How To Get Started With Your First Bank Account

Locked in that first job or first apartment? It’s time to start building your financial system with your first bank account.

Checking and savings accounts are the first step to connect with the financial world and secure your money. If your parents opened an account for you when you were young, continuing to use the same bank your parents used may not be the best choice. Finding the right bank for your lifestyle can keep costs low, or zero, while making sure you have the financial tools you need to manage your money.

Here’s how to get started.

Why You Need Checking And Saving Accounts

There are numerous benefits to bank accounts, which is why 93% of American households have one.

The first benefit is that a bank account is a lot more secure than shoving cash under your mattress. Debit cards help protect the money in your account from theft, with many cards that carry a Visa or MasterCard symbol limiting your exposure to fraud. And cash in your account is protected by FDIC insurance. If your bank gets in financial trouble, your deposits are guaranteed up to $250,000 per depositor.

But the most significant benefits come from the connection to the financial system. In many ways, our day-to-day systems assume everyone has a bank account. You can’t transfer money to investment accounts, shop online, make payments with Venmo or PayPal without fees, get a credit card, or easily pay regular bills, like utilities, without a checking account.

In fact, some employers are starting to require paychecks be paid by direct deposit for the additional security. They may even issue expensive prepaid cards if you don’t have a checking account.

While a bank account might seem like a small thing, it gives you access to many other things you’ll need.

Finding The Right No-Fee Bank

When opening your first bank account, consider your options and potential costs. There are many choices, from large national banks to local banks, online banks to fintech banking alternatives. And the fees can be radically different.

Consider whether the bank charges a monthly maintenance fee, whether you’ll regularly need to deposit cash, how often you’ll need paper checks and where you’ll need access to ATMs.

Typically, large banks charge higher fees. Bank of America’s Core Checking Account, for instance, charges $12 per month unless you have a qualifying direct deposit of $250 or more or maintain a daily balance of $1,500 or more. An overdraft costs $35 per transaction.

Many local banks offer no monthly fee checking and savings accounts with free access to their local ATM network. They also offer lower overdraft and other fees than national banks. But if you regularly travel and will need access to ATMs, a bank with a national network may serve your needs better.

Alternatively, if you don’t need to regularly deposit cash, write physical checks or visit your bank location, online banks offer a national free ATM network with zero unnecessary fees. Simple, for instance, has free access to more than 40,000 Allpoint ATMs and has no minimum balance, maintenance fee, overdraft fees, or transfer costs. You can use its free bill pay service for almost any account that would typically require a check.

Local and online banks also generally offer savings accounts with fewer fees, higher interest rates, and a lower required opening deposit to help you build an emergency fund or start saving up for more substantial expenses.

Taking a few minutes to compare banks can save you a lot in fees while making sure you have the services you need from your new bank account.

When To Consider High-Yield Savings Accounts

Whether you’re setting some money aside for an unexpected expense, saving up for that perfect vacation, or preparing to buy a house, a savings account can make it easier to avoid spending the money you’ve tagged for a longer-term goal. But in today’s environment, interest rates offered by most savings accounts aren’t rewarding you for this good financial behavior.

As an example, last August the average interest rate on savings accounts was just 0.8%, with some large banks paying as little as 0.01%. If you put a $1,500 emergency fund in the average account for a year, you’d earn a whopping $1.20, potentially more than offset by monthly fees.

If you’re saving for a large cash purchase or building an emergency fund, the extra interest you could earn at a high-yield savings account might be worth the slight inconvenience of not having your savings account at the same institution as your checking account. These higher rates won’t make you rich, but they can help your savings keep pace with inflation. Otherwise, your savings will actually lose value over time.

Online banks generally pay the highest interest rate for high-yield savings accounts. Ally Bank, for instance, pays 1.85% APY with daily compounding. The same $1,500 saved at Ally would earn $27.75 in interest with no monthly fees.

As you build your cash savings, compare high-yield savings accounts to those offered by traditional banks to get more benefit for your hard work.

Get In The Habit Of Tracking Your Spending

In 2016, the top 10 largest U.S. banks made over $7.5 billion in overdraft fees. An overdraft is when you try to spend more money than is in your account. The bank lets the transaction go through, but charges you a fee, typically $35 per overdraft for large banks.

This is important, especially for those new to banking. Seventy-five percent of all overdraft fees are paid by just 8% of users, according to the CFPB. These individuals tend to be young and don’t keep close track of their spending, overdrafting their accounts an average of 10 times a year. That’s $350 in fees or more, depending on the bank.

The good news is you can avoid these fees. By getting in the habit of tracking your spending and account balance, you’ll know how much you have to spend and keep enough in your account for your significant bills.

Until you’ve developed the habit of tracking your spending and budget, avoid putting recurring bills like your utilities on auto-pay. While auto-pay guarantees you won’t have a late payment, it prevents you from checking that the money is in your account before you pay. And sometimes, that means getting hit with an overdraft charge.

What’s the best way to get started budgeting? Mint and Wally are two popular free budgeting apps that automatically import your transactions from your bank account or credit cards. Alternatively, YNAB, or You Need A Budget, is a paid budgeting service. But it’s worth the fee if you’re serious about saving money, getting out of debt, or breaking the paycheck-to-paycheck cycle.

Learning to track your spending now can help you avoid bank fees and give you a leg up in reaching bigger financial goals in the future.

Making the Most of Your First Bank Account

Once you’ve chosen your first bank and applied for an account, make your opening deposit. You’ll receive a debit or ATM card in the mail and can set up your PIN number and access your account online. Then, arrange direct deposit from your payroll or government benefit provider with your account and routing numbers. (Note: often, the easiest way to qualify for no fee banking without maintaining a high account balance,  is to authorize direct deposit of your paycheck as part of opening the account.) As you start using your new account, review the bank’s fees (so you can avoid them) and find your local in-network ATMs.

With your new account, you have what you need to keep money safe and connect with the broader financial world. Just remember to stay in control by avoiding impulse spending, monitoring how much is in your account, and starting to build your savings.