Banking Basics

Checking and savings accounts are the most common bank account that people first open. Opening up a bank account is very easy. In the past, some banks may have required an initial deposit, but more and more banks are allowing you to open up accounts without a minimum deposit. Even if a bank requires an initial deposit, the requirement range from as little as $1 to $100.

Any Monthly Fees?

Certain banks will require you to have a minimum average monthly balance in your accounts to avoid a monthly fee. For example, at the time of this article, Washington Mutual's (WAMU) savings account requires at least an average monthly balance of $300 to avoid a monthly service fee. However, WAMU does offer a free checking account that has no required monthly balance at all.

Sometimes banks offer checking accounts where they charge a monthly fee, no matter how much money is in the account. The key while trying to pick a bank to open up a checking or savings account is to factor in the interest the bank is paying for your money along with any fees associated with the account.

Is My Money Safe?

The federal government insures checking and savings accounts up to $100,000 per depositor per institution through the FDIC. If a bank goes out of business and you have under $100,000, your money will be safe. Banks have gone out of business, abit it is very rare nowadays; leaving those with more than $100,000 at a bank out of their money.

Choosing a Bank Account

Let us compare two ficitious checking accounts to see which account may be better for you.

• Bank #1 - Free checking, $1,000 minimum average monthly balance, Pays 0% interest
• Bank #2 - $5 monthly fee, no required minimum average monthly balance, Pays 3% interest

Suppose you have $1,500 that you would like to keep in a checking account. If you kept the entire $1,500 at Bank #1, at the end of the month, you would have the same amount of $1,500.

If you kept $1,500 at Bank #2, you would have to pay $5 monthly fee leaving you at $1,495. However, since the bank pays 3% interest, you would have earned $45, making the total in your bank account, $1,545.

The purpose of this simple comparison is to show while choosing a bank account, don't factor in whether or not the checking account is 'free'. In our example, even though Bank #1's checking account is advertised as free, by not putting in money at Bank #2, you are giving up $45. This is known as opportunity cost.