Questions to ask before opening a new brokerage account

US-PDGov

Opening a brokerage account is an important banking decision that affects individual finances and any financial commitment made to the account. Understanding how the account works and where one's individual responsibilities lie in regard to managing the account is necessary. Being properly informed of what brokerage accounts entail is instrumental in the choice to open one. Below are some questions worth considering before opening a new brokerage account.

What types of services are offered?

The types of services offered by brokerage accounts often surpass those of traditional banking. For example, some financial institutions offer spread betting, and full-service brokerage firms typically offer financial planning services as well. In other cases, premium services are only reserved for account holders with higher net worths. An alternative to this is to obtain the advice of a licensed securities professional on a per transaction basis via commission on services rendered.

Are the financial instruments worthwhile?

The range of financial instruments offered by various brokerage houses is staggering. Choosing the right financial institution is therefore, of paramount importance to the future of one's finances. This is because the financial products invested in influence potential yields, capital gains taxes, and opportunity cost. Carefully researching what an individual brokerage firm has to offer in addition to the advantages and disadvantages of a brokerage firm is key to making the right banking decision.

How well are the account assets protected?

Asset protection is something all investors should take seriously because of the potential consequences of not being fully aware of specific investment risks. For instance, assets held within a brokerage account are not necessarily insured, and not all account types are protected from creditors. Different assets and accounts have varying levels of security that investors would do well to understand prior to opening an account, and before engaging in transactions through that account.

Do available accounts suit specific financial goals?

Differing accounts are offered by various brokerage businesses. To illustrate, some brokerage firms offer individual retirement accounts and individual business accounts, but do not necessarily offer exotic financial instruments, whereas other firms make more unique financial products available including simulations such as a currency spread betting trial account, but do not necessarily provide those products through a wide range of accounts.

Which jurisdiction is the best choice?

Jurisdiction is a major factor when opening a new brokerage account. Since each jurisdiction is subject to the laws and regulations governing it, the impact on individual banking is noteworthy. For example, Panamanian corporate brokerage accounts are not taxed in the same way as an individual brokerage account located in the United States. Before opening a brokerage account with a large balance, investigating brokerage account jurisdiction options and advantages is potentially a time worthy pursuit.

5 riskiest places to use your credit card

Most of us assume that swiping a debit or credit card is going to be a secure transaction. While that is true in most cases, there are places that are easy targets for identity thieves. Here are five points of sale that can be easy pickings for the dishonest people of the world.

Non-Bank ATMs

There is no way to say enough bad things about ATMs that are not owned by a bank. The encryption is often less secure than at bank ATMs, free standing ATMs can be more easily hacked, card readers have been attached to the legitimate swipe area, and some of these machines are actually fake. Thieves have been known to place defunct ATMs around large cities then sit back and wait for the card information to flow to them.

Flea Markets

Flea markets are great places to shop, but risky places to use a card. Many of these venders travel from market to market making it hard to resolve any card issues. Very few of them have point of sale terminals, so they make carbon copies of your card. While these vendors may be legitimate, there is a chance that they will lose the copy.

Foreign Hole-in-the-Walls

Credit card issuers report that small shops and quaint restaurants in foreign countries have a high percentage of credit card fraud. Issuers generally write off these fraudulent charges with no consequences to customers, because the merchants can't be located. Why take a chance. Use cash if you go to a shop that may not be on the ''beaten path.''

Public WiFi

Buying online can be risky. That is not to say that you shouldn't shop online. Always check to see if the site has a Better Business Bureau stamp of approval and look for a secured shell logo. It is even better if you are directed to Paypal or another online payment system. That will give you an option to request your money back through a third party.

Shopping online is commonplace today. In the vast majority of cases the transactions are secure when made from you home computer. Problems arise if you use Wi-Fi hotspots or public computers. Even if you are on a secure page, your information can be stolen by a savvy hacker using the same Wi-Fi or who uses a public computer after you.

