There are different types of bank accounts with each serving different purpose. Different type of accounts offer different facilities such as quick withdrawal of money, daily limit of withdrawal, higher interest rate compared to other accounts and so on. Selecting a bank account may appear easy, but it is not. A wrong account could mean more expenses and wastage of time.
Few guidelines can help you take the right decision in selecting the bank account that serves the purpose best.
Account that suits your needs
Usually, two most common types of bank accounts are Current account and Savings account.
- Saving Bank Account – A perfect account for short-term saving, this account offers flexible deposit and withdrawal conditions. For such accounts, banks keep a limit on the number of withdrawals that can be made in a specified period. The rate of interest offered on a saving account is nominal, and an individual can keep the track of all the transactions in Passbook.
If you are looking for the flexibility of payment and withdrawal and do not care much about the interest rate, then saving account is perfect for you.
- Current Account – All sorts of businesses, who need liquid fund more frequently, go for the current account. There is only minimum restriction on the withdrawal limit. An individual should only opt for this account if the need to withdraw and deposit the money occurs more than once a day. The holder is allowed to deposit all types of cheques and drafts.
- Packaged Accounts –It is a current account that offers extra services, and charge fees for the same. Extra features offered may include insurance cover, preferential rates on overdrafts and so on.
There are also other types of accounts such as student account. Though not all banks offer every type of account, Saving and Current account are the most commonly used. An individual should decide how frequently he/she needs to withdraw or deposit the funds. Usually salaried professionals go for saving bank account and the businessman prefer current account. Since the packaged accounts come at a cost, therefore, it becomes necessary to identify the monthly payment needs and cash withdrawn every month.
An individual usually has the following monthly transactions:
- Debit Card purchases
- Transferring money
- Cash withdrawals
- Pre-authorized transfers done in the saving accounts
If an individual makes only a few transactions monthly, then paying for the packaged account is not a good idea.
Comparison of Features and Fees
- Fee and Overdraft Costs – Fees charged for different accounts vary from bank to bank. Usually, the fee is higher, if an individual regularly withdraws more than the balance in his/her account. Overdraft facility and the fee charged is another important criterion. A bank that charges a lower fee for the overdraft should be selected.
- Interest Rates – There are banks that pay interest rate on the credit balance. If you have a precise budget every month, and do not spend more than a set limit, then go for the accounts on which banks pay on credit balance. Such account is suitable for someone whose pay is high, but expenses in relation to the pay are low.
However, those with low salary or pay per month should not be concerned about the interest on the credit balance. Instead, they should focus on getting overdraft facility with low interest and fees.
- Incentives – Banks usually offer incentives to the prospective customers for opening an account. Make sure that these incentives are not subjected to multiple terms and conditions. Clarify it with the banks if there are terms and conditions attached with the account opening incentives.
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If you are paying an extra fee for the services that are hardly used, then it is time to reconsider the services offered by the banks.
- Advance Technology – Often, offers such as cash incentives and payback points catch our attention, and we forget to assess how advance is a bank in terms of technology. In the long run, banks that adapt the technological transformation and give their customers ease of banking should be chosen. Almost, all the banks have mobile apps that offer various services such as fund transfer facility, bill payment and so on. However, the user interface of all the banks is not equally advance, and therefore, the one with more up to date technology should be chosen to open the account.
- Take help of comparing sites- There are a number of sites, where different banks and their services can be compared. Before opening a bank account with a particular bank, it is wise to compare the facilities offered by them on different accounts. This should be done in line with the first point (discussed above) where an individual should first decide the type of account that he/she is seeking. Features such as withdrawal limit, interest rate, incentive and ease of mobile banking should be compared.
Do not compare different services offered by the banks on just one website. There are a number of websites for comparison, and each has different criteria (though broadly same) for comparison. While some will thrust more on the fees offered by different banks, others will give more importance to the ease of transaction. Therefore, after setting your criteria, compare the services offered by different banks. A bank with more number of branches and ATM booths should be preferred.
- Switching Bank– In case, you are not happy with the services offered by the bank, you may consider another bank, or other account. A yearly review should be done to make sure, if your bank is offering all the latest facilities as offered by other banks. For instance, if you have shifted to a new home and address has been changed, some banks can do it online for you. They will ask you few details to verify the identity, and in turn, update the new address.
However, there are banks who want the customer to go through a lengthy process of filling a written application. Similarly, if you want to change the type of account within the same bank, different banks follow different procedure. If there are a lot of conditions and string of procedures for every small change, then it is high time to change the bank.
- Go through the ‘Fine Print’ – Before opening any type of account, go through the instructions, terms and conditions that come along with it. For instance, certain types of account restrict the number of debit card payments that can be done, or the number of cheques that one can write. Additionally, there might be certain policies regarding the fund availability and so on.
Those who are in frequent need of funds should not opt for the accounts with certain restrictions on withdrawal facility. However, if you have already opened one, say a saving account, and now, want to convert it into the current account then most of the banks provide this facility. Thereafter, the account will be subjected to new terms and conditions.
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- Free Services – Usually, banks offer various free services to the customers who comply with certain conditions. For instance, if a customer is depositing the pay check directly in the account, then banks offer certain free services. Similarly, customers who go for direct deposits are taken as loyal customers of the bank and hence, showered with freebies. Few banks ask customers to maintain a minimum balance in the account, which earns them certain credits. While opening an account, individual should know the different type of free services offered by the bank, and then open an account accordingly.
- Check Bounce – Usually, the penalty charged is very high when the cheque is bounced. Being alert and making sure that there is enough cash balance in the account is the right thing to do (to err is human). If you are writing a large number of cheques, then get to know your bank policy for setting up an overdraft line of credit that can cover in case the money falls short.
By now, you should have decided the type of account and the bank. But, you are not finished yet. Before opening an account, do clarify these points:
- Make sure, the amount of monthly fee is fixed
- How much the bank will charge you for services that you are using
- Is your bank charging you certain amount of fee only for some specific type of transactions such as the one made at a teller
- What is the monthly transaction limit and how much the bank is charging if transaction is done above that limit
- Fees for overdraft facility charged by the bank.
- Is your bank offering any type of discount