Finance Globe

U.S. financial and economic topics from several finance writers.
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The Student's Guide to Choosing a Financial Institution

Choosing a Financial Institution
If you need to open a checking and savings account, and possibly even get a credit card, it's a good idea to do some comparison shopping before you open your accounts.

Aside from offering the services you need, convenience and cost should be your two determining factors in choosing a financial institution. A branch location near school, work, or home can save you time, but it may be worth a short walk or drive to use a financial institution that can save money in fees.

If all other costs and features are roughly the same, then consider the financial institution that pays better interest on savings deposits. But the savings account interest rate may not be so important right now if your choice is between paying extra fees and getting services you need for free.

Many college students find it difficult to save very much at this point in life, and saving money on services is probably more valuable than an extra 1/2% interest on a small savings balance.

On-campus financial institutions definitely rate number one for convenience, but check out the other banks or credit unions in the area before you commit your money to them.

Commercial banks may offer seemingly generous freebies for opening an account with them - but don't let that sway you if you'll end up paying more in fees over the years than the item is worth.

Look for financial institutions that offer student accounts - many of them do. Student savings accounts typically have lower minimum balance requirements, making it easier to keep above the minimum to avoid account maintenance fees.

Student checking accounts typically offer free checking, free ATM/debit card, and free online banking and bill-pay. Free direct deposits can be especially important if your parents plan on sending you money while you're away for college. Some institutions give students a one-time "overdraft forgiveness" in case you overdraw your account.

Banks
The best thing about using a bank is that they typically have a large number of branches - maybe across a multi-state region or even nationwide - which makes it very convenient for someone who travels often and likes to do their banking in person. Also, a large number of branches means that you can probably find a no-fee ATM where ever you are.

Keep in mind that banks are for-profit, and that they make money from your deposits and the fees you pay. They won't make much money on the free and low-cost services they offer to students, but banks offer student services at a lower cost because they hope to win your loyalty for all your financial service needs in the future, like home mortgages, auto loans, and credit cards - the types of services they can actually make money on.

Bank deposits are insured up to $100,000 by the Federal Deposit Insurance Corporation, or the FDIC. All legally operating banks in the U.S. carry this mandatory insurance, and must prominently display a "Member-FDIC" sign on their website and place of business. (The deposit insurance limit is temporarily raised to $250,000 until December 2009 due to the ensuing financial crisis.)

You can rest assured that your money is safe as long as the amount of your deposits doesn't exceed the insurance limit. FDIC insurance covers checking, savings, and money market deposit accounts, as well as Certificates of Deposit (CDs).

You may feel that you don't even need a bank with a convenient location if you choose to bank strictly online. Online banks may or may not have an actual physical location, but they are still safe as long as they are insured by the FDIC.

Be aware that some online banks are based overseas, and are not insured by the FDIC, so it's probably safest to go with a U.S. bank. Also be aware of the possibility of a scam "bank", even if they are located in the U.S. - anyone can set up a website. You can verify the bank's FDIC membership at http://www2.fdic.gov/idasp/main_bankfind.asp.

Credit Unions
Credit unions have certain eligibility requirements to open an account with them, so their account holders are considered members, not customers. It varies by credit union, but the requirements will usually encompass a group of people who work or live in a certain area, go to a specific church, work for a certain employer, or attend a certain school.

On-campus credit unions typically open membership to both students and faculty, so you'll qualify for membership just by attending that college. You may have to do some searching online or in the phone book if you don't have a credit union on-campus; credit unions strive to save money for their members so they rarely do much advertising.

Credit unions generally have low savings account balance requirements, even for non-students, usually from $5 to $25. Free checking is also pretty standard. Also, credit unions are not-for-profit and generally offer lower loan rates and higher deposit rates than commercial banks, since credit unions' reason for existing is to help their members by providing low-cost financial services. Credit unions are usually a better deal than banks, but not always.

I am a fan of credit unions, and I've been a member of one credit union or another since I was in college. Credit unions can often be found on-campus at many state universities and are a great way to manage your finances if you have one available to you.

I've found the service is also more personalized at a credit union than the banks I've done business with. You will be treated the same whether you have $50 or $50,000 in your account.

The main drawback to a credit union is that they will only serve the local area and probably only have branches within a specific county or city. The limited number of branches shouldn't pose a major problem if you deposit your checks before you take a trip and use your debit card during your travels.

On the plus side, even though they may have far fewer branches than a bank, many credit unions are part of a network that allows their members to use network ATMs for free.

All federal credit unions and the vast majority of state-chartered credit unions are members of the National Credit Union Administration, or the NCUA. NCUA insurance is the credit union version of FDIC insurance for banks, the coverage limit is the same for the same types of accounts.

There are only about 500 non-NCUA credit unions in the U.S., but if you want to check the NCUA status of your credit union, go to http://www.ncua.gov/indexdata1.html



Sources:
Federal Deposit Insurance Corporation
National Credit Union Administration
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Monday, 14 October 2019

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