You have to make a lot of financial decisions in your life. How much money should you deposit in your 401(k) plan every two weeks? Should you apply for a rewards credit card or a traditional one? Should you sink your dollars into a traditional IRA or a Roth IRA?

With so many big decisions to make, you might give little thought to your checking account. That, though, can be a mistake. Bank checking accounts are rarely alike. Make the wrong decision, and choose a checking account that doesn’t mesh with your spending habits, and you could end up paying big fees each month.

So that is far from a financially sound move.

Here’s what you should look at before opening a checking account.

Your Spending Habits

Do you want dozens of checks each month? Do you have the bad habit of bouncing checks on a fairly regular basis? Do you frequently find yourself withdrawing money from ATMs that aren’t connected to your financial institution?

These can all factor into which checking account makes the most financial sense for you.

For instance, if you write many checks, you’ll want to apply for a checking account that allows you to write an unlimited number of them each month. Some checking accounts allow you to write a limited number of checks per month. You’ll then pay a fee for every check you write over that limit. If you use checks to buy your groceries, pay your bills and fill up your gas tank, you could end up paying big each month if you do not take out an unlimited checking account.

What about bouncing checks? You’ll pay a big fee from your financial institution every time you bounce a check. If you are habitual bouncer, you might consider taking out a checking account with overdraft protection. If you write a check at your local department store for $200, but only have $150 in your account, your financial institution will cover the difference, allowing you to complete your purchase.

Of course, overdraft protection is not free. You’ll have to pay for the service. However, you’ll pay much more in overdraft fees.

You can also lose a lot of money each month if you are frequently withdrawing money from out-of-network ATMs. You can solve this problem by taking out a checking account with a bank that boasts a large network of ATMs. If that is not feasible, you might find a bank that covers any out-of-network ATM fees that you incur.

Finally, some checking accounts charge a monthly maintenance fee. Avoid these. There are plenty of free checking account options out there. There’s no reason to pay for one.
Interest

One of the factors that should have little impact on your decision, though, is earning interest. Yes, it is nice to earn interest on the money in your checking account. However, if you use your checking account to pay your bills, the odds are that you will not have all that much money sitting in it at any one time. If that is the case, you will not earn much interest on a relatively low balance. Generally speaking, checking accounts do not perform well as savings vehicles. You would be better off opening a savings account and keeping funds that are in excess of your transaction needs in that account.

When you are deciding on a checking account, then, take a far closer look at the fees you might have to pay. Those are far more important than earning interest.

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Finding the Right Checking Account for You

View Resource Finding the Right Checking Account for You
You need to borrow money to pay for your children’s college education. Alternatively, maybe you want to pay down your high-interest credit card debt or add a master bedroom addition to the top floor of your home. One way to do so is to tap into the equity you’ve built up in your home. Building up equity is one of the most important benefits of owning a home. As you pay off your mortgage, you gradually build equity. Simply put, equity is the amount of your home that you actually own. For example, if you have a house worth $200,000 and you owe $150,000 on your mortgage, you have equity of $50,000. You can access that equity in one of two ways, through a home equity loan or a home equity line of credit. Home equity loan A home equity loan is a second mortgage. When you apply for a home equity loan, you’ll receive a single lump sum. You then pay that sum back over a set period of years. The size of your home equity loan will be limited, of course, by the amount of equity you have in your home. The interest rate attached to a home equity loan remains constant throughout the life of the loan. Home equity line of credit Consumers often confuse home equity lines of credit — better known as HELOCs — with home equity loans. However, a HELOC works more like a credit card than a mortgage loan. With a HELOC, you’ll receive a set credit limit. You only pay back the amount of money that you borrow, plus interest. For instance, if you have a HELOC with a credit limit of $50,000 and you borrow $10,000 from it, you’ll only have to pay back that $10,000. You’ll still have $40,000 worth of credit available to you after you’ve borrowed the $10,000. The interest rate on a HELOC is usually tied to the prime rate. Often, the rate will be 1 percent over prime. Which is better? So, which product is better? Not surprisingly, that depends on the individual borrower and the individual situation. Many economists say that a home equity loan is better suited to borrowers who need funds for a specific purchase, such as college tuition or a major kitchen remodel. Since a home equity loan features a fixed interest rate, such a product might be better for those borrowers uncomfortable with uncertainty. A home equity line of credit, though, provides more flexibility. Homeowners do not have to tap into their credit unless they need it. Because of this, many homeowners use a HELOC as an emergency fund, quick cash in the case of an emergency. A HELOC might be the right choice, too, for borrowers taking on a multi-year renovation project. These borrowers can then tap their HELOC whenever they need to write a check to move the project toward completion. The key is to do your research before choosing either a HELOC or home equity loan. Only by studying your spending habits and needs will you be able to make the right equity decision.