Many identity thieves count on the complacency that most cad users display in their everyday lives. After all, swiping a card is as automatic as breathing. It is up to you to protect yourself and ensure your financial security at every terminal that you approach.

Citations:

• FTC Identity Theft Resources

Taylor Brown's company, Credit Repair Zoom, teaches you how to repair your credit after identity theft.  He hopes this article will make you think twice before swiping your card under high-risk circumstances.

Banking online: How to protect yourself from fraud and hacking

By Stella Brown

The Internet has simplified our lives. We use it to connect with friends and family, pay our bills, stay up to date on current news, shop and find general information.

Most of us are also using it to keep track of our finances. In fact, a 2011 survey conducted by Nationwide Building Society found that 77 percent of people bank online.

Online banking is much easier than the traditional method of physically going to the bank. Through your bank’s website, you can see a list of your transactions, see how much money is in your savings and checking accounts, transfer money, pay bills and even get a financial report on how your money is being spent. And now, thanks to the popularity of smartphones, you can even deposit checks without having to physically go to the bank.

But being able to access such a private facet of your life through the Internet does make some people nervous about being hacked and having their money stolen by an online predator. Luckily, there are a few things that you can do to ensure that your online banking information and financial security are kept safe and sound.

Create a unique username.

Online banking institutions require you to have a username and password in order to access your account. Most of us make the mistake in becoming comfortable with one or two usernames, and we choose this to be our username on our bank accounts.

Make sure that the username you use for your online banking is different than usernames you use for social media accounts, emails and even other online accounts you have. You should also try and get as creative as possible, but ensure that it’s something you can remember. For example, most people use their first initial and their last name, or their last name and a few numbers. Instead, use an alias that makes sense to only you.

Use a strong password.

Just like our addiction to using easy usernames, we also suffer from the plague of using vague passwords. If your password is weak, you’re making it very easy for hackers to guess. Make sure that your password combines numbers and letters, and use a capital letter and a symbol when possible. The stronger your password, the more difficult it is for someone else to hack.

It’s also a good idea to use a unique password for you online banking than any other account you have, but you need to make sure that it’s something you remember. Whatever you do, do not write your password down and keep it near your computer.

Create strong security questions.

Most online banking institutions require you to have security questions set up so that they can verify your identity. If your bank allows you to choose your own questions, make sure you’re choosing those that only you know. For example, stick to the most recent events as possible that are private to you. The Internet allows everyone to find information on anyone, and choosing a question that can easily be answered by Googling your name will not protect you.

Use fake security answers.

Some financial institutions do not let you choose your own questions, and they have a standard set of questions for you to answer that seem to revolve around an old pet’s name, a grandparent’s name or a city that you lived in—all of which can easily be located by anyone else.

Instead of answering these questions honestly, use fake answers that don’t make sense. If the question asks the model of your first car, say bologna. Hackers will not be able to get these answers from any online profile or public information about you. The only problem is that you’ll need to remember your answers.

Don’t give personal information through email.

Some hackers are creating fake emails that look like they’re coming from your financial institution saying there is an error with your account and they need you to verify it. These emails then ask you to provide a wealth of personal information, such as name, account number, and even your username and password. Your financial institution will never ask you to share this information via email, so make sure that you disregard any emails that look like they come from your bank. If you want to check the validity, you can always visit your bank yourself or even call your nearest branch.

Online banking can make life much easier, but you should always keep yourself protected from hackers by using these four tips.

Prepared by Stella Brown from Authentify, experts in biometric authentication.

Debit card review: Maestro debit card

Image attribution: FreeDigitalPhotos.net; standard royalty free license

Maestro debit card services is a division of MasterCard that is licensed to financial institutions that issue debit cards. These debit services allow clients to make payments from their checking accounts or using pre-paid debit cards. Maestro cards use the MasterCard Maestro transaction network which is a payment system that communicates between merchants and financial institutions to authorize debit transactions. Cards that use Maestro debit card services can be used to make payments at merchant locations that subscribe to the Maestro network. The cards can also access a vast number of ATMs findable using the MasterCard ATM locator.

