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Level: Basic Finance
Ideal For: Newcomers to Basic Finance & Lower-Income Households
Level of Effort: Low
According to Fortune – about 7% of the US adult population does not have a bank account setup. Not only that, but the same survey looked at “underbanked” households, which have a bank account but still elect to use services like check cashing, money transfers, payday loans, and pawnshops.
Underbanked usage was attributed to 20% of the American population. This means that about 1/4 Americans aren’t properly utilizing bank accounts.
I wanted to create a brief guide that walks through the process for you to set up your first bank account that cost the least money and explains the advantages of having a bank account.
I understand that a majority of people who are setting up their bank accounts are often students. But I’m sure there is also a good amount of people that don’t trust banks and refuse to use them.
It doesn’t matter if you are poor or broke, I hope to fix that…but I won’t get my hopes up.
NOTE: Credit Unions are another option but for the sake of this article, I’ll stick to strictly banks.
Step 1. Search For Local Banks Nearby
If you live in a city or a large town, you probably have heard of major banks such as Chase, Bank of America and Wells Fargo. More often there are referred to as large banks and they do provide a suite of solutions that fit most people.
All of these large banks are able to provide the same service and many locations across the US. There are some other things to think about if you go with a big bank.
- You can avoid fees by using the bank’s ATM across the country
- Wider coverage of customer service
- Less personalization
- Leave yourself open to extra fees if you don’t pay attention to your account (maintenance fees, meeting minimum requirements)
Smaller / Local Banks
Alternatively, you can always choose a smaller bank. Smaller banks usually have coverage in a local region and maybe a couple other states. I am a big fan of smaller banks for my first bank account because they provide more flexibility compared to bigger banks.
- Small banks don’t have as many customers and are able to provide a more personal, friendlier customer experience.
- You get more one-on-one attention and in my experience, they often care more about you and will go out of their way to better educate you on banking.
- They can also be more lenient in regards to fees (like having an overdraft).
- Fees are generally smaller and depending on the bank, you might not have to meet minimum requirements to prevent fees.
Finding a local bank is pretty simple. If you go to Google and type in “local banks near me” or “local banks in [your city]” you’ll see a list of banks in your area that is probably within a 10-minute drive.
Here I typed in “Holland Michigan banks”. Feel free to look at the bank and go to their website.
After looking at some banks in the area. Check out their websites, often they will have a banking section that will talk about fees and pricing. Let’s take a look at Chemical Bank.
When I look at their checking account page, they have a few options to choose from. Notice the middle option requires $0 to open and it doesn’t cost you money to keep your account up every month. It passes the minimum requirements for me to consider that bank.
PROTIP: Both big and small banks offer $0 fee’s if you are a student or were part of the military.
Step 2. Make Sure You Have Proper Identification
Before you head on over to the bank, you need to make sure you have proper documentation. This will help identify you as…you, but all banks require documentation to set up an account under your name. Make sure you have some of the following.
- Government Issued ID or Drivers License – This is always required in just about anything you will do. Your license has to be valid (not expired). If you are under 18 you probably have an ID, that also works.
- Proof of address – This is primarily applicable to those 18 & over, but you need to establish that you have a residency somewhere. Any bill that comes in the mail should be enough for proof of address.
- Proof of US citizenship – Not 100% required, but if you know your social security number, social security card, or have a birth certificate then you are in good shape.
Step 3. Enroll For A Bank Account In-Branch or Online
It’s only until recently that the option to set up your bank account online. They often require similar documentation in which you will need to fax or upload files (pdf files/scans) for validation. It could take hours or days before you are approved.
If it’s your first bank account, I prefer to set up my bank account in-branch as the approval process is much faster.
- You walk to your selective branch
- You can either go up to the teller or someone might be in the lobby and will ask the reason why you are in the bank today.
- Simply tell them that you are here to set up an account and you’ll meet with a financial advisor to get the ball rolling.