Home Equity Loans vs Lines of Credit

View Resource Home Equity Loans vs Lines of Credit
Your credit reports are important documents. They list your open credit-card accounts, loan balances and financial missteps. Reviewing these reports on a regular basis is a smart financial decision. After all, the information contained in these reports is the same information that banks and lenders use when determining whether you qualify for loans and at what interest rates. If you’re wondering why your application for a mortgage loan was rejected or why you only qualify for credit cards with sky-high interest rates, the answers might lie in your three credit reports. Fortunately, you can access your credit reports on an annual basis. AnnualCreditReport.com Three credit bureaus compile credit reports on you, TransUnion, Experian and Equifax. The reports kept by each of these credit bureaus might vary, so it’s a smart idea to review all three reports at least once every year. The good news is that under federal law you are entitled to one free copy of each of your three credit reports once a year. You can access these free copies at the Web site, www.annualcreditreport.com. If you want to review your credit reports more than once a year, you’ll have to pay each of the credit bureaus for your extra copies, usually at a price around $9.99 for each report. Reading the report Once you have your credit reports, it’s time to read them. The reports will let you know exactly why lenders consider you either a good or bad lending risk. Each of your credit reports will start out with basic information about you. This basic identifying information will include your name, Social Security number, previous and current addresses, date of birth, phone numbers, employer’s name and spouse’s name. Make sure that this information is correct. Next comes a more critical part of the reports, your credit history. This section of the report lists open lines of credit and loans in your name. If you have a mortgage, it will be listed on the report. So will credit-card accounts, car loans and student loans. This section will also include the amounts of money that you owe, whether to your mortgage lender or your credit-card companies, how much credit is available to you and how well you’ve managed your loans and credit. This last part is important: Your credit report will list whether you often make your payments two weeks late. It will also list whether you’ve missed payments completely. These financial mistakes will lower your three-digit credit score. Again, if you find information in this section of your report that seems incorrect, make sure to make a note of it. Fixing these mistakes with the credit bureaus can boost your credit score. Next comes the public records section of your credit report. Ideally, this part of your report is blank because it lists such negative financial judgments as bankruptcies and foreclosures. These negative judgments can damage your credit score even more severely than will late or missed payments. The final section of the credit report is the inquiries section. This is a list of everyone who has asked to see your credit report. For instance, if you call TransUnion and ask for a copy of your report, it will show up in the inquiries section. If your local credit union asks for your report before agreeing to provide you with a car loan, that inquiry will be in the report, too. Errors It’s important to quickly correct any errors that you discover in your credit reports. Remember, the information on your credit report is used to compile your three-digit credit score. And if this score is low, banks and lenders either won’t lend you money or they’ll do so only while charging you higher interest rates. If you remove errors from your reports — maybe you closed that open credit-card account three years ago or maybe you never did miss that car payment listed as delinquent four months ago — it will have a positive impact on your score. To remove an error, though, you must correct it in writing and send that information directly to the offending credit bureau. You can’t remove errors through e-mail or through a phone call. A credit report might seem like an intimidating document. But once you understand its parts, this report actually provides you with a good roadmap of how lenders and banks see you.

