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Important Update: Changes in FDIC Deposit Insurance Coverage

The FDIC deposit insurance rules have undergone a series of changes starting in the fall of 2008. As a result, certain previously published information related to FDIC insurance coverage may not reflect the current rules. For details about the changes, visit Changes in FDIC Deposit Insurance Coverage. For more information about FDIC insurance, go to www.fdic.gov/deposit/deposits/index.html or call toll-free 1-877-ASK-FDIC (1-877-275-3342). For the hearing-impaired, the number is 1-800-925-4618.

Summer 2005

A Shopper's Guide to Bank Products and Services

Checking Accounts: Finding the Right Balance

Most banks offer several types of checking accounts whose features and costs can vary widely. How can you know which bank and which checking account may be best for you?

Start by determining how you plan to use your checking account. Your goal should be to find the right mix of features at the right costs, preferably without a monthly maintenance fee.

Questions to Ask About a Checking Account

What are the fees? The Truth in Savings Act requires institutions to disclose fees before you open a deposit account. If there is a monthly fee, ask about ways to reduce or eliminate it, such as by having your paycheck or Social Security check directly deposited to your account or by maintaining a minimum balance. Also ask about other fees, such as for using ATMs or overdrawing your account. As you shop around, consider only the fees you expect to incur and don't worry about the rest.

Is there a minimum balance requirement? What is the penalty for going below the minimum? You may be able to meet the requirement or reduce the penalty if you have other accounts at the same bank or if you use direct deposit.

Will the account earn interest? If so, how much and what factors can raise or reduce the interest rate? Some checking accounts pay interest, others don't. "Even if the account pays an attractive interest rate you should consider the fees and other factors so you can determine whether the overall deal is best for you," said Howard Herman, an FDIC Consumer Affairs Specialist.

If I overdraw my account, what are my options for avoiding fees for insufficient funds? Example: Banks offer overdraft lines of credit, which work like a loan. Keep in mind that these programs typically come with their own costs. Of course, the best way to avoid overdrawing your account is to keep your checkbook up-to-date by recording all transactions and regularly balancing your account.

Will the bank and the account be convenient for me? If you make frequent visits to the bank or to ATMs, their locations (and the fees paid for ATM withdrawals) may be the most important consideration in deciding where to open a checking account.

Will you be writing a lot of checks each month? If so, you'll want an account that doesn't impose fees based on the number of checks you write.

Are you interested in paying bills over the Internet instead of writing and mailing checks? Make sure online banking services are provided and ask about the costs.

Do you expect to make a lot of automated teller machine (ATM) withdrawals? Consider a bank with conveniently located ATMs and free withdrawals from its own machines. (Depending on the bank and the account, your bank may charge a fee for using another bank's ATM—in addition to the fee the other institution may impose.)

Review the potential costs for other services you expect to use and compare one bank's accounts with a few others. That's easy to do because the federal Truth in Savings Act requires banks to provide a written disclosure of their fees before an account is opened.

Also remember that just because an account is advertised as "free" or "no cost" it doesn't mean you'll never run up a charge. Under Federal Reserve Board rules, an institution can't advertise a "free" checking account if you could be charged a maintenance or activity fee (such as for going below a required minimum balance). But your bank can offer a free account and still impose charges for certain services, such as check printing, ATM use or overdrafts.

Howard Herman, an FDIC Consumer Affairs Specialist, added that while it's important to consider an account's costs and limitations those may not always be the deciding factors. "For some people, the convenience of doing all their banking in one place may be enough to outweigh the costs or minimum balance requirements," he said. "These are personal decisions that only you can make."

Of course, you're probably not planning to overdraw your checking account, but mistakes do happen. For example, some people accidentally overdraw their checking account when using a debit card for a purchase or making an ATM withdrawal for more than the balance in their account. For each bounced check there may be a bank fee of about $25 to $35 plus charges from merchants. A bounced check that is not repaid in a timely fashion also may become part of your record and you may have difficulties opening a new checking account or getting a merchant to accept your checks.

You should consider the costs of overdrafts and your options for avoiding problems. An interagency brochure, entitled Protecting Yourself from Overdraft and Bounced-Check Fees, provides helpful guidance (www.federalreserve.gov/pubs/bounce/default.htm).

To learn more about what to look for when choosing and using a checking account, see Checks and Balances: New Rules, New Strategies for Bank Customers in the 21st Century, a special report in the Summer 2004 FDIC Consumer News at www.fdic.gov/consumers/consumer/news/cnsum04/index.html.

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Last Updated 5/17/2005