Banking tips for beginners -learn how to use your bank

Using bank services is something very simple, as everybody does that. And yet, there are ways of doing it well (and optimizing benefits), and doing it poorly (and in worst case scenario – end up in debt). Below you’ll find basic tips for beginners.

Opening bank account

Bank account is most basic banking product. When choosing one, consider cost and benefits according to your needs. Are you going to mainly use saving account, or checking account?

If saving account, interest rate may one the most important factor, even if there is monthly maintenance fee. It’s best to chose from banks offering the highest APY (annual percentage yield – check our list of bank abbreviations ). You can consider the following: Evergreen Bank Group, CFG Bank, Upgrade, EverBank or RBMAX.

If checking account, it’s worth to look for no-fee checking accounts (for example: Alliant Credit Union High-Rate Checking, Capital One 360 Checking®, Discover® Cashback Debit Checking).

Consider online banks, they often offer competitive rates and lower fees (may lack physical branches). Few possible choices are: Ally Bank, Bank5 Connect, Discover Bank, Quontic Bank, or Synchrony Bank.

Of course conditions to change, so check current fees and interests before making any decision.

Using Credit Cards

Credit cards offer convenience, but they should be used responsibly. Most people have little understanding of how credit cards really work. To give just a few examples, most people don't realize that:

Defaulting on just one credit card can affect all of your credit lines at all of your banks. They may consider you a risky customer profile and raise your rates for future transactions or cancel your credit agreement.

Your fixed rate is not really fixed. Interest rate you pay (APR – annual percentage rate), can be variable or fixed. Yet fixed doesn’t mean it doesn’t change. It only means it’s not directly bound to certain benchmark, like variable rate, so it won’t change in direct correlation with it. Credit card issuer still has the right to change your rate at any time (after initial year). They just have to give you 45 days notice.

You will pay compound interest. You must have heard of “magic of compound interest” or “power of compound interest”, and how great it is for building wealth, and for passive investing. Credit card is the opposite of that. Compound interest here works against you, you’ll be paying interest from interest.

After the grace period is off, credit card company will add interest each day. And each day when calculating interest, will also include interest from previous day as a base for calculations. This is like a snowball rolling downhill, getting bigger and bigger the longer you wait.

Financial Security

There are simple things you can do to increase your financial condition. Consider these:

Build financial cushion: Aim to accumulate savings for at least 6 months. If you’re just starting, set this as your most important goal. This is a base for your financial security.

Automate Savings: Set up automatic transfers from your checking to your savings account. After some time you wont be even thinking about it, but you’ll be building your financial security.

Consider 50/30/20 Rule: A popular method to allocate income: 50% for needs (rent, groceries), 30% for wants (entertainment), and 20% for savings/debt repayment.

Consider budgeting: Plan your spendings in advance, splitting them into categories. To make it easier, consider using budgeting app.

Beware of Fraud: Never share your PIN or account information. Monitor your bank statements regularly for suspicious activity.

Free Credit Report: Everyone in the US is entitled to a free credit report annually from each of the three major credit bureaus. It contains information about your credit health. Check for errors that could impact your credit score once a year.