Interchange fees

The costs charged for allowing Maestro card consumer debit transactions across European Economic Area country borders were limited by a December 2007 ruling by the European Commission per MasterCard’s 2011 Q1 Form 10-Q. However, in 2009 this ruling was bypassed with MasterCard’s compliance with the EU's condition that MasterCard “create efficiencies that outweigh the restriction of competition.” For Maestro debit card transactions this fee is limited to .003 percent of the transaction cost.

Wireless transactions

A unique feature of the Maestro debit card service network is that it includes the Maestro Paypass. This is allows Maestro Debit Card holders to simply tap their Maestro card instead of swiping and entering in a personal identification number. Only merchants with tap technology equipment are able to process debit card transactions in this way. As easy as the wireless tap payment method is for the Maestro card holders, it is limited to 10 pounds sterling and is only functional at merchants with tap technology equipment. This may protect against the wireless theft of account information or funds, but also limits the functionality of the technology.

International use

The Maestro debit card service can be used in numerous countries and primarily serves the United Kingdom and European Economic Union countries including France, Germany and Italy. According to MasterCard, The Maestro debit card is accepted at over 960,000 locations within the U.K. Additionally, MasterCard claims there over 100 countries with Maestro card access in its 2011 Q1 Form 10-Q. This network integration assists with making payments while overseas and limits the need for cash. MasterCard’s quarterly report also claims these types of transactions are also more profitable for them as a corporation.

Prepaid debit cards

In addition to account based debit cards, Maestro cards can also be acquired using a prepaid method. Prepaid Maestro cards do not require a credit check, but do require identification to be purchased; these cards are also re-loadable. According to Maestro card services, Maestro prepaid cards can be used at millions of retail locations worldwide and allow both internet transactions and internet access to card information via the Masestro debit card online services.

Security features

Maestro debit cards issued by HSBC, NatWest and The Royal Bank of Scotland can be registered for a security protection feature called SecureCode. SecureCode protects transactions with an additional secret code. A transaction history is also recorded when transactions are made using these cards. Since debit card transactions are recorded on account statements, the identification of possible fraudulent transactions in real time and via historical records also facilitates the security of using the Maestro card.

A closer look at the "Durbin Amendment" debit card interchange rule

On May 26, 2011 Moneycation posted an entry about the Debit Card Rule. On May 14, 2011 the 'Durbin rule', named after the Senator from Illinois passed the Senate as a provision within the Dodd-Frank Wall Street Reform and Consumer Protection Act according to the Washington Post. It is to be implemented by the Federal Reserve Bank.

An interesting piece of information about this rule is if a bank or credit union has assets under $10 billion, they are exempt from the rule which places restrictions on fees charged during retail debt card transactions. What previously cost merchants 1.5 percent in 'interchange fees' i.e. debit card transaction costs could now only cost .12 cents per transaction

Despite the exemption, the rule was still challenged which raises an eyebrow. Why challenge something if there is an exemption? A closer look at the rule shows the exemption may be unenforceable due to a mandatory choice of transaction networks according to Nerd Wallet. In other words, if there is a choice between an exempt network and a cheaper one, merchants can choose the latter depriving banks or credit unions of transaction fees.

Essentially, if merchants will in fact have a choice of networks, credit unions and banks are concerned they will not earn enough to prevent fraud due to a lack of financing. Since its original approval a delay on the implementation of the Durbin Amendment has been forgone. The result consumers may face include potential banking fees for services that were previously free, minimum card purchase requirements or surcharges.

If fees are implemented on individual banking accounts a return to cash transactions or alternate payment methods may bypass debit card minimum purchase rules and possibly even checking account fees. Consumers are capable of lowering their expenses as well which makes the interchange fee change seem more like a mere re-shuffling of costs in favor of retailers.

Reasons to Use Online Banking

Online banking saves time, money and space by automating transactions, reducing billing times, check writing and billing expenses. Online banking can even reduce filing cabinet space that may always seem too full. Online banking may also makes use of secure websites; if you see https in a website address, this means information you provide in online banking transactions can only be read by you and the bank. Encryption of financial data is another reason why online banking is safe.

