10 Commandments of Personal Finance
For some people, getting personal finances in order is more grueling than wandering the desert for 40 years.To ensure that your money works for you and not for the bank, here are 10 banking moves that you should make immediately:
1. Move your money to a high-interest online bank. If you are keeping an emergency fund or other money in a savings account that is earning little in interest, you should move your money to one of the many online banks that are paying far more than the typical bank. There are over 15 online banks offering 5% or more, and many require only a dollar to open an account.
2. Find a bank that offers free ATM withdrawals. If you use an ATM regularly and pay a charge for using it, it's time to change banks. There is enough competition in most areas that you can find a bank that will offer free ATM use. It's worthwhile to check credit unions in your area, since they are more likely to offer free ATM use, but it's important to note that since they are smaller than most banks, they may not have a widely distributed ATM network.
3. Consider consolidating your accounts to one bank. If you have several bank accounts at different banking institutions, it can make financial sense to consolidate them at one bank. Using a single bank for all your accounts can give you leverage to get discounted services. For example, if a bank requires a $1,000 minimum balance to earn interest in a checking account, it might waive this minimum if you also have a large CD deposit with that bank. The more banking business you do, the more leverage you're likely to have to negotiate on little fees and rates that can add up over time.
4. Set up direct deposit. In addition to saving you the time of having to go to the bank each pay period to deposit your check (and the incidental costs associated with that), direct deposit can also give you leverage when negotiating on checking-account fees. Although this is rarely advertised, many banks will waive checking-account monthly fees if you direct-deposit your paycheck. Simply ask your bank what incentives it gives customers who direct-deposit their paychecks.
5. Opt out of "courtesy overdraft" protection. This "service," which essentially lends you the money to cover a check that would otherwise bounce, is also called "bounced check protection," and many banks include it as standard for all their customers. This means that you have to opt out of it on your own, which you should do. While on the surface it sounds like a great deal (you don't have to apply for a line of credit, and the bank doesn't charge a monthly or annual fee for the service), it's extremely expensive if you ever need to use it (up to $40 per bounced check with a $5 per day penalty until the money is paid back). This means a single bounced check can cost hundreds of dollars, and that's why you don't want to accept this "courtesy" service.
6. Apply for overdraft protection. Since you just canceled your courtesy overdraft protection, if you're worried that you might bounce a check sometime, you should sign up for overdraft protection. Your checking account will be linked to an account that will supply funds if there is not enough money in the checking account. Setting up overdraft protection should be free, although there will be a fee if the overdraft protection is ever needed. Even if it is needed, the cost to you is far less than the fees for bouncing a check or using courtesy overdraft protection.
7. Don't chase minimal interest. Most banks offer two typical checking-account alternatives: basic and premium. The basic account will have a lower minimum balance requirement, but it will usually have restrictions on the number of no-cost transactions you can make each month. A premium account will offer interest and allow for more no-cost transactions but will require a larger minimum balance to avoid monthly fees. Since failing to meet the requirements of either of these accounts can result in costly fees, you need to choose the one that best fits your checking habits.
Rarely is it worth chasing the premium checking account for the interest alone. These checking accounts usually have low, noncompetitive interest rates. Getting no interest on the checking account and putting the difference in your online high-yield savings account will almost always result in a better overall return.
8. Balance your checkbook. It sounds obvious, but numerous surveys indicate that you probably aren't doing it. Balancing your checkbook achieves two important goals that will help your finances. First, knowing your exact balance will ensure that you don't accidentally bounce a check. In addition, it will allow you to reconcile your banking statements to make sure they are accurate. Yes, banks do make mistakes.
9. Always get checks on the Internet. You want to avoid getting your checks through your bank. Banks know that it is convenient for you to order your checks through them when signing up for your account, but this convenience is costly. You can find the same check online for about half the price.
10. Close accounts you don't use. In the past, if you had money in an account, you could leave it there and not worry, but that is no longer the case. Banks frequently change the terms of accounts, and an account that is forgotten or not used could very well be drained of any money in it through newly enacted monthly fees. Even worse, once the account hits a negative balance (due to the monthly fees), it will incur even more fees for not having money in it. Rather than find yourself facing a situation in which you owe money, you're better off closing any account you're no longer using.
—For more ways to save, spend, invest and borrow, visit MainStreet.com.