Banking 101 Guide: Tips and Terms to Know Before Opening Your First Account (2024)

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It’s time to open a new bank account. Perhaps you’re getting your first job after years as a college student who didn’t have much use for a bank. Or perhaps your parents set up an account for you as a teen, and now it’s time to graduate to a grown-up bank account.

If you’reopening a bank account for the first time, you have a lot to learn. Banking has its own vocabulary, and you must learn the language. You also need to know how bank accounts work, and which type is right for you.

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Banking Terms You Should Know

Annual Percentage Yield:Annual percentage yield directly affects how much you get paid by the bank for depositing money. The APY is the amount of interest the bank pays on your deposit account each year.

Automated Teller Machine:An ATM processes banking transactions. These include accepting deposits, dispensing money, transferring funds between accounts and providing information on account balances. ATMs also accept payments on loans.

Automatic Bill Payment:Automatic bill payment allows customers to authorize a recurring payment to a specific business, such as a cable provider, each month. This checkless system is set up through Automated Clearing House, an electronic network for financial transactions.

Available Balance:The available balance is the amount of money in your account that can be accessed for immediate use. The available balance takes into account any holds or restrictions against the account.

Bank:So,what is a bank?Often, it is a brick-and-mortar building that houses a financial entity designed to hold and lend money, and to transmit funds. Some banks exist only online, and others have both an online and a physical presence. Some banks also sell and trade securities.

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Bank Statement:A recurring report of a customer’s account activity. This report covers a certain period of time —typically one month —and includes all deposits, withdrawals and recurring payments made in that time period.

Beneficiary:The person an account holder selects to receive the benefits or funds of a will, trust, insurance policy, retirement plan, annuity or bank account. The beneficiary receives the funds upon the account holder’s death.

Billing Cycle:The period of time between bank statements. Billing cycles are usually on a monthly basis.

Canceled Check:This is a check that already has been paid, charged to the account and endorsed. Canceled checks no longer are negotiable.

Cashier’s Check:An account holder pays for a cashier’s check from funds in his account. The cashier’s check then is drawn on the funds of the bank. Checkrecipientssometimes request a cashier’s check because the recipients are assured the funds areavailable and that the check will not bounce.

Credit Union:As opposed to commercial banks —which operate with the primary goal of turning a profit —acredit unionis a not-for-profit institution. It’s operated by its members or people hired by the members. However, in many ways, the function of a credit union is identical to that of a bank in that it holds and lends money, transmits funds and might provide investment services.

5 Things to Consider When Choosing a Bank Account

When shopping for a bank account, there are five key factors to consider.

1. Interest Rate or Return

The interest rate, or “rate of return,”represents the rate of interest — expressed as a percentage — that a bank or credit union pays on the money you deposit. With products such as certificates of deposit, the longer you agree to keep your money on deposit, the better the rate of interest.

2. Convenience

Choosing a bank that offers a variety of ways to access funds and deposit money gives you more flexibility. For example, a bank that offers mobile-banking services oronline banking might be helpful for people who don’t have time to drive to an actual branch to make deposits.

The number of available ATM machines is another convenience factor to consider. Big banks likeWells Fargo, which has 13,000 ATMs across the country, offer ample accessibility to customers. Such convenience is an important factor to consider when choosing a bank, especially because it’s likely to save you from fees that you otherwise might incur for using an out-of-network ATM.

3. Customer Service

Around-the-clock customer support is an important customer service feature.Banks such as TD Bank and many others offer 24/7 customer service to account holders.

4. Bank Fees

Typically, brick-and-mortar banks have some kind of fee structure. If you don’t need your bank to have a physical presence, online banks might be the way to go. Online banks can help you avoid fees for not maintaining a minimum balance, using out-of-network ATMs and more.

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5. Other Banking Services

For basic banking products such aschecking accounts, consider a bank that pays interest on your money. Online banks like Ally Bank pay interest on accounts withoutrequiringyou tomaintaina minimum balance.

Choosing the Right Type of Bank Account for Your Needs

Yourchecking accountis usually the vehicle for all ATM, debit card and automatic payments. At some banks, adding asavings account might help to keep monthly fees to a minimum. In the current environment, you are unlikely to find a savings account that pays a high-interest rate. Still, a savings account can be a good place to keep an emergency fund.

As you accumulate wealth, consider speaking with a trusted financial advisor about investing for a better return. An easy, risk-free way to build wealth is to limit your debt and to pay the lowestloan interest rate possible.

How do banks make money? One key way is by charging higher loan interest. Shopping around to get a lower rate helps you build your own wealth — instead of increasing the bank’s wealth.

How to Open Your First Bank Account

Once you choose a bank, it’s time to fill out an application. Depending on your bank, you can apply online or in person.

Information banks typically require include:

Name
Address
Birthday
One form of government-issued ID, such as a passport or driver’s license

If you want to complete the application in person, find out what types of ID the bank accepts before going in. If you fill out the application online, you might be required to fax, email or mail certain pieces of information.

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How to Open a Checking Account

Fill out an application at the bank of your choice, either online or in person. Submit the required forms of ID needed to open the checking account.

Required forms of ID might include any combination of:

A driver’s license
State ID
Social Security card
Passport

If you are opening an account online, you might have to print, sign and mail certain documents before the account is activated.Depending on the type of bank account you get, you might be required to make a minimum deposit immediately.

Once your paperwork is processed —which could take a few days or weeks —the bank likely will mail you a welcome package. The package might include some complimentary checks, a debit card, and a PIN you can change either by phone or in person.

Related: 15 Checking Account Promotions Available Today

How to Open a Savings Account

Fill out an application at the bank of your choice, either online or in person. Submit the required forms of ID, which are likely to be similar to those needed when opening a checking account.

Submit yourdebit card or checking account information for funding your new savings account. Choose how or when you will fund your account —some banks might allow you to fund the account at a later date.

Choose whether you need or want a debit card for the new account. Read and review the terms and conditions before signing the agreement and submitting the application for approval.

Keep Reading:11 Best Savings Account Promotions Available Now

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