• Automated transactions

Automated transactions allow banking clients to perform a transaction without even being there for the transaction. These transactions can occur on a one time, or repeated basis. For example, Automated Clearing House (ACH) deposits, pay check deposits, and pre-scheduled bill payment can all be automated using some online banks' electronic banking.

• Bill payer services

Another reason to use online banking is electronic bill payment or e-bill payment. These can be set up through a banks online banking software and once the recipient data is entered, the information is already there for future transactions saving even more time. E-bill payments are set up using account numbers and company information.

• Secure website services

Many people have concerns about the safety of online banking, however online banking may be even safer than in person banking. This is because computers are not subject to human error reducing the probability of this type of error by up to 50 percent.  Also, as time has progressed, so has the experience and technology used to prevent identity theft. Additionally, savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC) regardless of whether transactions are performed online or not.

• Data encryption

Data encryption is a technique used to protect information transferred over the internet. Encrypted data makes use of ciphers that allow only senders and recipients to scramble and unscramble banking information for the purpose of protecting it. These ciphers are incorporated into online bank programming and are secured by time sensitive online banking.

• Multiple banking privileges

If the above reasons aren't enough to consider online banking perhaps knowing the amount of transactions that can be performed online will. A number of services can be performed using online banking including fund transfers, deposits, withdrawals, bill paying, personal information updates and more.  These transactions can all take time, money and space when done the traditional way.

In summary, there a multiple reasons why online banking is a good idea. There are even online money orders through sites like Payko that lower the need to drive to the nearest post office or money order dealer. Online banking doesn't necessarily eliminate the need for in person banking, but can definitely reduce the number of times one has to go to a bank or post office to perform financial transactions or pay bills.

What are hybrid savings accounts?

Hybrid savings accounts are banking instruments that allow clientele to combine banking services and benefits into one account. All U.S. Savings accounts are subject to the Federal Reserve's Regulation D which outlines the rules and requirements by which banks must operate savings accounts.

To illustrate hybrid savings accounts further, to qualify as a savings account, one requirement is that  no more than six transfers or withdrawals may be made by internet banking transactions. In so far as savings accounts conform to banking regulations, several types of hybrid savings accounts exist that have differing banking features, services and choices. The following is a review of some types of hybrid savings accounts.

• Frost momentum account

The Frost Momentum account is a hybrid account offered by Frost National Bank. This account has a variable interest rate linked to debit card spending i.e. the more a debit card is used, the higher savings interest can go. The account also offers charting and budgeting tools to help meet spending goals while simultaneously building savings.

• Negotiable order of withdrawal  (NOW) accounts

Negotiable order of withdrawal or NOW accounts are a type of savings account that also allow checks or drafts to written against them. However, according to Regulation D, NOW accounts are not exclusive to savings accounts but also pertain to pension funds and escrow accounts.

• Money market accounts

According to Money Economics, money market accounts are hybrid savings accounts because they too combine savings account regulatory compliance with higher yielding accounts that also allow checks to be written against them. In order to qualify for higher interests rates however, money market accounts may also require a high minimum balance. Many varieties and types of money market accounts exist on the market.

• Hybrid Savings/CD

Another type of hybrid savings account combines Certificate of Deposit savings with checking privileges. The First Mariner Bank offers one such product that links allows checking withdrawals via transfers from another account at the bank. In essence this account allows one to earn a high rate of savings while also writing checks against the higher yield so long as a minimum balance is maintained. According to the First Mariner Bank, this hybrid savings/CD account is also insured by the Federal Deposit Insurance Corporation (FDIC)

• Hybrid yield savings

Some savings accounts offer balance linked interest rate yields that offer a higher rate of return on balances up to a certain amount and then a lower rate on balances above that. The Boeing Employees Credit Union (BECU) in Washington State offers one such account. The hybrid BECU member advantage savings account currently offers a yield of 6.17 percent for the first $500 and a .5 percent yield for amounts above that.

