Many people give banks or other financial institutions more money than they should and lose hundreds or even thousands of dollars every year by paying high fees, ignoring savings opportunities or simply refusing to make changes
A good bank or bank account enables customers not to overthink since it provides services and rates without costing too much. Personal financial management is a crucial skill that some people have acquired when it comes to banking practices. Mistakes happen from time to time, however, you can avoid them and improve your personal finances, if you can identify common personal banking errors and the reasons why they are made.
Here are five common banking mistakes you may be making without realising it.
1. Only using a chequing account
You should maintain a savings account if you have a chequing account. It is important to keep these accounts separate to avoid accidentally spending money you intended to save for emergencies or major expenses.
Current accounts often do not pay interest rates. Those accounts that offer interest usually give significantly lower rates than free savings accounts. Oftentimes, they require complicated conditions to be able to receive high annual interest rates. The best savings accounts currently pay around 3% interest rate. Current accounts are not for everyday transactions, so you can hold your money in these accounts for a longer period to earn interest.
According to a weekly bank survey of CNBC on 1 February, the national average interest rate for savings accounts is 0.23% annual percentage yield (APY). Some online banks' savings interest rates are higher than the national average.
2. Balancing accessibility and security for savings funds
Since you access your savings frequently, you should always consider keeping your savings account at a different bank than in your current account. You may not be able to access your money because of the need to do an extra step and allocate time to make an external transfer from your savings account.
A customer may have difficulty accessing the account in case of emergency if it’s a savings bond or certificate of deposit, a type of account with a fixed interest rate or term.
Having multiple accounts reduces confusion and eliminates temptation. If all of your money is readily available whenever you check your chequing account, there is a higher probability that you will be tempted to spend it.
Failure to monitor bank deposits regularly can miss opportunities to earn higher interest rates
3. Account monitoring negligence
Bank accounts are not one of those things that are suitable for setting and forgetting. Keep a list of your accounts so that you can determine what to do with your money. You should also set calendar reminders for any timely accounts.
According to a Lexington Law report, 36% of Americans say they examine their bank account every day, while 30% say they do so once a week. There are several reasons to monitor your financial activities, especially if you're worried about minimising fees or preventing fraud. If you haven't made any transactions with your account in a year, some banks will impose a dormancy fee. Additionally, if your account has not been used for a few years, a bank may close it.
Adopting sound financial habits involves regularly evaluating the best ways and places to allocate your funds
4. Paying account fees
Don’t need to stick with an account that charges fees. Plenty of free accounts are available, including savings accounts that offer competitive rates. Some free accounts don’t have minimum balance requirements, unlike other accounts that penalise you if you fall below the maintaining balance. Online banks are a quick and easy source of free banking, as they rarely have minimum requirements or monthly service fees.
5. Neglecting local and online resources
Not-for-profit institutions and credit unions generally offer higher interest rates on accounts. A big, national bank might be what you’re used to, but you could be missing out by not taking advantage of credit unions in your area or online options available to everyone. Get share certificates, the credit union term for certificates of deposit. The average APY of credit unions is 1.32% for a three-year certificate while banks pay an average of 0.95 % for the same term, as of September 2022.
Being branchless enables online banks to pass on savings in overhead costs to consumers in the form of higher interest rates. Online financial organisations such as banks or credit unions have offered some of the best rates on a variety of CD maturities to customers