Banks or Credit Unions?

Welcome back to my blog Let’s Talk Money. Today I would like to talk about Banks and Credit Unions.  Specifically, about opening a bank account at any of those institutions.  For some people, it’s a way to keep their money safe.  But there might also be some other benefits to having a bank account.

Banks are places to keep your money safe. But that’s not all.

If you don’t want to carry cash with you, having a bank account can help you pay for things without using cash.  Instead, you can use a debit card or a check.  You can save your money in a bank account.  Banks and credit unions also offer credit cards and loans to people who qualify.  Having a bank account could be a cheaper way to cash your paycheck than paying someone else to do it.  And many banks and credit unions offer money transfers, which might be cheaper than at other places, if you have a bank account.

Credit unions offer the same services, — like checking accounts and loans — that banks offer. But to use a particular credit union, you have to be a member of a group that can join it. You might be able to join a credit union based on the community you live in, your church or other place of worship, or where you work.

A checking account is a place where you can keep your money safe, but also take it out and spend it . Money to pay bills or buy groceries would go in your checking account. While money you are saving for an emergency might go in a different kind of account, called a savings account. We will talk about those in just a minute. You can spend money that is in your checking account by writing a check or using a debit card.  You can also get cash from your account at an ATM.  It’s almost always cheaper to use an ATM from your own bank.  If you use another bank’s ATM, they might charge you an extra fee.

As we discussed, a checking account with a debit card can help you buy things without having to carry cash.  Some people like that for safety.  Some people think it’s easier to keep track of what you spend that way.  With a checking account, you also can get cash, pay bills online, and maybe even have a better chance of getting a loan through your bank or credit union.  Of course, that depends on your credit history.  With a checking account, you can deposit your pay check or other checks , probably without paying a fee.  And it might even be easy and cheap to wire money.  While you can do some of these things — like cash checks — at places that are not banks, these services might be less expensive at a bank where you have an account.

A savings account is a separate account where you can put money that you don’t need to spend anytime soon. Keeping money in a savings account might make you less likely to spend it.

You might put money in your savings account to save up for emergencies, or to save for a goal like buying a car. You also might earn a little extra money through interest the bank pays on money in savings accounts. If you need to, you can transfer money from a savings account to a checking account. So, now that you know all about banks and credit unions, and the checking and savings accounts they offer, how do you choose one?

Here is what you should know. Different banks and credit unions charge different fees, so you need to compare a few places. You can go in person to the bank or credit union to ask questions, or you might look online. Try writing down the different fees each one charges for accounts that seem like  might work for you.

Some banks and credit unions charge you to write checks, use a debit card, or have an account. Some do not. Some banks won’t charge you an account fee if you have your paycheck directly deposited. “Direct deposit” means your employer pays your salary directly into your checking account instead of giving you a paper check to cash. Also, each bank or credit union might offer different accounts. If you don’t have a lot of money to put in an account, you might want a checking account that doesn’t require a “minimum balance.” Otherwise, if you have less than the required amount of money, you will have to pay a fee.  You also might want to make sure the bank or credit union has an ATM near you.

After you open a checking account at a bank or credit union, you will probably get a debit card. Sometimes a debit card is free, but sometimes you pay a fee. A debit card is a way to pay for things with money from your checking account.

Debit cards look like credit cards, but do not work the same way. Credit cards use money that you borrow until you pay off your bill. Debit cards use money you already have in your checking account, so you do not increase your debt. You can get cash quickly using your debit card, either by using the card at an ATM to get money from your checking account, or by choosing the option to get “cash back” when you buy something with your debit card at a store. At ATMs and at some stores, you need to use your “pin number” on a key pad to use your debit card. A pin number is one way a bank tries to keep dishonest people from using your debit card, to get your money so you should never share your pin with anyone.

As we’ve already talked about, debit cards use money you already have. Credit cards let you borrow money that you will have to pay back. And if you don’t pay off your credit card bill every month, you will owe extra money in interest. However, buying things with a debit card will not help you build a credit history. A credit card can help you do that, but only if you pay your bills on time.

I want to mention an important thing about credit cards. It is a good idea to use a credit card instead of a debit card is when you shop online.  Your debit card will work online. But if someone steals your debit card number online, that person could empty your bank account. Credit cards are a safer choice when you buy things online because someone who steals your credit card number cannot empty your bank account.

If you try to pay for something with your debit card, but you don’t have enough money in your checking account, your card will be “declined.” You will not be able to buy whatever you were buying.  If you signed up for “overdraft protection” at your bank or credit union, you might be able to buy something anyway. But your bank may charge you a high fee.  Some banks might charge this fee every time you buy something until you put more money into your account. That could cost you a lot of money, by the time you repay your bank for whatever you bough, plus the fee.

To make sure your account does not run out of money, write down each time you write a check, use your debit card, or take cash out of the bank. Subtract what you spend or take out from the money you have in the bank to see how much you have left. Your receipt at the ATM or bank statement may tell you your “balance,” or how much money you have in your account.  Keep in mind though, the bank may not have subtracted your most recent purchases yet.