Understanding Your Credit Report

View Resource Understanding Your Credit Report
It’s tempting when you pay so many of your bills online to skip on balancing your paper checkbook. After all, balancing the checkbook is no one’s idea of a good time. And with electronic banking now so popular, it’s easy for most consumers to quickly check their balances online. This doesn’t mean, though, that it’s still not important to balance your checkbook on a regular basis. Yes, you can check your balances online if you’re a fan of electronic banking. But what if you’ve forgotten about that $350 car payment and your financing company hasn’t cashed the check yet? You might mistakenly think you have more money in your account than you really have. That can lead to financial disaster: bounced checks and the fees that come with them. Don’t fear, though. Balancing your checkbook isn’t as bad a task as it seems. In fact, with some basic bookkeeping abilities, you can quickly and accurately balance your checkbook to make sure that you never accidentally drain your funds. Be a good record keeper Balancing your checkbook all starts with keeping good records. This means that you must keep track of every time you use your debit card to fill up your gas tank, write a check to your mortgage company or withdraw $20 in spending money from the local ATM. As soon as you return home after making these purchases, writing these checks or withdrawing that cash, write down the amounts you’ve removed from your checking account in your checkbook’s paper ledger. And write down these amounts exactly, down to the last cent. You need to know exactly how much money is in your checkbook if you hope to balance it. Ask for your bank statement Before balancing your checkbook, you’ll need access to your most recent bank statement. This could be simple if your bank offers online checking. Simply log onto your bank’s Web site, type in your user name and password and call up your current account balance. The odds are your bank will list your current balance and your most recent statements. If you don’t have access to electronic banking, you’ll either have to stop in or call your bank to request your most recent bank statement. Your bank might also send you your account statements on a regular basis, usually once a month. You can use that statement, but only if it’s not more than a few days old. If it’s too old, there will be too many transactions that aren’t listed on the statement. What’s cleared? Next, you need to check your checkbook ledger to determine which of your payments haven’t yet cleared. For instance, if you mailed a check to your daughter’s preschool for $500 and the school hasn’t yet cashed it, you’ll need to note this when balancing your checkbook. Your account might have $4,000 in it. But you’ll need to subtract that $500 preschool payment from this balance to have an accurate record of where you stand financially. You’ll need to do the same if you’ve made deposits to your checking account that haven’t yet cleared. For instance, a client may have sent you $500 through PayPal. Deposits made through PayPal usually take up to three business days to actually get into your checking account. When balancing your checkbook, make sure to account for these deposits, too. Remember, you don’t have to be an accountant to balance your checkbook. You just need to be willing to take a small amount of time on a regular basis — once a week or once a month, perhaps — to track what you’ve spent and what you’ve earned.

Balancing a Checking Account

View Resource Balancing a Checking Account
Whether you are applying for a mortgage, car or personal loan, your lender will want to know one number: your three-digit credit score. This number has become perhaps the most important for anyone seeking a loan. There’s a reason for this: Your three-digit credit score tells lenders exactly what kind of a borrower you’ve been. Have you been a sloppy user, one who pays bills late or misses payments on a regular basis? Your credit score will show it. Have you been a responsible borrower, one who’s never paid a credit card bill late or missed a car loan payment? Your credit score will show that, too. Before applying for any loan, then, it is important to understand the basics of your credit score and what it means. Scoring Most lenders today rely on the FICO credit-scoring system. This three-digit score ranges from a low of 350 to a high of 850. If you want to borrow money, and you want to borrow it at the lowest possible rate, you’ll need a score closer to the higher end than the lower. What does your FICO score include? According to myFICO.com, your credit score is based on your payment history, or how often you miss payments or pay your bills late. The amount of debt you owe, the length of your credit history and the types of credit that you use will also impact your credit score. The most important of these factors is your payment history, which FICO says accounts for 35 percent of your credit score. Coming in a close second is the amount of debt you owe, which accounts for 30 percent of your score. The lesson here? If you want an excellent credit score, you need to pay your bills on time, never miss a payment and pay down as much of your credit card debt as possible. Of course, other factors will negatively impact your credit score. If you lose a home to foreclosure, you can expect your score to drop by 100 or more points. That foreclosure will remain on your credit report for seven years. If you declare bankruptcy, your score will again fall by 100 or more points. Depending on the type of bankruptcy that you file, this filing will remain on your credit report for seven to 10 years. What lenders want Though it varies by lender, most lenders reserve their lowest interest rates for those borrowers whose FICO credit score is 740 or higher. That is considered an excellent score by most lenders. If your credit score falls below 640, though, you might struggle to obtain a conventional mortgage loan. That is because lenders worry that borrowers with such low scores are more likely to miss payments and default on their loans. If you want to qualify for today’s lowest interest rates, you’ll need to bring an excellent credit score to the table. If you know you have a low score, it might make more sense to establish a history of paying your bills on time and cutting down on your credit card debt before you borrow again. You will benefit financially when you apply for that next mortgage, car or personal loan.

