Saving money has become a hot trend these days. Banks offer a great way for consumers to save and protect their money now. However, in order to successfully maximize your return, you must first understand the fine print. Find out exactly how the banks work and ways to avoid some of the most common banking mistakes.
When it comes to banking, there are some important rules to understand. Every American needs somewhere to put their money. Although grandparents may have kept it at home, in today’s world there is no need to do the same. Today’s market allows for great savings vehicles and although the savings rate is not what it used to be, it still brings in some return on investment.
- Banks and safety. For years banks have had insurance for individual accounts of up to $100,000. Due to the recession, the federal government upped that to $250,000 per account. Although after January 1st of 2010 the insurance will return to the lower number, it is still a great way to protect your savings.
- Bank fees. Remember that every service costs and that includes the service of holding your money. Banks pay lower rates on interest-bearing accounts than brokerages or mutual fund companies, but may take out hefty fees. In particular many people get caught in the “minimum required balance on deposit” trap. This is where a bank charges a fee if a balance falls below a certain predetermined level. These fees can easily add up to hundreds of dollars in a year. Be sure to understand your bank’s rules so you can avoid fees as much as possible.
- Understand interest rate at your bank. Not all banks calculate interest the same way. You want to ask your banker about each accounts’ “annual percentage yield.” Banks normally quote both interest rates and APYs, but only APYs are calculated the same way everywhere. Interest rates can vary greatly.
- Try other savings vehicles. If you don’t have the need for quick cash, try using CDs, or Certificates of Deposit, for your money. These are accounts that offer you better interest rates than just plain savings accounts. The catch here, though, is that you have to agree to leave your money untouched in the account for a specific period of time. That time can vary from 3 to 48 months. If you think you’ll need cash soon, opt for a lower lifespan for the account. On the other hand, if you won’t need the money, then take advantage of the typically higher interest rate on longer life spanning accounts.
- Watch ATM fees. ATMs are one of the most convenient advances of the decade. They are everywhere and allow you to take out money at a moment’s notice. The problem, however, is that they also charge you fees each time you enter your PIN. On average, the fee your bank charges to use another institution’s ATM is $1.50 according to BankRate.com. On top of that, you also will get hit by a fee to use the ATM and that can range anywhere from $2 to $5.
Banking in 2010
Using a bank is a great way to grow your money and protect it. Like with any contract, though, there is fine print. Be sure to understand your bank’s rules and regulations so that you are maximizing your return. You want your money to be safe, insured and in a prime position for growth.