Questions & answers about bank accounts

This backgrounder answers many questions about checking and savings accounts in much greater detail than the companion brochure. Written in Q&A format, the guide includes in-depth information on more than a dozen banking topics, from selecting a bank account, using an ATM and understanding overdraft protection to overcoming barriers to getting an account and how to use online and mobile banking services.

Questions & answers about bank accounts

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Bank accounts and financial health

Why are policymakers concerned about people who do not have bank accounts?

Almost one-third of the population is unbanked or underbanked. People who are not connected to the mainstream banking system must find alternatives to help them cash checks, make payments and borrow money—and it is these “alternative financial services” that concern many policymakers. For example, people without bank accounts must cash their paychecks at check cashing outlets and receive the proceeds in cash. Check cashing outlets charge a percentage of the amount of the check, which can be costly. Cash can’t be replaced if it’s stolen or lost. Without a savings account, consumers don’t earn interest, which would help their savings grow.

In recent years, prepaid cards and payroll cards have become an alternative to bank accounts for many people. However, some prepaid cards are more costly than bank accounts, so it’s helpful for consumers to understand how to choose low-cost prepaid cards and avoid some of the common fees that add to the cost of these cards. (See “Alternative financial services” section.)

Why do some people choose not to use banks?

Many people stay away from the banking system because of fear of the unknown or past problems with financial institutions. Immigrants, for instance, might fear the banking system because of its unfamiliarity, or the fact that banks in their homelands were agents of corrupt regimes. Low-income people might worry that they will “bounce” a check or overdraw their account and incur multiple fees, which can be $25 or more each. Consumers who have made banking mistakes in the past—such as not repaying checks they bounced or abandoning an account with a negative balance—may be “blacklisted” because they are listed in a database used by banks to screen potential customers. (See “Barriers to banking” section.) And some immigrants may lack the forms of identification required to open a new account, while cultural or language barriers may discourage others from developing a relationship with a financial institution.

Why is it a good thing to have a checking account?

A checking account can help you in many ways. Your money is safe in a checking or savings account. The Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) insure bank and credit union deposits up to $250,000 per account. (See “Deposit insurance” section.)

With a checking account, you can deposit or cash checks. You can use “direct deposit” for your paycheck or benefits, giving you timely access to your money. You can wire money to other people’s accounts (sometimes there is a fee) and have money wired to your account by others. More and more banks also offer “person to person” payments to help you pay people you owe money to, such as babysitters, landlords or friends you split the dinner tab with.

A checking account allows you to write checks or use a debit card to access money you deposit.

A checking account allows you to pay bills with checks or online. You also can provide your bank account and routing numbers to companies you trust to have them “auto debit” your account to pay your bills. (You can specify when the payments will be taken from your bank account.)

A checking account can help you track your spending and provide a record of payments. Many banks now offer free programs to help you monitor your spending and set budget goals.

What are some reasons to have a savings account?

A savings account provides a safe place to keep your money, typically providing insurance on your deposits up to $250,000.

It can be easier to save if you have a savings account, and the money you deposit in a savings account can grow by earning interest. While interest rates on savings accounts can be very low, it’s better to have your money working for you in a safe place instead of just sitting at home, where it could be stolen or lost in a fire or other disaster.

You can “transfer” money automatically from your checking account to your savings account if they are linked. (See “Savings accounts” section.) Once your savings grow, you might want to ask your financial institution about “certificates of deposit” (CDs) to help you earn more interest on money you will not need to withdraw for several months or years.

How can newcomers become comfortable with the U.S. banking system?

According to a report titled “Financial Literacy for Newcomers", published by the Lutheran Immigration and Refugee Service, access to accurate and timely financial information soon after arrival helps to get newcomers comfortable with beneficial banking products and services. Practical instruction (online or in person) that familiarizes immigrants with online banking, ATMs, how to write a check and other routine banking tasks is also important. An understanding of alternative identification documents that are accepted by financial institutions when opening an account will also empower them.

Financial institutions

What is a bank?

A bank is a company that allows people to deposit their money in checking and savings accounts to keep it safe and to earn interest (if applicable). Banks often provide other financial services, such as debit, credit and prepaid cards; loans and mortgages; and investments. Banks can be national or state-chartered, which means they are regulated at the federal or state level. Nationally chartered banks, as well as those that belong to the Federal Reserve System, must have FDIC insurance. Most states require FDIC insurance for the banks they charter.

What is a credit union?