What Your Credit Score Means

View Resource What Your Credit Score Means
Some financial decisions are harder than others. Should you apply for a 15-year or 30-year fixed-rate mortgage loan? Should you purchase a new car or a used one? Will going back to school in your 40s bring you a high enough salary to offset the high cost of a college education? Some decisions, though, require a bit less analysis. Choosing between a savings account or a money market account is one of these. The reason? Despite the different names, there is little difference between money market and savings accounts. The Accounts You probably know what a savings account is. It is a safe place in which to hold your money. Your bank or credit union will pay you interest on the money in your account — though the interest rate on savings accounts is typically rather low. The Federal Deposit Insurance Corporation or National Credit Union Association insures savings account, up to certain amounts, so that you will not lose your dollars even if your bank or credit union falls into financial ruin. A money market account is a surprisingly similar economic tool. It, like a savings account, is a safe place to store your money. Also, like a savings account, your dollars are protected. There are a few minor differences, however. Money Market Accounts Money market accounts usually require consumers to maintain a higher minimum balance. Money market accounts might also be more flexible, allowing you to write checks — and quickly access the money in your account — against the dollars you’ve deposited in them. The primary benefit of a money market account? They typically pay out higher interest rates on the money you’ve saved. Traditional savings accounts usually require that you maintain a lower minimum balance. Also, savings accounts do not come with any checking options. You cannot write checks against the balance in your bank savings account. Finally, savings accounts pay a lower amount of interest. Does it Matter? The truth, though, is that for most consumers, the difference between savings accounts and money market accounts do not matter too much. The main difference between the two is the higher interest rates that come with a money market account. However, rates on these accounts are still fairly low when compared to other investment vehicles. This means that you’d need to invest a lot of dollars in your money market account to generate an appreciable amount of interest. Who is a good candidate for a money market account? Someone who has a lot of money to deposit and who would prefer the flexibility to write checks against their savings. However, in reality, the decision to go with a traditional savings account or a money market account will not make too much of a difference in your financial health.

Savings vs. Money Market Accounts

View Resource Savings vs. Money Market Accounts
If you have a low credit score and are currently unemployed, you might struggle to qualify for a checking account at your local bank. You might also find that you cannot qualify for any of those credit-card offers that keep filling your mailbox. You do have the option, though if you do not want to carry large amounts of cash with you at all times: prepaid debit and credit cards. These cards, which you load with funds, allow you to make purchases, both online and offline. You can use them, too, to withdraw money from ATMs. However, you need to be careful. Be aware that some prepaid cards come with potentially pricey fees. The Benefits of Prepaid Cards Prepaid cards do not appeal to everyone. However, if you have a limited or weak credit history and you have struggled to hold down a full-time job, such cards might work for you. That is because you will not have to submit to a credit check or a review of your employment history to acquire one. There’s a reason for this: You are directly providing the funds for your prepaid card with your money. Say you deposited $1,000 on a prepaid card. You now have a balance limit of $1,000. You cannot spend more than that, though you can increase your prepaid card’s balance whenever you’d like. Another advantage? These cards are easy to get, and you can qualify for them quickly. In fact, you can usually purchase prepaid cards in minutes online. Once you load the cards with money, you are free to start using them. Most merchants are not shy about accepting prepaid cards. You’ll find that most stores, restaurants, gas stations and supermarkets will accept your prepaid card. You can also use your prepaid cards at ATMs to withdraw quick cash when you need paper money. Finally, if you have a history of running up big credit-card bills or emptying your checking accounts, prepaid cards offer protection. Because your purchasing power is limited to the amount of money on your card, you cannot overspend. Beware of Fees This does not mean, though that prepaid cards are perfect. Many do come with a big drawback: high fees. Some providers of prepaid cards, for instance, will charge you a fee — often as high as $4 — when you use your prepaid card at certain ATMs. Others might charge you a small fee for every transaction you make with your prepaid debit or credit card. These can add up. Other providers of these cards will charge you if you try to withdraw more money than what you currently have in your account. If you do not keep careful track of your spending, you will run the risk of incurring this often costly fee. If you are aware of the fees, though, and you take the steps necessary to avoid them, you might find that prepaid cards are the right option for you. If you use these cards wisely, you might even boost your financial health enough to qualify for traditional credit cards again.

