you know what to do when you or your friend have an overdraft emergency or ATM snafu.

1. Why are there so many different types of banks? Don’t they all do the same thing?

Technically, yes. All banks operate on the same principle: Customers deposit their money for safekeeping into a bank, and the bank earns its income by charging fees to customers for the service they provide. But different types of banking institutions cater to different clientele.

  • Retail banks serve individual customers. If you visit the local branch of your bank for your personal needs, then most likely you’re visiting a retail bank.
  • Commercial banks don’t service individuals. They deal with the banking needs of businesses large and small.
  • Investment banks are more specialized institutions that help corporations with things like offering stocks to the public and merging with other companies, but do not offer savings and checking accounts.
  • Savings and loan banks do everything investment banks do, plus they have savings and checking accounts for regular consumers.
  • Credit unions are a nonprofit version of retail banks–the difference is that the assets of credit unions are a pool of its members’ finances, essentially making each customer a “partner” in the business.

2. What’s the difference between an account number and a routing number, and which one is which on a check?

You’ve written hundreds, maybe even thousands, of personal checks in your lifetime, but still don’t know what those numbers along the bottom mean.

On a personal check, the first field of numbers constitutes what’s called a “routing number”: a nine-digit code used to electronically identify which financial institution holds your money. If someone writes you a check, the routing number tells the bank where to get the funds when you cash it at the bank.  This is sometimes called an ACH (Automatic Clearing House) transfer.

The second field of numbers is your account number. This is the unique number assigned by the bank to your account, ensuring that when you make a deposit or withdrawal the bank puts money in or takes money out of the correct checking or savings account.

3. What’s the difference between a checking account and a savings account?

Checking accounts exist so that you can withdraw money, pay for things with your debit card and, of course, write checks. For that reason, you should use your checking account to pay all your monthly expenses. In order to fund it, set up direct deposit of at least a portion of your paycheck to the account.

Savings accounts, on the other hand, are designed to take deposits of money, keep them safe from your everyday spending and earn interest. While it’s nice that keeping your money in savings will earn you money, the real benefit is that you keep it out of sight and out of mind when you’re trying to figure out how to pay your rent or fund that new couch. You’ll really want that money in there when you lose your job or when you’re trying to book a week’s vacation in Mexico.

All of this is not to say checking accounts can’t earn you extra cash. There are special interest-bearing checking accounts that are the best of both worlds–they offer the rewards of a savings account with the utility of checking.

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