Sources: 

1. http://bit.ly/9EjN92 (GPO Access: Regulation D)
2. http://bit.ly/bbpWUq (Frost Momentum)
3. http://bit.ly/d5TTNx (1st Mariner Bank)
4. http://bit.ly/adAxxN (Moneyeconomics.com)
5. http://bit.ly/cElIo4 (Boeing Employees Credit Union)

A Guide to Bank Card Numbers

Bank cards include 1) automated teller machine (ATM) cards, 2) debit cards, and 3) credit cards. The use of the word bankcard in this article refers to one or more of the above types of cards. In some cases additional cards may be considered bankcards such as employee pay cards and unemployment insurance (UI) debit cards.

In all these cases, the cards have numbers on them that are used for a number of banking purposes including user identification, purchase security, protected use, and internal issuer classification(s). This article will discuss the types of bankcard numbers and their different uses.

Types of bank card numbers

1. Complete card number: The complete bankcard number itself is divided into number groupings that include 1) the issuer number, 2) the algorithm validity number and 3) the security check number. (merriampark.com)

2.  Account number: The account number on a bank card is usually around 9 digits in length. However, the length can vary between different cards or card types. The reason(s) for this variation in length include number of clients, issuer security standards, and varying internal codes and number classifications.

3.  Issuer number: The first digits in the card that typically 6 in number on the credit card identifies the bank or card issuer.

4.  Algorithm number: The numbers after the issuer number and before the last number that are used in verification of the card. This algorithm is used to prevent fraudulent creation of card numbers and often follows a simple key where every second number starting at the end of the number is doubled with the new number or 2 digit sum thereof placed beside the numbers that are not doubled. (theartofmakingmoney.com)

5. Check number: The last number of the card used to validate the card number via algorithm.

6.  Card Security Code(s) (CVC): The security code on some bankcards are numbers on the back or front of a card that add a layer of protection for the consumer. Security codes provide protection in cases where the numbers other than the card security code have been stolen. (securebmtmicro.com)

7.  Expiration date: Expiration date is simply the date in terms of day, month and year at which the card becomes invalid and cannot be used. Expiration dates can be 1 or 2 years from the date of issue and vary depending on the bank's policy. Expiration dates are used because

Bank card number applications

Bankcard number security is very important in protecting consumers and the economy. The combinations of card numbers and features help ensure theft and fraud are reduced by 1) increasing the amount of information a potential thief would have to obtain 2) complicating the creation of bankcard numbers, and 3) matching and confirming identity of user, account holder and issuer. As mentioned previously there are several specific uses for bankcard numbers.

User identification: The specific account number is unique to the account holder and thus helps identify and match the card number to the account holder.

Issuer identification: Bank card numbers also identify where the card account was originated. For example, the bank itself.

Purchase security: To assist the account holder, bank card numbers help prevent theft via 1) number of card number combinations, and 2) additional security code.

Fraud protection: Card issuers also protect themselves from fraud by using a specific number algorithm and number combination.

Bankcard number tips

Bankcard numbers involve more than just the numbers on the card. For the most part the bankcard numbers are for security and identification. To protect these numbers from theft or misuse it can be a good idea to practice a few methods of precaution, some of which are listed below. Bankcard theft, identity theft and bankcard fraud are all serious problems that can cause a lot of trouble if they occur. Taking the correct preventative steps help prevent these things from happening.

• Utilize secure websites for online purchases: Some websites do less to protect purchasers than others. Websites that use secure online purchasing will indicate this on their website.

• Separate numbers: Always keep pin numbers separate from the bankcard; card issuers repeatedly mention this with pin statements and new card information guides.

• Store number in a safe place: It goes without saying a bankcard should be stored in a place only accessible to its user. Otherwise theft of the card is easier for would be thieves.

• Shred statements and documentation: When documentation with card numbers and information are no longer needed, dispose of them safely by shredding them.

