Basic Banking

What is a bank? A bank is a business that holds and manages money for people. A bank makes money off the investments they make with account holder’s money. Clients that place their money in a bank are often referred to as account holders. Clients may earn interest from the money in their account(s).

Why is banking your money important? First, depositing money in a bank is safe and secure. All money that is put into a bank or a credit union is insured up to $250,000 per account. Second, banking is a less expensive way to manage your money. While some banks have fees associated with their accounts, these fees are usually much lower than the costs of using a check-cashing or a payday loan service.

What resources are available to help select a bank? 
Beginning in 1994, many banks participated in the establishment of Basic Banking for Massachusetts, a program that offers low fee checking and savings accounts. To learn more about Basic Banking for Massachusetts and to see a list of participating banks, click here.

Looking for a bank?  There are various websites designed to help you find a bank that meets your needs. To help guide your search, try: The Center for Responsible Lending’s Rating Guide for Banks or The Beehive.

What are some problems with being “unbanked?” 
Some people may be concerned with putting their money into a bank – the hours or locations are inconvenient, the institution intimidating or they have had prior problems with banks due to fees or minimum balances. Alternatives to banks, such as payday loans and check-cashing services are often much more expensive than having a bank account. According to the Center for Responsible Lending, people who use payday loans can expect to pay $15 on every $100 borrowed – that’s a 400% Annual Percentage Rate, (APR)! Many people who use payday loans repeatedly wind up paying more in fees than what they have borrowed.

To learn more about payday loan services, click here.

What is a credit union? 
A credit union generally offers services that are identical to a bank, such as issuing a debit card, lending money, and offering checking and savings accounts.  A credit union however, is owned by its members (account holders) and is a not-for-profit institution.  A bank is different from a credit union because a bank is a business with a primary goal of making money.

WHAT KINDS OF SERVICES TO BANKS AND CREDIT UNIONS OFFER?

Checking Account. A bank account that issues checks to the account holder and provides a debit card. The account holder may write checks to make payments for expenses and pay bills. The account holder can also use the debit card to withdraw cash from an ATM and make purchases. For example, a Basic Checking account at a bank may only require $25 to open the account and have a $3 monthly fee.

Savings Account. A bank account that earns interest on the money that is in the account. This account can be connected to a checking account at the same institution. For example, a Basic Savings account at a bank may require only $10 to open the account, have no monthly fee on balances of $10 or more or may pay interest on all balances of $10 or more.

OVERDRAFT PROTECTION AND FEES – WHAT ARE THE BENEFITS AND DRAWBACKS?

Benefits. Banks will offer overdraft protection as a way to protect clients from overdrawing on an account with a check or ATM card. Overdraft protection will prevent a check from bouncing or allow you to make a purchase with your debit card, even if you do not have money in your account to cover the cost of the purchase.

Drawbacks. Each time you overdraw on an account, you will be charged a fee by the bank and these fees can add up very quickly! However, banks and credit unions can no longer automatically charge debit card or ATM overdraft fees. As of July 2010, banks are required to have customers “opt-in” to the overdraft program first. Before agreeing to participate in an overdraft “protection” program from a bank, learn about the other options available that will prevent you from being charged as much as $34 per overdraft. Many banks offer customers a service that will notify them (via email or text message) if their account has dropped below a certain amount. If you are worried about bouncing a check or having your ATM card denied, but don’t want to accrue the fees from overdraft protection, the notification service can be a good alternative. For more information on overdraft fees and opting out, click here.

WHAT OTHER OPTIONS MIGHT BE INCLUDED WITH A BANK OR CREDIT UNION ACCOUNT?

ATM (Automatic Teller Machine). A machine where a person with a debit card can withdraw cash or make deposits of cash or checks.

Debit card. A card that resembles a credit card, but payments come directly from the client’s account. This is different than a credit card, which is paid monthly. Debit cards cannot carry a balance from month to month as a credit card can.

Safe Deposit Box. A space in a secure area within a bank to store valuables and paperwork, such as mortgages or deeds, a car title, birth certificates, passports, or items of personal value.

Loan. An amount of money provided by a bank or credit union to an account holder for a specific purpose that must be paid back, with interest, on a specific schedule. Banks will lend money for major purchases, such as a car or home, or to finance another major project, such as financing a business.  Borrowers repay their loans with interest.