Remember the good old days, when all you had to do was slip your allowance into a piggybank? Sad to say, your bank is a lot more complicated than that now, though last time we checked, piggybanks don’t pay interest or extend loans.
You interact with your bank every time you deposit a check or get money from the ATM, so you may think you’re familiar with how it works. But don’t think that’s all you need to know. To make sure you get the most of out of your bank accounts, we’ve put together a list of banking mistakes to steer clear of, with tips on how to avoid them and how to get out of the problem if you’ve already gotten into it.
1. Keeping Your Checking and Savings Accounts at the Same Bank
- What we mean: You should choose one bank for checking, and another for your savings accounts.
- Why: It’s tempting to use your savings for everyday expenses or even your rent. If you keep your savings at a separate bank, the additional time it takes to transfer cash from one bank to another will make you think twice about tapping your rainy-day funds. (Just don’t make it so hard you won’t be able to access the money in an emergency!) Splitting up your accounts will also let you get the best checking account and the best savings account for you.
- How to avoid it: When opening checking and savings accounts, open them at different banks. When choosing your checking account, consider fees and services you need day-to-day, like a wide network of ATMs. For savings accounts, look for the highest interest rate you can get, and make sure you can set up subaccounts for specific savings goals so you don’t accidentally diminish your emergency fund for a one-week trip.
- Already made this mistake? Easy. Close your checking or savings account at your current bank and open the same type of account at another bank. If your current bank has a great checking account but a less than optimal savings account, move the savings account. And vice versa. (See this checklist for tips on opening a bank account.)
2. Forgetting the Little Guys
- What we mean: National banks aren’t your only option. A smaller bank or credit union might be a better fit. Find out how.
- Why: More than 10% of customers at big, regional and midsized banks switched primary banks last year, according to J.D. Power and Associates. For smaller institutions, that number is less than 1%. The difference? Better rates, fewer fees, and superior customer service, for the most part. For instance, at online banks, even checking accounts can pay interest rates that compete with today’s interest rates on savings accounts, whereas at most banks, checking accounts pay negligible interest.
- How to avoid it: When searching for a bank, don’t limit yourself to the banking giants. But also don’t automatically assume that a small bank will suit your needs better. Drawbacks to small banks may include limited hours and fewer branches (or none, if your bank is online).
Don’t just focus on fees. Make sure the bank you’re eyeing has an ATM near your home and work. If you travel and are considering a smaller institution, see whether it is part of a network of thousands of ATMs around the country, or, if not, whether it reimburses or waives ATM fees.
- Already made this mistake? Do some browsing at savingsaccounts.com and Bankrate.com to see how your current banks stack up. If you find accounts that are much more appealing (better interest rates, lower fees, more convenience), it may be worth it to close your account and open a new one.
3. Chasing Higher Interest Rates
- What we mean: Landing the highest interest rate around feels good. But if the bank lowers it, jumping to a new bank for a higher interest rate won’t necessarily pay off.
- Why: Snagging that extra half-percent interest won’t make a big difference for your pocketbook. And with interest rates below 1%, one new fee could wipe out a year’s earned interest.
- How to avoid it: Find banks that fit your needs and lifestyle, and stick with them. Interest rates will eventually climb back up. In the meantime, what your bank is charging you matters more.
- Already made this mistake? Well, now you know–there’s no point in constantly pursuing higher interest rates. So, stick with the banks you’ve got!
4. Skipping the Fine Print
- What we mean: Keep an eye out for fees, and make sure you know how to get past them.
- Why: Are you willing to pay a fee to receive a paper statement, talk to a real person or even close your account? Banks are getting creative these days, so make sure you know what you’re paying for. Reading carefully can help you find loopholes, too.
- How to avoid it: Get to know your account’s "fee schedule,"A fee schedule is a detailed list of all account-related fees, charges, and penalties. Use it to sidestep ridiculous charges and to find the bank accounts that fit you. which is often available on your bank’s website. (If it’s hard to find, pick up the phone or make a visit—banks are legally obligated to provide this information to customers and prospective customers.)
If your bank announces a change, pay attention. It could mean it’s time to switch banks or accounts. Sometimes all it takes to waive a fee is maintaining a minimum balance or going paperless.
- Already made this mistake? If you’re not able to do the minimum required to avoid fees with your account, look into other types. But if your bank is just fee-happy no matter what type of account you have, take your business elsewhere—or just threaten to. Sometimes, bank representatives will waive new fees to hang on to loyal customers.