Sources:

1. http://www.thetaoofmakingmoney.com/2007/04/12/324.html
2. http://www.merriampark.com/anatomycc.htm#Account
3. https://secure.bmtmicro.com/resources/info/CVV.html

Reasons to use online banking

Online banking saves time, money and space by automating transactions, reducing billing times, check writing and billing expenses. Online banking can even reduce filing cabinet space that may always seem too full. Online banking may also makes use of secure websites; if you see https in a website address, this means information you provide in online banking transactions can only be read by you and the bank. Encryption of financial data is another reason why online banking is safe.

• Automated transactions

Automated transactions allow banking clients to perform a transaction without even being there for the transaction. These transactions can occur on a one time, or repeated basis. For example, Automated Clearing House (ACH) deposits, pay check deposits, and pre-scheduled bill payment can all be automated using some online banks' electronic banking.

• Bill payer services

Another reason to use online banking is electronic bill payment or e-bill payment. These can be set up through a banks online banking software and once the recipient data is entered, the information is already there for future transactions saving even more time. E-bill payments are set up using account numbers and company information.

• Secure website services

Many people have concerns about financial security when banking online, however online banking may be even safer than in person banking. This is because computers are not subject to human error reducing the probability of this type of error by up to 50 percent. Also, as time has progressed, so has the experience and technology used to prevent identity theft. Additionally, savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC) regardless of whether transactions are performed online or not.

• Data encryption

Data encryption is a technique used to protect information transferred over the internet. Encrypted data makes use of ciphers that allow only senders and recipients to scramble and unscramble banking information for the purpose of protecting it. These ciphers are incorporated into online bank programming and are secured by time sensitive online banking.

• Multiple banking privileges

If the above reasons aren't enough to consider online banking perhaps knowing the amount of transactions that can be performed online will. A number of services can be performed using online banking including fund transfers, deposits, withdrawals, bill paying, personal information updates and more. These transactions can all take time, money and space when done the traditional way.

In summary, there a multiple reasons why online banking is a good idea. There are even online money orders through sites like Payko that lower the need to drive to the nearest post office or money order dealer. Online banking doesn't necessarily eliminate the need for in person banking, but can definitely reduce the number of times one has to go to a bank or post office to perform financial transactions or pay bills.

Where to Cash a Check Without a Checking Account

A check can be cashed without a checking account using at variety of locations such as check cashing kiosks and pawn shops. However, the type of check and its amount can influence if the check will be cashed. Some types of checks are more likely to get cashed than others as with government checks and cashiers checks.

Government and cashier checks are easier to cash than personal checks because it is more probable than not the check will not bounce. Depending on the check cashing service offered, and the meeting of check cashing requirements, a range of check types may be cashed.

To cash a check without a checking account it can be helpful to know which types of places, or who in these places, are willing to cash a check. The criteria for cashing checks may vary from check cashier to check cashier based on things like proper identification, personal information, type of check and the amount of check. Verifying the amount of the check to be cashed, whether or not the check can be cashed, and what type of documentation is needed in advance may be helpful.

Locations to cash checks

Some places that cash checks have check cashing limits and/or fees, and not all financial institutions cash checks endorsed over from another check recipient. Additionally, some retailers will only cash checks if they are in exchange for a purchase, and if there is money left over. However, other retailers may provide cash checking services for a fee or with membership. Locations that cash a check without a checking account are listed below, but are not guaranteed to cash all types of checks in all types of circumstances.

• Pay check cashing ATM's ex-Swipe USA machines
• Fast cash and loan services; ex-Cash 1
• Some commercial retailers’ ex-Price Chopper
• Banks and other financial institutions with personal accounts

Additional check cashing locations:

• AMEX Card Check Cashing and Travelers checks
• Currency exchange ex: http://www.mycurrencyexchange.com (CCEAI)
• Business affiliates and check cashing services
• Pawn shops ex: Fast Cash Pawn and Check Cashiers

Each one of the above locations to cash checks without a checking account is likely to have specific rules or policies in place regarding check cashing procedures, requirements and allowances. To verify what restrictions and rules apply, contact the specific location where you are interested in cashing a check.

