Banking has been part of the public since the financial revolution came around. However, some common banking mistakes stop the account holders from earning more interest. Here are five common banking mistakes you might not realize you are making that may prevent you from earning more interest.
Common Banking Mistakes
1. Only Using a Checking Account
One of the common banking mistakes is only using a checking account.
Having a separate savings account is important to avoid spending money meant for emergencies or big purchases.
Most checking accounts do not pay interest or offer very low rates compared to savings accounts. According to the FDIC, the best savings accounts currently pay over 4%, while the national average rates as of May 2024 are 0.08% for interest checking accounts and 0.46% for savings accounts.
But how do you know where to keep money to avoid common banking mistakes? Track your living expenses for a month. Keep enough in your checking account to cover a few months’ expenses and a buffer.
2. Accessibility of Savings Account
One of the other common banking mistakes is keeping your savings too accessible or inaccessible. If you frequently use your savings, consider moving them to a bank different from your checking account.
On the other hand, if your savings are too hard to access, like being locked in a certificate of deposit (CD) or savings bond, you might struggle to get cash quickly in an emergency.
3. Not Keeping a Track of Your Accounts
To earn more interest, one of the common banking mistakes to avoid is not keeping track of your accounts. For instance, forgetting when a CD matures can lead to automatic renewal, locking up your funds again. Keep a list of your accounts and set calendar reminders for key dates.
Also, inactive accounts can incur dormancy fees or even be closed by the bank after a few years. You might have unclaimed cash if you have forgotten about an old account. To find it, do an online search and be ready to provide identification to reclaim your money.
4. Sticking with Fee Charging Accounts
Another way of avoiding common banking mistakes is to pay fees for your account. You do not need to stick with accounts that charge fees. Many free accounts, including high-rate savings accounts, are available. Many checking accounts are also reducing or eliminating overdraft fees.
Some free accounts have no minimum balance requirements, so you will not be penalized with monthly fees for not maintaining a certain amount.
5. Not Exploring Available Local or Online Options
Sticking with a big national bank might be convenient, but you could miss out on better options. Not-for-profit credit unions often offer higher interest rates. For example, a $10,000 share certificate (similar to a certificate of deposit) at a credit union averages 2.85% APY for three years, compared to 2% at banks, according to March 2024 data.
Online banks, being branchless, save on overhead costs and pass those savings to customers through higher interest rates. They often offer some of the best yields on many CD terms.
Avoiding common banking mistakes can greatly benefit your financial health. Separate your savings from spending money to prevent overspending, keep savings accessible for emergencies, track your accounts to avoid fees, and explore all banking options to ensure you get the best rates.
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