Personal Finance- Banking

Upon reaching your 18th birthday, one of your first actions should be to open bank account(s) (unless you already have minor or custodian accounts which will fall under your control the day you turn 18). You will find a bank account essential for several purposes- writing checks or transferring funds to pay bills, depositing paychecks, safely storing your savings and withdrawing cash when needed, and establishing a financial history in your own name prior to applying for credit. The so-called "Big 4" banks (the huge, 4 largest banks)- namely Bank of America, Citibank, Wells Fargo, and Chase- are usually the most convenient ones to establish accounts, given the easy access to these banks, ATM machines, online banking, etc. throughout the country. However, since these banks have minimum balance requirements often as high as $300 for even basic accounts, with monthly service fees assessed if ever your balance falls under this amount, if your savings are less than this you may be better off starting off at a credit union or other smaller bank with lower minimum balance requirements. You may have noticed that I omitted what was traditionally a strong motivation for opening bank accounts- namely, interest payments. In response to the recent "Great Recession", the Fed opted to lower the interest rates to barely above zero, and hold them there for an extended period. Thus, banks nowadays pay us a ridiculously low interest rate of 0.01% to 0.1% (not a typo), even though they still make at least 4% interest on home loans and over 15% on credit card interest charges. The interest we are paid is surely more than eaten up by the cost of gas to drive to the nearest bank or even corner ATM machine. Thus, for the past 6 years interest has practically vanished as a benefit to holding bank accounts. The other benefits to opening personal accounts still apply, however. Traditionally, however, it has been advisable to maintain a checking account with funds to which you may need immediate access, and perhaps a combination of savings account and/or investment CD's to provide significant income from interest. CD's offer the highest return, as compensation for agreeing to not touch the CD account prior to the maturity date, or face stiff penalties (typically the entire amount of the interest paid) for withdrawing early; use of CD's and high-interest savings accounts should be adequate to provide returns slightly higher than the inflation rate, thus preventing inflation from eating away at your savings.. All of the above-described accounts are considered low-risk, low-return investments. The Big 4 banks (or any other bank you use) should protect your accounts up to $250,000 per person per account type through the FDIC, meaning that if the bank fails the government will reimburse your money, up to $250,000. You should see a sign in the bank itself advertising this fact; if not, the bank should be avoided. If your assets exceed $250,000, you should spread out your funds amongst multiple banks and/or account types, or perhaps in a money market fund or other investment in an investment account (to be discussed later). Many banks do offer a high-risk, high-return investment option. They will offer to invest your savings (if sufficiently high in amount, usually several thousand dollars or more) in mutual fund accounts- basically, in the stock market(s). These accounts are not FDIC insured, and may lose value; they will tend to fluctuate with the stock market. There is, for example, a 529 fund which will invest money to be used for your kids' education, with the idea that the stock markets should appreciate substantially by the time any current kids reach college age. While on average the return will be higher from such an investment, there is a strong element of gambling involved; you need to decide whether you are willing to risk losing money to potentially reap the benefits from such speculative investments. The bank, by the way, takes a percentage of this investment, even if they lose money for you.