Check type and issuer affects check cashing

As mentioned above, the type of check may be a factor in determining if a check can be cashed without a checking account. For example, a travelers check can often be used like cash but protects the check holder from theft. An out of state 3rd party personal check for over $10,000 on the other hand might be quite a bit harder to cash if it can be cashed at all. Some of the aforementioned check cashing locations are more likely to cash more checks than others, however ultimately it is up to the organization, legal requirements regulating the check, and individual or business to determine whether or not the check will be cashed. Not including crossed checks, some types of checks that may be cashed are below:

• Treasury checks
• Personal checks
• Travelers checks
• Third party checks

Other types of checks:

• Cashiers checks
• Business checks
• Class action suit checks
• Tax refund anticipation checks

Check cashing requirements

To cash a check, an identification such as a driver’s license or pin code verification access is needed. Additional check cashing requirements may include purchase, fee, registration or membership with a retailer, and a cash back or cashing limit. If cashing a check at a bank, an endorsement may be requested on the back of the check by the bank’s teller to reduce the bank’s liability.

Additionally, in the case of a crossed check, the check may not be able to be cashed without some kind of account as these checks are protected from being cashed. However, some financial institutions may cash checks with only a savings account, whereas others may not require an account at all. This is especially so if the check is from an account at that financial institution or more specifically, at that financial institutions branch location.

Summary

To cash a check without a checking account is easier than it sounds, but may not always be possible. This is because some checks are more readily cashed than others. Nevertheless, there are several places mentioned in this article where you can go to cash a check without a checking account. Some check cashing locations. The check cashing locations that cash checks vary in the types of checks they will cash, what documentation is required, and how much they will cash a check for.

Bank accounts: Considerations when opening your first account

Knowing what to consider when opening your first bank account is a decision that you will have to live with as long as you utilize a bank account you have opened. There are a number of factors and considerations that may be useful and pertinent to the services and of the account. This article will discuss these variables in terms of 1) reasons to open a bank account, 2) banking products and services, and 3) additional items to consider.

A good reason to open a bank account at all is because bank accounts tend to have more protection from theft than do homes, and funds in a bank accounts are more likely to be insured without deductibles. For example, bank account deposits in the U.S. are insured by the Federal Deposit Insurance Corporation (FDIC) which requires no deductible as with many home owner's insurance and renter's insurance policies. In addition to the physical and electronic protection banks are able to provide, bank accounts also offer incentives, banking products and banking services to give existing and potential clients a good reason to open and/or continue banking with clients.

Reasons to open a bank account

When deciding to open a bank account thinking about personal financial needs and goals may be important. To do this, asking oneself questions like where is the bank located? how friendly are the bankers? and how easy is it to make use of the bank's services? may all be good questions to ask. In addition to these questions the following reasons may also be of assistance when choosing a new bank account:

• Helps manage bill paying, and employment payments
• Can assist with building a personal credit rating
• Establishes and/or builds a financial identity
• Facilitates other banking services available through the account
• Provides a sense of financial security

Banking products and services

When the different reasons to open a bank account have been made and the decision to open an account is in the affirmative, one may then begin shopping for a bank account. Different banks and financial institutions offer different incentives and benefits. Banks generally try to compete for clients which is good for someone looking for a new account. Some of the things that might be worth looking for in a first bank account include the following:

• No maintenance fees for checking or savings accounts
• Free first book of checks
• Low ATM charges for non-bank ATM usage
• Multiple branches and offices
• Reputation and credibility among friends and neighbors
• Financial reputation of bank within the banking community

New bank accounts sometimes give free gifts as an incentive for opening an account, however a new set of knives or a handy new cooler may not always be a great start to a new bank account, but rather a potentially unfortunate prelude to a banking relationship that didn't take into account what banking is really about.

While free gifts are nice, they generally shouldn't be the primary reason to choose a particular bank and/or bank account. Instead, one might consider aspects of banking that are going to assist one with a financial life that is easier and more manageable.