- Make sure to bring your documentation so you can get your account started right away.
Step 4. Make Sure To Ask The Right Questions
Banking should be a pain-free experience, you should not pay fees just to use a bank. So if you have done the research, you will already have an idea of the checking or savings account you have in mind. While you talk to your advisor to set up your first bank account, be sure to ask the following questions.
- Can you point me towards the plan that has $0 fees for checking (or savings)?
- What are the fees for an overdraft (you spend more than you have in the bank)?
- Is there a minimum balance for the account? (TIP: NEVER SIGN UP FOR ACCOUNT THAT HAS A FEE IF YOU DON’T MEET THE MINIMUM REQUIREMENT).
- What is the interest rate of my savings account? Is it variable?
- Is there a limit to the number of transactions (deposits/withdrawals, check writing, ATM uses) I have per month?
- Where are the fee-free ATMs located? (Note, most banks have free ATMs if they are from your bank)
The goal here is to understand where fees come from and learn how to avoid them.
Step 5. Using The Banks Features The Right Way
You’ll likely be given an ATM/Debit card to do your day to day transactions. That said, most banks provide some good benefits that will make your day to day much easier.
- You won’t need to carry cash, all of your funds for connecting to your bank account. I recommend having a PIN number that’s easy to remember (and not your birth year) in case it gets stolen.
- You can start paying bills online! No more writing money orders and worrying about paying on time. Your electrical, TV, or even your phone bill, you can set automatic payments to be sent the day the funds are due.
- You can create an online account with your bank and view your spend.
- You can also connect your account to budgeting software like mint to better track spending and create budgets
- PROTIP: You can avoid overdraft fees by calling your bank and asking for overdraft protection to be turned off. This means that if you accidentally spent over the amount that you have in the bank, you won’t pay $30-$50 in fees each time that happens.
- If you are getting paid via checks, you can now go to your employer and request payment via direct deposit. Whenever you get paid, the money will go straight to your account. No more waiting in line to cash your check.
Savings & Checkings Accounts
The overall goal of this article is to start building good financial habits. There are a lot of amazing banking techniques you can take advantage of but that often requires good credit, thousands of dollars in the bank, and patience. When I had my first bank account, I had none of those.
So let’s talk about checking & savings accounts. Most of your day-to-day transactions will take money out of your checking account. I often use my checking account as ‘money that will be spent on bills and day to day’. I don’t count that money as money I actually have.
As for the savings account, these are often free at most banks when you have a checking account. A savings account generally is where you want to stash all of your money that won’t be spent (often extra money you have after bills are paid for).
Savings accounts often have higher interest rates (some banks can be around 1%-1.5%).
- So if you have $1,000 in your savings after a year you get 1% interest back, or $10.
- In the real world, if you are living paycheck to paycheck, putting your money in a savings account and expecting lot’s of interest isn’t worth it.
RELATED: Make more than $10/year in interest, check out how I eliminated over $38K in student loan debt.
When starting out, create a savings account to track your progress of money saved over time and nothing more.
Why People Hate Most Banks
Most (if not all) banks exist to make more money. That’s a fact. Where the general sentiment of annoyance people have towards banks is often because of these reasons.
- High maintenance fees – some banks actually charge money for you to give them your money. If I made $50 in interest over a year, but still paid $60 in bank fees, that’s a net loss.
- Lack of trust in big banks – the whole banking bailout during the great recession didn’t help the reputation of banks as money-hungry entities
- It’s a high-risk to have a bank account if you are a low-income household. Once overdraft could be $30 or $60 you suddenly owe a bank. That could be someone’s food budget for 2 weeks (mine was $20/week many years ago).
If you followed my guide, you should be in a position to avoid all fees and utilize your finances in a way to start growing money the right way.
I hope this guide can help bring clarity for finance newbies. I’ll create more articles that utilize best strategies long-term down the road. If you know someone who doesn’t have a bank account, please share!
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