The Benefits of Prepaid Cards

View Resource The Benefits of Prepaid Cards
Looking for a safe place to invest your dollars, an investment vehicle with a guaranteed rate of return? A bank-issued certificate of deposit — usually known as a CD — might be a good choice. Credit unions might also refer to them as certificate accounts. Be aware that CDs, despite their safe nature, are not perfect investment vehicles. You’ll tie up your money for a potentially long time. Also, the rate of return might not be as high as it could be with other investments. Here are some factors to consider before investing in a CD: What They Are Banks and credit unions typically offer CDs or certificate accounts as low-risk investments. However, when you invest in low-risk investments, your rate of return is often lower, and that is often the case with these types of accounts. If you are interested in investing in a CD, you can simply walk into a bank or credit union and deposit your funds into one. You can also purchase a CD through a broker. CDs are typically available covering differing periods of time. One CD might require that you keep your dollars invested for three months. Another might require that you keep them invested for a year or more. If you withdraw your money before this period ends, you’ll face withdrawal penalties. Make sure, then, that you can keep the money you place in a CD for as long as your financial institution requires. When you invest in a CD, you’ll receive a guaranteed interest rate. This rate is usually higher than the rate offered on traditional savings or checking accounts or with money market accounts. However, CDs still offer a relatively low rate of return when compared to investment vehicles such as IRAs. Once your CD reaches its end date — known as maturing — you’ll receive your original deposit back along with the interest that this deposit generated. Remember that interest earned on a CD are taxable income. The Advantages of a CD The main advantage of a CD is the stable nature of the investment. Deposits in a CD are insured, so even if your bank or credit union falls into financial ruin, you will not lose the money you’ve invested. You also know up front the interest rate on your CD. This means that your rate of return is guaranteed. There won’t be any unpleasant surprises — or any surprises at all — once your CD matures. The Disadvantages of a CD CDs, though safe, are not perfect investment vehicles. They do come with some disadvantages. First, you’ll be tying up your investment dollars for a potentially long time, as much as a year or more. You will not be able to access those dollars, whether to spend them or move them into a new investment vehicle, without paying a financial penalty. However, the potentially bigger drawback is that CDs, despite their stable nature, don’t boast exceptionally high rates of return. You will not lose money by investing in a CD, which is part of their appeal. However, you might not make as much money as you could have by investing in the stock market. Only you can determine if a CD is the right choice for you. It comes down to how much risk you are willing to tolerate when investing.

Putting Money in a Certificate of Deposit (CD) Account

View Resource Putting Money in a Certificate of Deposit (CD) Account
Trying to cut down on your credit-card bills? Don’t like to carry around large sums of cash? Then a debit card might be right for you. Debit cards, in fact, have grown in popularity over the years. That is because they are so easy to use. Consider a debit card an easy alternative to writing a check. When you go to your local grocery store, you can take out your debit card and pay the $80 for your groceries. You will not, though, have to pay that money back with interest as you would with a credit card. Instead, the dollars are taken immediately out of whatever bank account is connected to your debit card. In essence, debit cards are like plastic checks, except you will not have to take the time to write a check while you are paying for your groceries, gas, clothing or any other purchase. Usually, you’ll have to enter a PIN, your personal identification number, when you complete a debit transaction. After you swipe your debit card through a reader, you’ll be prompted to enter your PIN before the purchase is complete. This protects you in case your debit card is lost or stolen. Make sure, of course, that your debit card’s PIN is a difficult one for anyone else to guess. Don’t, for example, use your birth date or street address. Cautions Debit cards come with an obvious benefit: If you use them as an alternative to credit cards you will not be running high amounts of credit card debt and the interest that comes with it. Moreover, with a debit card you will not have to carry cash with you that can be lost or stolen. There are, however, some risks with a debit card. First, if you do not carefully track your purchases, you do run the risk of accidentally draining the account connected to your card. That could lead to expensive penalties from your bank. It might also lead to bounced checks, missed payments and late fees. So before you swipe that debit card, make sure you have enough money in your account to pay for your purchases. Also, be sure never to let your account balance get low enough so that a $25 fill-up at the local gas station puts you at risk of emptying your account. You should be careful, too, of thieves. If a criminal should gain access to your debit card — especially one that only requires a signature to complete a purchase — that thief can quickly empty your accounts. Keep an eye on your accounts for any unusual purchases. If you do suspect someone is using your card, immediately call your bank. You can also protect yourself by not using your debit card in particular dangerous places. Security experts, for example, recommend that you only use your card at ATMs located inside banks or other buildings. Thieves can easily connect machines to ATMs located outside that skim your debit card numbers as you swipe your card. What’s especially tricky about these skimming machines is that they often fit over the real card slots at ATMs. This makes them difficult to see, especially for consumers. Gas station fuel pumps are another dangerous area; security experts say. Again, the problem is often skimming. Many gas stations are busy places, with cars driving in and out and people milling about. There may also be little supervision. Because of this, criminals can easily set up a skimming machine on your favorite station’s fuel pumps. Finally, be careful using your debit card to make an online purchase. If someone steals your information online, that thieve could gain instant access to your cash. Instead, rely on your credit cards for online purchases. 

