10 Things You’re Embarrassed to Ask About Banking

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.

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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.

4. Is it safe to deposit a check with my smartphone?

It sounds too good to be true: With many smartphone banking apps, you can take a picture of a check with your phone and deposit a check to your bank account without having to leave your home. Mobile banking is as safe as visiting your local bank branch or logging into your bank account online. Though some skeptics dispute the security of mobile banking, your smartphone banking app is encrypted like a website, so no third parties can access your account info. Banks don't store the check images you snap with your phone, either, so your banking activity stays private.

5. I just deposited cash into the ATM but I wasn't able to withdraw it the next day. What's the deal?

Let’s say that on a Monday night you deposit cash or a check for $500 at the ATM, but the next day, only $100 is available for withdrawal. Since you made your deposit after normal banking business hours, your funds won't register until the next business day (i.e. Wednesday, though in some cases it might even be Thursday). But don’t worry—you’ll get our money. Your account online will acknowledge that you made a deposit at the ATM, and a portion will be made available while a "hold" is placed on the remaining balance until your bank branch authorizes the deposit--essentially making sure that you deposited the amount you said you did.

6. This ATM just ate my money! What do I do?

ATMs may be machines, but they make mistakes too—usually at crucial times. For instance, a malfunctioning ATM might refuse to give you the money you're trying to withdraw, or fail to acknowledge money you're depositing.

For this reason, always count your cash, and remember the denominations, if possible, before making a deposit. That way if the ATM loses your $54 cash deposit, and $54 is retrieved from the ATM, the bank will know your claim was genuine. And when this happens, don’t despair: A faulty ATM will print out an error message with a toll-free number you can call to report the incident. If it doesn't, go inside the bank to inform a bank teller; if the bank is closed, call the 800 number on the back of your card.

7. My debit card was accidentally charged with the same transaction twice. Now I'm overdrawn. How do I get my bank to reverse the fees?

First, determine whether the error was made by the bank or the merchant by calling the bank. Maybe the bank accidentally counted one purchase on your debit card twice, three times, or 10. If not, call the store to ask whether the transaction amount was incorrectly entered into the system. Always keep receipts for all purchases that you make so you can use that as proof when you call the store. If this was an online purchase, consider whether you might have made the mistake: Did you accidentally hit "checkout" twice? If so, e-mail or call the retailer.

If those avenues fail, consult your bank. It should be able to talk with the merchant if you haven't been able to resolve the problem with them.

8. What happens if my bank fails?

A bank failure could occur for several reasons. Perhaps it's not earning enough revenue and doesn't have the cash to pay back its depositors, or, as we saw in the 2008 financial crisis, maybe too many people try to withdraw their money all at once and the bank doesn’t have enough money to repay everyone their balances.

But breathe a sigh of relief: Nothing will happen to your money if your bank fails—as long as your accounts are insured by the Federal Deposit Insurance Corporation. For that reason, we recommend that you only bank at FDIC-backed institutions, where deposit accounts will be insured up to $250,000. And if you’re banking at a bank without FDIC protection, we recommend you close your account and open one elsewhere. You can easily find out whether your bank is FDIC-insured simply by asking a representative or by looking for a FDIC logo or seal on the website. (It's often at the bottom of the homepage, or in the savings/deposit section.)

9. What does it mean when a check "bounces"?

A "bounced" or "rubber" check does what it implies–it bounces back to the check writer when she doesn't have sufficient funds to cover the amount on the check. If you wrote the check, your bank might charge you a fee. (People who intentionally write bad checks could even have their accounts closed.) If you're the check recipient, it means you may not have enough money in your own account to pay for expenses, and, if you overdraw your own account, your bank may charge you an overdraft fee.

As you can see, it’s bad news all around. If you’re writing a check, make sure you have enough money to cover the amount you're promising to pay. Stop to look at your account in the My Money Center if you need to.

If you're the recipient, make sure the check writer is good for the money. If there’s any doubt in your mind, it hurts less to ask than it does to deal with a bounced check.

10. Do I need to keep records of my bank statements, and if yes, for how long?

The short answer: Yes, for at least a year. Bank statements are receipts like any other, and you never know when you'll need to refer back to them. Even if you bank online and know that your bank keeps your statements for you, it will most likely only keep them for a certain time period. You should download your bank statements in case you ever need a record of a transaction that took place further back than your bank's online records go.

If you're financially active and you don't have a warehouse full of space to store all your statements and receipts, we recommend you try paperless storage methods. As for other records, keep tax records for seven years; pay stubs and bills for one year; credit card statements for up to seven years; and housing/mortgage documents for a minimum of six years.

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