Banking Basics

Choose the right bank or credit union for your needs.

Before you get a checkbook, ATM card, or set up a direct deposit account, you must choose a bank or credit union. Every transaction takes place at the institution you choose. That’s why selecting the right institution for your personal situation is essential.

It’s an important decision and KOFE will help you make it.

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Before we get started, take this quick quiz to see how much you know about the basics of budgeting. It will help gauge the amount of time you’ll need to take on this section.

Choosing a bank or credit union

Where you keep your money sets the groundwork for how you do your banking. Finding the right bank or credit union is simple: ask yourself a series of questions. The institution that offers the best answers is probably the one for you.

For example: Does the institution offer convenient locations? Are the representatives friendly and knowledgeable? Will its products and services limit your ability to save and invest?

Other questions you should find answers to include:

• What are the interest rates?
• What types of fees do they charge – checking fees, overdraft charges?
• Do they have ATM machines in convenient locations?
• What types of investment products do they offer?
• Is their online banking system simple and efficient?

Your decision should come down to what bank or credit union, best fits your needs. It’s your money, so choose wisely.

The difference between banks and credit unions

Banks and credit unions are alike in many ways but do have some differences. Because credit unions are non-profit organizations, they give back to their members in the form of better interest rates and products. Banks look to their bottom line to satisfy their investors. Banks have branches all over the country and credit unions have branches in their service areas.

Services offered by financial institutions

The services offered by both institutions are virtually the same. They provide checking and savings accounts, but they go beyond just the basics. Services include:

Money Market Accounts: A money market account is nearly the same as a checking account, but it offers higher interest rates. If you have a large amount of money and don’t want it sitting in a low-interest checking account, check out this alternative. Find an institution that doesn’t charge monthly fees. Ask about other fees, check writing privileges and money transfer options. There may also be a minimum balance requirement.

Electronic banking: This is simply banking through your computer, ATM machines and your phone. Some banks are even replacing tellers with machines at their branches. All you need is the bank’s ATM or debit card and you can do your full banking through this machine.

Savings bonds: These bonds are affordable, safe and simple. Bond amounts vary depending on the type you choose. Ask your financial institutions about the bonds they offer. You can usually buy a bond for as little as $25. They also offer tax benefits. They are exempt from state and local taxes, and all federal taxes may be deferred until the bond is cashed out.

Individual retirement accounts (IRA): An IRA is a smart tool for retirement savings. There are two types: a Traditional IRA and a Roth. You put money toward these accounts and that money is placed in investment vehicles such as mutual funds and bonds. You choose the investments.

he major difference between the two IRA’s is that Traditional IRA’s require you pay taxes on the money you withdraw. If you take money out before you reach the age of 59 ½, you will also be charged a 10 % penalty.

With a Roth IRA, the money is invested after taxes are already taken out. You won’t pay taxes on the money you earn through your investments and if you withdraw money after age 59 ½ – it’s tax free.

Certificate of Deposit (CD): There are no fees associated with a CD, and their interest rates are usually higher than checking or savings accounts. But you can’t withdraw money from the CD until it expires. Expiration dates vary. If you do withdraw money, you’ll get penalized.

Services vary at institutions, so you must carefully investigate what they offer.

Balancing a checkbook

When you get your checkbook, you will also receive a register. The register is where you record all your transactions each day. Don’t wait for your monthly statements and then record your transactions. That leads to costly errors.

The register usually contains six columns. They include:

1. Number: The check number.
2. Date: The date the transaction occurred.
3. Description of transaction: The company, person or place of business you wrote the check to or made an ATM withdraw or used a debit card.
4. Debit: The exact amount of the check, withdrawal or debit payment.
5. Credit: The column where you record all deposits in the account, including paychecks, gifts, or money you transferred from another account.
6. Balance: The total amount in your account. You calculate your balance after every withdrawal and deposit. This way you know exactly how much money is in your account.

Some people track their finances using mobile apps or online check books; some use the paper register. You can use a free KOFE worksheet and easily track your finances.

Whatever tracking mode you choose doesn’t matter. What matters is that you always record your transactions. If you don’t, the consequences are usually bounced checks. Financial institutions frown upon bounced checks and charge heavy penalty fees for each one.

One other important tip: use a calculator when managing your checkbook. Unless you enjoy doing the math yourself, it’s convenient, quick and usually foolproof – unless you enter the wrong amount. If you’re careful and diligent, tracking your finances becomes a daily part of your life.