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If you’ve never opened a bank account, you’re not alone: 14 million Americans don’t have bank accounts.
But the number of American households that are unbanked or underbanked has dropped steadily over the past decade, while banking options have expanded drastically. Many banks now let you apply entirely online, so you can open your account from the comfort of home.
And with the pandemic making it even more challenging for people to get to the bank, many people are “turning to online banking and downloading their bank’s apps for the first time,” says Allie Fleder, COO of SimplyWise, a retirement and Social Security resource site.
In addition to things like saving and paycheck direct deposits, bank accounts are an important part of borrowing money and demonstrating creditworthiness.
While having bank accounts doesn’t directly impact credit scores, “it could greatly increase the likelihood you’ll be turned down for a loan if you don’t have one,” says Lamar Brabham, CEO of Noel Taylor Agency, a financial services firm in South Carolina. “Loan providers want to be able to see you have enough money coming in each month to cover the monthly loan payment.”
Whether you’re applying for an account online or in person, having things in order will make the process smoother.
What You Need To Have
After walking through the door or clicking “apply now” on a bank’s website or app, the process for opening a bank account is very similar.
You’ll need to have some basic documents and information at the ready when opening your account:
- A government-issued ID like a passport or driver’s license. The ID should show your legal name, picture, date of birth, country of citizenship, and current address.
- Your Social Security number or tax ID number
- Cash, check, or the routing and account numbers from an existing account to make an initial deposit (some banks may require a minimum deposit amount). Some banks also accept deposits from apps like PayPal.
Choosing an Account
Asking yourself what the main goal of your account is can help you narrow down which type is best for you.
A checking account is intended for regular cash transfers in and out. These transactions can include things like everyday purchases, ATM withdrawals, written and deposited checks, and automatic bill payments.
Checking accounts are usually a person’s primary account for everyday spending. Checking accounts come with debit cards, which provide convenient access to your cash but also lack some of the fraud protection services that come with major credit cards. For this reason, many people use credit cards for everyday purchases, and regularly pay down their balance from their checking account.
Savings accounts are more secure than checking accounts, and intended for storing your money that’s not used for everyday transactions. Savings accounts earn interest, which is a payment to you by the bank for holding your money in the account.
Online banks tend to offer significantly better interest rates – more money for you – than traditional brick-and-mortar banks. These accounts are known as high-yield savings accounts.
Opening Your Account
Once you have gathered all of the necessary documents and information, selected your bank and account type, the process is simple. If going in person, a bank employee will walk you through the steps of opening your account.
Online applications guide you through the same process at home. You’ll need to provide personal information to verify your identity, and may need to upload some of your documents for proof.
Then you’ll need to fund the account. If you go in person, you can provide a check or cash to start your account. If opening online, you can usually take a picture of a check to deposit, link to an existing account you want to pull the funds from, or connect to another service like PayPal that has funds in it.
If you want to start the account online but only have cash to deposit, you’ll need to first open an account with a brick-and-mortar bank where you can deposit your physical cash. You’ll then be able to transfer your money to an online-only institution.
Research what bank features are important to you. A mobile app, ATM or branch proximity, low fees, and competitive rates could all impact whether or not a bank is right for you.
If you’re opening an account online and run into trouble, look for your bank’s customer service features. Online banks commonly offer 24/7 customer service for any questions you might have.
Benefits Of Having A Bank Account
Keep track of your finances
A bank account can help you see all of your expenses and savings in one place. If you were previously keeping track of your finances by hand, a bank account can expedite the process with automated summaries, reports, and a real-time look at your available balance.
Get paid faster and easier
Most employers offer direct deposit, which is only available if you have a bank account they can deposit your money into. Direct deposits allow you to access your paycheck funds more quickly, and eliminate a trip to the bank to cash a physical check.
Make payments easier
Paying for goods and services is simpler with a bank account, as well. “The days of mailing in a monthly payment are almost obsolete,” says Brabham.
Bank accounts also allow you to make automatic payments on most bills you owe, which can help you make sure you don’t miss payments. Consistently paying your bills on time can “help increase your credit score,” says Brabham, so anything that makes that easier is a good thing.
Qualify for loans and credit
If you need to take out a loan, a bank account is the first step.
Not only can you qualify for more loans with an established banking history, you can also get better rates. Lenders often provide slightly discounted rates to borrowers who set up autopay – a feature that can only be accessed with a bank account.
Be able to buy more
Having a bank account allows you to tap into the world of online shopping, and could be more important in the future as more businesses choose to no longer accept cash payments.
There are many reasons why opening a bank account could benefit you, and many options to choose from. Doing research on what features you want from a bank can help you narrow down your search. Once you’ve figured that out, the process for opening a bank account online or in person is relatively simple. Make sure you bring the correct documents and go from there.