Using a Debit Card

View Resource Using a Debit Card
You know that setting up a household budget is something that you need to do. Doing so can help you prepare for your retirement, pay for your children’s college educations and make sure that you do not run up high-interest-rate credit card debt. Unfortunately, budgeting is also something few people like to do. It takes time and it requires organizational skills. That is something that many of us lack, or at least think we lack. However, here’s the good news: Creating a budget does not have to be difficult. In fact, there are three simple ways to create an accurate budget for your household. Just pick the method that works best for you and commit to it. Bring Out the Envelopes There was a time when the envelope method of budgeting was king. Today, this method feels a bit old-fashioned, what with the proliferation of online budgeting tools available. However, for many households, the envelope system works just fine. Here’s how it works: Set aside a series of empty envelopes and label each of them with a particular expense category. One envelope might read “mortgage payment.” Another might say “groceries,” while still another might say “entertainment.” When you receive your paycheck, put the appropriate amount of money — the money you’ve set aside for each expense in your monthly budget — in the right envelope. If you stick to this method, when each of your bills come due, you should have enough money in the corresponding envelope to pay it. Also, when you want to go to the movies or eat out, you can only do so if there’s enough money left in that “entertainment” envelope. This method has fallen a bit out of favor as more consumers are using their debit and credit cards to pay their bills each month. However, if this method works for you and your family, there’s no reason to abandon it. It is simple and effective, if done properly. Online Budgeting The Internet brings us the late-breaking celebrity news seconds after a star divorces or shows up on the beach 15 pounds too heavy. It lets us waste days Tweeting about what we ate for breakfast. It also gives con artists an easy way to scam people out of their hard-earned dollars. However, the Internet has given us some good things, too, such as online budgeting tools. The Web is now full of these tools, all of which let consumers enter their expenses and revenues to determine quickly where their money is going and whether they’ve breaking their budget. Some of the more popular online budgeting tools include Quicken and Mint. Both are powerful offerings that come with money management tools, financial calendars, calculators, spreadsheets and everything else you need to track your spending and earning each month. Mint and Quicken are just two options. Search the Internet for “online budgeting tools” and see what you find. The only way to find the right online budgeting tool for you and your household is to try out several. You’ll soon discover the online tool with which you feel the most comfortable. Separate Accounts You can use your bank for budgeting, too by opening separate checking or savings accounts for your various expenses. For instance, open a checking account reserved solely for your mortgage. For each paycheck you receive, deposit the right amount of money in that account. Then, each month, your mortgage payment should be ready to go. Do this with your monthly grocery allowance, an entertainment fund, insurance allotment and car payment fund. If done properly, this method works a bit like the envelope method of budgeting. Only with separate accounts, you will not have to worry about storing large amounts of cash in your home. Of course, these are just three of the many budget methods that you can employ. Be creative and experiment. You’ll soon find the budgeting strategy that works best for you. The only wrong method is not budgeting at all. That is a formula for running into debt and scrambling to pay your bills each month.

Popular Budgeting Methods

View Resource Popular Budgeting Methods