5 banking mistakes to avoid

Sometimes the mark of a good bank or bank account is that you don’t have to think too much about it: it works the way you need it to and provides the services and fees you want without costing you much, if anything. But it is a financially healthy practice to periodically evaluate where and how you keep your funds. Here are five common banking mistakes you may not realize you’re making.

1. Use only one checking account

If you have a checking account, you should also have a savings account. It’s important to keep those funds separate so you don’t inadvertently spend funds you’re trying to save for emergencies or larger purchases, which is easy to do when all your cash is pooled together.

Additionally, most checking accounts do not pay interest. Those that do typically offer much lower rates than the best free savings accounts or require jumping through hoops to earn a good annual percentage return. The best savings accounts pay more than 4% right now. Compare that to national average rates as of May 2024 (0.08% APY for interest-bearing checking accounts and 0.46% APY for savings accounts), according to the Federal Deposit Insurance Corporation.

Not sure how much to save and where? Have a better idea of How much cash to keep in your checking account versus your savings account by tracking your living expenses for a month. Ideally, you should keep enough to cover a couple of months’ expenses plus a little reserve in your checking account, and try to maintain savings for three to six months’ expenses.

2. Keeping your savings too accessible or too inaccessible

If you use your savings frequently, consider transferring those funds to a different bank than your checking account. The additional step and time of having to make an external transfer from your savings account to access the cash can prevent you from taking advantage of your savings.

On the other hand, if it is very difficult to access your savings (locked in a certificate of deposit (which is a type of savings account that has a fixed rate and term) or a savings bond, for example), you may find yourself in a difficult situation. difficult point if a emergency that requires cash arises.

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3. Not keeping track of your accounts

Some things are good candidates for set and forget, but bank accounts are not one of them. For example, if you open a CD and don’t remember when it expires, your funds will be locked in for another period because many CDs renew automatically after the initial period ends. It’s a good idea to keep a list of your accounts and set calendar reminders for appropriate accounts so you can decide what to do with your money.

Or have you ever opened an account and then… just left it like that? Some banks charge an inactivity fee if you haven’t made any transactions with your account in a year. And a bank can close your account if it has been dormant for a few years.

If opening an account you no longer use sounds vaguely familiar, you may have cash to claim. TO check if you have unclaimed propertyincluding cash in a forgotten bank account, you will need to do an online search and be ready to provide identification to recover lost cash.

4. Pay fees on your own

You don’t need to be stuck with an account that charges fees. There are many free accounts available, including savings accounts that offer competitive rates. And more and more checking accounts minimize or eliminate overdraft fees.

Some free accounts also have no minimum balance requirements, so you don’t have to pay a monthly fee for an account that penalizes you for not having a certain amount of money.

5. Not taking advantage of local or online options

You may be used to a large national bank, but you could be missing out by not taking advantage of the credit unions in your area or the online options available to everyone.

As nonprofit institutions, credit unions generally offer higher interest rates on accounts. Take stock certificates, the credit union term for certificates of deposit. For a $10,000 certificate, credit unions pay on average significantly more than the national average rate at banks for terms ranging from three months to five years, according to the latest data from the National Credit Union Administration. Credit unions averaged 2.85% APY for a three-year certificate, while banks paid an average of 2% for the same term, as of March 2024.

And as branchless institutions, online banks can pass on overall cost savings to customers in the form of higher interest rates. Since they appeared on the scene, online financial institutions (whether banks or credit unions) have offered some of the Higher returns on many CD terms.

Making sure you don’t make any of these banking mistakes can take just a few minutes per task, and the payoff for your financial fitness is great. Separate your savings from spending money and you can avoid overspending. Plus, keep your savings accessible enough that you’ll be able to use the money when you need it. Keep track of your accounts and you can avoid fees. And consider all your banking options, not just the ones you’ve always chosen, to make sure you get the best rates.