Interest
Determine the interest rate on an account. Find out whether the institution can change the rate after you open the account. In addition, find out the following.
- Does the institution pay different rates of interest depending on the amount of your account balance, and, if so, in what way is interest calculated? (See Tiered Interest Rates, below.)
- How often is interest compounded? In other words, when does the institution start paying interest on the interest you've already earned in the account?
- What is the annual percentage yield? The APY is a rate that reflects the amount of interest you will earn on a deposit.
- What is the minimum balance required before you earn interest?
Do you begin earning interest the day you deposit a check into your account-called "earning on your ledger balance"— or do you begin earning interest later, when the institution receives credit for the check-known as "earning on your collected balance"?
Tiered Interest Rates
Institutions may pay different rates tied to different balance amounts.
Example. An institution pays a 5 percent interest rate on balances up to $5,000 and 5.5 % on balances above $5,000. If you deposit $8,000, the institution that pays interest on the entire balance pays you 5.5 % on the entire $8,000. Other institutions may pay you 5 % on the first $5,000 and 5.5 % only on the remaining $3,000.
Fees
Determine the following about an account:
- Will you pay a flat per-month fee? How much?
- Will you pay a fee if the balance in your account drops below a certain amount? How much?
- Is there a charge for each deposit and withdrawal you make? How much?
- How much will it cost you to use an ATM to make deposits and withdrawals on your account? Does it matter whether the transaction takes place at an ATM owned by the institution?
- Is there a charge for bill payment by phone or modem? How much?
- If you have a checking account or an MMDA, how much will new checks cost?
- Will you be charged for each check you write? How much?
- Are fees reduced if you have other accounts at the institution?
- Are fees reduced or waived if you agree to directly deposit your paycheck or government payments (e.g., Social Security check)?
- What is the fee for stopping payment on a check you have written?
- Is there a charge for making a balance inquiry?
- Does the institution charge a fee for closing an account on or after it is opened? If it does, when . will the fee be imposed?
- Are you charged to have canceled checks returned to you with your statement? How much?
- What is the charge for writing a check that bounces (a check returned for insufficient funds)? And . what happens if you deposit a check written by another person, and it bounces? Are you charged a fee?
Check Clearing and Other Limitations
Find out whether the following will apply to the account:
- Does the institution limit the number or the dollar amount of withdrawals or deposits you make?
- If you close the account before interest is credited to your account, will you be credited with the interest that has been earned?
- How long does it take for checks to clear? How soon does the institution allow you to withdraw funds that you have deposited to your account?
For Time Deposits
If you are looking into a CD, here are some questions to ask:
- What is the term of the account (i.e., how long until maturity)?
- Will the account roll over automatically? Does the account renew unless you withdraw your money at maturity or during any grace period? A grace period is the time after maturity when you can withdraw your money without penalty. If there is a grace period, how long is it?
- If you are allowed to withdraw your money before maturity, is there a penalty? How much?
- Will the institution regularly send you the amount of interest you are earning on your account-or regularly credit it to another account of yours?
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