Get started with a free financial assessment.
Get started with a free financial assessment.
5. Paying for a Checking Account
- What we mean: You shouldn’t have to pay a fee for basic checking.
- Why: Fees may be on the rise, but free checking is still par for the course. If you’re forking over five bucks a month just to pay bills, deposit money and get cash, look for other options.
- How to avoid it: According to Bankrate.com, 92% of banks offer no-fee checking accounts or waive fees if you set up direct deposit. So, sign up for one of these accounts!
If your free checking comes with strings, know exactly what you have to do to avoid the fee so you don’t get hit with a surprise payment if your situation changes.
- Already made this mistake? Search for a free checking account on bankrate.com, or call up your bank to see if you can turn your account into a free one by, for instance, setting up direct deposit.
6. Signing up for Overdraft Protection
- What we mean: Most banks offer “overdraft protection,” an expensive service that lets you keep spending after you’ve emptied your checking account. The bank covers payments, but you’ll pay it back with a hefty surcharge (think $30 to $35 dollars per transaction, no matter how small).
- Why: Overdraft protection might save you from the hassle (and embarrassment) of a declined debit card, but you can rack up charges quickly. If you’re just starting out, be aware: a 2008 FDIC study found that nearly half of young adult account-holders paid overdraft fees.
- How to avoid it: Don’t sign up for overdraft protection! Spend only what you actually have, and stash emergency cash in your wallet in case your card is declined. An alternative is to sign up for a line of creditAn overdraft line of credit is a loan from your bank that is activated if you overdraw your checking account. It has a limit, like any credit line, and you have to pay interest, but you’ll avoid the per-transaction fees of overdraft protection plans. to kick in when you hit zero—but that’s a slippery slope, and one with high interest rates.
- Already made this mistake? Cancel your overdraft protection. And then make sure to do #7 from now on!
7. Ignoring Account Transactions
- What we mean: Keep up-to-date with what goes in and comes out of your account.
- Why: According to Javelin Strategy & Research, one in five consumers doesn’t monitor her personal finances. But if you catch mistakes or discrepancies soon, you’ll catch fraud early and avoid extra charges—and stress.
- How to avoid it: Make it a habit to check your accounts regularly, such as in the My Money Center. Pay attention to charges you don’t recognize, and make sure your balance is high enough to cover any checks you’ve written. If you’re sharing an account, communicate what each automatic payment is for. That gym membership you thought you canceled months ago? Your partner could still be paying it.
- Already made this mistake? Make it easy for yourself to see all your accounts at a glance by signing up for a service like the My Money Center. Then make sure to check it every day. The first time you connect your accounts, go through the last month or more of transactions to make sure you don’t see any unauthorized charges or fees.
8. Leaving Online Accounts Vulnerable
- What we mean: Protect bank accounts with secure passwords and practices.
- Why: A 2011 survey from the American Bankers Association found that 67% of young Americans prefer to do their banking online.
- How to avoid it: Choose a different password for your financial accounts than for more casual accounts to protect your most sensitive information if you’re hacked. Strong passwords have at least eight numbers, symbols and upper-and-lowercase letters. Make them random, and change them often. Learn more.
Also, watch what you’re sharing on social networks. Your Facebook page could help a hacker crack your security questions.
- Already made this mistake? Change your financial passwords now according to the guidelines above so that they are distinct from passwords to other sites. Also, scan all your social media accounts to remove any private information that could help someone gain access to your accounts.
9. Wasting Time Paying Bills by Hand
- What we mean: With automated bill pay, you set up recurring payments for monthly bills.
- Why: Automated bill pay can prevent tardy or forgotten payments, which ding your credit score and cost you in late penalties. Paying your bills online could also protect you from identity theft—the less paper floating around with your personal information on it, the better.
- How to avoid it: Set up recurring payments for monthly bills through your checking account. But automated payments aren’t totally hands-off. Log in and monitor your automatic payments to avoid accidentally overdrawing your account, especially for bills that vary from month to month. Regularly check the My Money Center to make sure you have enough in the account.
- Already made this mistake? If you’re sending your bills through the mail now, just set up automatic bill pay. You’ll find paying your bills a lot easier and faster, and you can also time them to right before your payment is due so that money stays in your account longer. And in addition to being green, you’ll also save money on envelopes and stamps.