Credit unions are member-owned institutions that accept deposits and make loans—just like banks. Credit union membership is typically based on your employment, community or membership in an association or organization. They can be regulated by states or by the federal government. All credit unions focus on providing a safe place to save and borrow at reasonable rates.

Credit unions often benefit low-income members with financial services at reasonable rates in locations that are underserved by banks. Credit unions pay their members in the form of dividends (a portion of the credit union’s earnings), which is the credit union version of a bank’s interest payments.

All federal credit unions are regulated by the National Credit Union Administration (NCUA) and backed by the full faith and credit of the United States government up to $250,000 per account through the National Credit Union Share Insurance Fund (NCUSIF). State-chartered credit unions are insured by the NCUSIF or by their own state insurance or private insurance. (Click here for a list of state credit union regulators.)

How do I open a checking or savings account?

Most financial institutions require two pieces of ID, one with a picture on it. If you are a non-citizen opening only a (non-interest bearing) checking account, the financial institution might accept a consular ID card or non-U.S. passport instead of a U.S. government-issued ID. If you are a U.S. citizen or have U.S. residency documents (“green card”), you'll also need a Social Security number. If you are not a citizen, you’ll need an Individual Taxpayer Identification Number (ITIN) if you want to open an interest-bearing (i.e., savings) account. Visit the IRS online to get Form W-7 (Application for IRS Individual Taxpayer Identification Number) or call 800-829-3676. In some cases, if an ITIN is needed, the financial institution may help you apply for one.

If one bank or credit union is not satisfied with your items of identification, try another one—different financial institutions have different requirements. Note that it is against the law for the IRS to share information with other federal agencies, including immigration and homeland security authorities.

You must have some money to open an account. Some banks and credit unions require an initial deposit of only $1—others ask for $50, $100 or $500. You can use cash or a check to open an account.

If you have had past banking problems (for example, you have abandoned an account with a negative balance), you may have a record with an account verification service such as ChexSystems. Banks and credit unions check these records when deciding whether to open a new account. A ChexSystems report, or a report with a similar service, can make it difficult to open an account. Read the section on “Barriers to banking” in this manual for information about your rights and account options.

Selecting bank accounts

What’s the best way to select a bank or credit union?

There are literally thousands of banks in the U.S., which can make it a challenge to choose one. Many people select a bank simply because they see a branch near their home or office. This is not a bad strategy, because it means the bank will be convenient for banking and getting cash when you need it. Large national banks with thousands of branches are attractive because you can avoid using out-of-network ATMs, which costs money.

But in today’s world, a bank doesn’t have to be in your back yard. Many banks offer most of their services online—either through a computer browser or a mobile app (software application). Many such banks (and credit unions) offer “ATM rebates”—reimbursement of out-of-network ATM fees. Typically these rebates are limited to a certain number per month.

Often, credit union membership is available to you through your workplace, community or place of worship. If so, you can opt to set up your account at that institution.

One way to start your search for a bank or credit union is to ask family members and friends where they bank. Another way is to use one of the websites that compare bank and credit union accounts, such as, or, to name just a few. When you’ve narrowed the field, vis

For more information

Helpful resources

America Saves
America Saves is a nationwide campaign to help individuals and families save and build wealth. Through the program, nonprofit, corporate and government groups offer information, advice and encouragement for individuals who want to pay down debt and save for the future.

The Consumer Financial Protection Bureau (CFPB)
The Consumer Financial Protection Bureau is an agency of the federal government charged with, among other things, empowering consumers to take more control over their economic lives. The CFPB accepts consumer complaints on a wide range of financial products and services, including bank accounts.

Military Saves
Military Saves, a part of America Saves and a partner in the Department of Defense’s Financial Readiness Campaign, is a campaign to motivate, support and encourage military families to save money and build wealth.

Privacy Rights Clearinghouse: Banking and Finance
The Privacy Rights Clearinghouse is a national non-profit consumer education and advocacy organization dedicated to protecting the privacy of American consumers.

Help With My Bank
Help With My Bank is a website featuring answers to frequently asked questions about banking. It is a project of the Office of the Comptroller of the Currency, a federal banking regulator and agency of the U.S. Treasury Department.

Federal Trade Commission: ID Theft
The Federal Trade Commission is a federal government agency charged with educating consumers and protecting them from scams and consumer-unfriendly business practices. Financial Privacy is the official Web portal of the federal government.

Published / Reviewed Date

Published: January 29, 2014

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Questions & answers about bank accounts
File Name: Rose_banking_LG.pdf
File Size: 0.44MB



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