As a finance nerd, you probably know that having a good bank account is step one in creating an awesome, comprehensive financial plan. For most of us Stackers, our bank account serves as a hub where money goes in and then is distributed to various financial vehicles, in accordance with our short-, intermediate-, and long-term goals. Whether building our emergency fund, savings to buy a house in the next five years, saving for our kids’ college, or funding our retirement; an bank account is a mandatory starting point for reaching your goals.
The importance of building a win-win relationship with your bank
Banks occupy an essential role in financial planning. Checking provides a safe place to store money while granting immediate access to it. Savings accounts provide the ability to park some cash – be it an emergency fund or simply savings toward a goal – and earn some interest while maintaining some access to it. Certificates of deposits (CDs) allow you to earn higher, guaranteed interest by locking your money up for a predetermined term. Direct deposits from our employers are funneled, ACH (“automated clearing house”) transfers to and from other institutions are sent/received there, and they are a safe and secure place to park cash that’s readily accessible. The importance of building and maintaining a good relationship with your bank cannot be understated. In fact, having a bank that will work with you can be advantageous and help reduce the friction between old habits and those of savers.
Consequences of banking mistakes
We are all human. We make mistakes and mess up. Money mistakes are not out of the realm of possibility. However, making money mistakes can be serious – and we’re not just talking about not paying your credit card in full every month.
A way that most banks and credit unions keep tabs on bad apple customers is through a system called “Chexsystems.” If a customer has had too many red marks on his/her debit history within the last five years, it can be used against the customer…directly from the Chexsystem website:
If you do not maintain a good debit history, there are a number of unpleasant consequences:
- Your financial institution could charge you fees for each overdraft.
- The place you wrote the check could also charge you a fee or refuse to take any more checks from you.
- You could receive calls and letters asking you to repay the money.
- Your name and account information could be reported to a check verification service, which could cause your checks to be declined at point of sale.
- Your bank could close your checking account.
- Your bank could report your closed account to ChexSystems. As a result, other banks could refuse to open a checking account for you.
As you can see, these are some pretty steep penalties that can negatively affect one’s banking for years.
What to do if caught in a pinch with Chexsystems
“So, Joe, what do I do if I made a mistake less than five years ago and need a new bank account?”
It’s true that most banks and credit unions subscribe to Chexsystems. However, our friend, Kirsten, over at Indebted Mom shared options for banks that do not use Chexsystems in her article, 7 Banks That Don’t Use Chexsystems. If you are ever in a pinch where you need to open a new account, but have had troubles in the past (we’re all human), you can look into the options provided there.
Building a solid financial plan is a multiple year endeavor, but it’s never too early (or late) to start. Starting at the ground floor is finding a bank account that’s right for you. From there, your plan can flourish into multiple accounts/investments for the various objectives that are important to you. If you are stuck in “banking jail” (Chexsystems), don’t despair! While Chexsystems provides a valuable service to banks and the overall financial system, a few small banking mistakes does not mean that you’re out of luck for the next five years. There are options out there; it’s a matter of being aware of what’s out there, and what best fits into your plan. Five years from now, you’ll be glad that you took action today.
Disclosure: Stacking Benjamins, LLC, does not endorse any bank or credit union in particular. All banks mentioned in the article are for informational purposes only. When deciding on what bank to choose, make sure you do your own research and go with the one that is right for you.
Thanks for the that being able to maintain a good relationship with a bank will help a lot in financing plans in the future. I’m considering to start a business someday and that would definitely take a huge amount of capital to make it work. Having a lasting relationship with a trusted bank should probably be done way earlier than the launch of the business.