Managing your finances requires a solid understanding of common banking errors. Learn how to avoid mistakes such as using only a checking account, keeping your savings too accessible or too inaccessible, failing to keep track of your accounts, paying unnecessary fees, and not taking advantage of local or online options. With these tips, you can maximize your finances and achieve your financial goals.
Summary
- It is important to have both a checking and a savings account to manage finances and avoid spending money intended for emergencies or larger purchases.
- Checking accounts often do not offer interest or have lower rates compared to the best free savings accounts.
- Finding the right balance between accessibility and inaccessibility of savings is important to ensure access to funds when needed while protecting savings from impulsive spending.
- Failing to keep track of bank accounts can have serious consequences, such as locked-up funds due to automatic renewal or account closure due to dormancy.
- There is no need to pay fees for bank accounts when free options exist with competitive interest rates and minimal/eliminated overdraft fees.
- Exploring local credit unions and online banking options can lead to better interest rates and other benefits, such as higher rates on accounts like share certificates
Maximizing Your Finances: Tips for Avoiding Common Banking Errors
An indicator of a quality bank or account is its ability to operate seamlessly and provide desired services and rates at a minimal cost. However, it’s important to review where and how you manage your funds for your financial well-being. Here are five frequent banking errors that may go unnoticed.
The Importance of Having Both Checking and Savings Accounts
It’s crucial to have both a checking and a savings account to manage your finances. By keeping your funds separate, you avoid spending money intended for emergencies or larger purchases. Additionally, most checking accounts do not offer interest, and the ones that do have lower rates compared to the best free savings accounts. The best savings accounts currently offer around 3% interest, whereas the average interest for checking accounts is only 0.04% according to the Federal Deposit Insurance Corp. To determine how much money to keep in each account, track your expenses for a month. It’s recommended to keep enough funds in your checking account to cover two months’ expenses and a bit of buffer and aim to keep three to six months’ worth of expenses in savings.
MORE: Understanding Checking Accounts: Types, Features, and Fees
Finding the Right Balance: Accessibility vs Inaccessibility of Savings
Keeping your savings too accessible or too inaccessible can both have negative consequences for your financial well-being. It’s important to find a balance that works for you.
If you find yourself frequently using your savings, it might be a good idea to move those funds to a different bank than your checking account. This added step of having to make an external transfer can serve as a deterrent, preventing you from tapping into your savings. By keeping your savings at a separate institution, you are creating a physical and mental barrier between your savings and your spending money, making it harder to access your savings impulsively.
On the other hand, if your savings are too hard to access – for example, locked up in a certificate of deposit or savings bond, it can be difficult to access funds in case of an emergency. It’s important to consider how easily you can access your savings and make sure that you can access your funds when you need them. It’s also important to evaluate the pros and cons of different types of savings accounts and find the one that works best for you.
In summary, finding the right balance between accessibility and inaccessibility of your savings is important to ensure that you have access to your funds when you need them, while also protecting your savings from impulsive spending.
Keeping Track of Your Accounts: Avoiding Dormancy and Automatic Renewal
Failing to keep track of your bank accounts can have serious consequences. For example, if you open a CD and forget when it matures, your funds may be locked up for another term due to automatic renewal. To avoid this, maintain a list of your accounts and set calendar reminders for any time-sensitive accounts. Additionally, some banks charge fees for account dormancy and may even close accounts that have been inactive for a long time. To see if you have any unclaimed cash in forgotten accounts, do an online search and be prepared to provide identification to reclaim the funds.
Saving Money on Fees: Choosing Free Accounts with Competitive Interest Rates
There is no need to pay fees for your bank account when free options exist. Consider switching to a free savings account that offers competitive interest rates, or a checking account that minimizes or eliminates overdraft fees. Furthermore, many free accounts do not have minimum balance requirements, so you won’t be penalized for not having a certain amount of money in the account.
MORE: How to Avoid Overdraft Fees: Tips and Options for Overdraft Protection
Exploring Local and Online Options: Finding Better Interest Rates and Benefits
By not exploring local credit unions and online banking options, you may be missing out on better interest rates and other benefits. Credit unions, as non-profit institutions, often offer higher rates on accounts such as share certificates (similar to certificates of deposit at traditional banks). Additionally, online banks, which do not have physical branches, can pass savings on overhead costs to customers in the form of higher interest rates on CDs and other accounts. It’s worth taking a few minutes to research all of your banking options to ensure you’re getting the best rates and terms. Additionally, separating your savings and spending money, keeping your savings accessible, tracking your accounts, and considering all your banking options can help you avoid fees and improve your overall financial fitness.
MORE: How Low-Interest Rates and High Inflation Impact Your Savings
Conclusion
It is important to manage your finances by having both a checking and a savings account, finding the right balance between accessibility and inaccessibility of savings, keeping track of your bank accounts, avoiding unnecessary account fees, and exploring local credit unions and online banking options for better interest rates and other benefits. By following these tips, you can ensure your financial well-being and make the most of your money.
Questions Answered in this Article
Q: What is the importance of having both a checking and savings account? A: It is crucial to have both a checking and a savings account to manage your finances. By keeping your funds separate, you avoid spending money intended for emergencies or larger purchases. Additionally, most checking accounts do not offer interest, and the ones that do have lower rates compared to the best free savings accounts.
Q: How to find the right balance between accessibility and inaccessibility of savings? A: Finding the right balance between accessibility and inaccessibility of your savings is important to ensure that you have access to your funds when you need them, while also protecting your savings from impulsive spending. To find the right balance, it might be a good idea to move the savings to a different bank than the checking account.
Q: What are the consequences of failing to keep track of bank accounts? A: Failing to keep track of your bank accounts can have serious consequences. For example, if you open a CD and forget when it matures, your funds may be locked up for another term due to automatic renewal. Banks also charge fees for account dormancy and may even close accounts that have been inactive for a long period of time.
Q: Is there any need to pay fees for a bank account? A: There is no need to pay fees for your bank account when free options exist. Consider switching to a free savings account that offers competitive interest rates, or a checking account that minimizes or eliminates overdraft fees.
Q: What are the benefits of exploring local credit unions and online banking options? A: By exploring local credit unions and online banking options, you may be able to access better interest rates and other benefits. Credit unions, as non-profit institutions, often offer higher rates on accounts such as share certificates (similar to certificates of deposit at traditional banks). Additionally, online banks, which do not have physical branches, can pass savings on overhead costs to customers in the form of higher interest rates.