Additional items to consider

In addition to all the above free or low cost incentives are the banking products and services that make the account functional and useful. In other words, the more one can do with a new bank account the better. This can be especially true, if one has a lot of different financial obligations, and banking needs. A few such additional items that might be worth consideration in the search for a new bank account are the items listed below:

• Overdraft protection
• Credit/Debit Card with usage benefits
• Online Banking
• Free services and gifts
• Quality of Banking services

Opening a new bank account doesn't have to be a stressful experience, but might be best given some thought instead of just choosing the first bank one comes across near one's home or place of work. In other words, selecting a bank and bank account that meets one's financial expectations and provides products and services one finds useful can help make the decision to open a new bank account more fruitful.

Some of the reasons for choosing a new bank account in addition to various products and services that may be useful are provided in this article. When choosing to open a second bank account or open a new bank account altogether giving thought to the information in this article may be helpful in making one's banking experience more positive and financially beneficial.

History and functioning of commercial banks

Commercial banking is a field in which services are provided based on an individual or businesses financial capacity and ability. In other words when lending money banks look for several things to ensure their money is returned with interest. These factors include credit risk, assets, liabilities, payment history, credit rating, number of credit inquiries etc. In the case of a business loan a business plan is submitted to a loan officer and reviewed for potential profitability. If the business plan is sound and acceptable to the loan officer a loan contract is offered.

The business of commercial banking is competitive as many banks exist. This creates what economists call 'monopolistic competition' at the retail level and this is where pricing power is largely determined by market forces such as prime rate, competing loan rates, federal funds overnight rate and competitor rates. Sometimes commercial banks borrow money with rates in the 100's or the third decimal point in after the singles digit. For example, a bank may borrow money from another bank at a rate of 1.234% interest.

Commercial banking after the depression of the 1930s

After the Great Depression of the 1930's the Banks became heavily regulated to prevent another Depression from occurring. After time improvements in economic management allowed for deregulation of Banking which began around 1980. Since then new Banking legislation has given commercial banking more scope and ability to pursue expanded Banking functions. This enables banks to compete across banking services and improves banking functions as whole. Some of this recent legislation includes the Financial Services Modernization Act of 1999, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, Omnibus Budget Reconciliation Act of 1993 and the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) (Fraser, Gum and Kolari p.44)

Competition in commercial banking

To compete commercial banks use a strategy combining advertising, interest rate adjustment, fees, market positioning, product positioning and a host of other factors relating to daily operational activities. With an increase in competition from Banking deregulation these services have become more refined and efficient. Bank performance can be measured using metrics such as ration analysis. Some of the more widely used ratios are Profit Rations such as Return on Equity (ROE), Return on Assets (ROA),; Risk Ratios such as 'Provision for Loss Ration, Liquidity and Operating Efficiency. (Ibid p.74-77). These ratios help clients, managers and investors determine the safety, security, profitability, efficiency and competitiveness of a bank.

Since banks have so much assets and liabilities how they manage these finances is crucial to their success. Combining fees, interest rates, and financial leveraging in profitable ways allows a bank to continue operating. If a bank has too much debt and not enough assets and that debt becomes faulty or delinquent in can damage a banks reputation leading to an undesirable bank performance rating. These ratings are measured and monitored by the Federal Deposit and Insurance Corporation (FDIC). They maintain statistics and analytics pertaining to commercial banks. The link at the bottom of this page is a gateway to a wealth of banking information.

Thus we have a brief overview of the Commercial Banking environment and how they function. Banks are highly specialized institutions whose main product is money. Money is a banks business and the business of their clients whether they be individuals, companies or countries. There are many laws and nuances to banking that create a nexus of commercial ingenuity and financial management that is highly evolved.

Sources:
1. Donald R. Fraser, Benton E. Gup and James W. Kolari. 'Commercial Banking: The Management of Risk'. Cincinnati, Ohio. South-Wester College Publishing, 2001.
2. http://www.fdic.gov/bank/index.html (Federal Deposit Insurance Corporation)