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Where should I send my direct deposit?

September 12, 2013

| MoneyRates.com Senior Financial Analyst, CFA

Q: My new job requires that I have my pay directly deposited into a bank account. I'm 19 and have never had a bank account. I only wish to save my money as much as possible. I want a bank with a decent interest rate that won't charge me a lot of fees I don't understand.

A: You may find that you actually want two bank accounts: a checking account to handle your pay coming in and any expenses you have going out, and a savings account to help you accumulate money and earn interest.

Focusing first on the checking account, there are three major categories of fees you need to look out for: monthly maintenance fees, overdraft fees and ATM fees. If you play your cards right, it is possible to have a checking account without paying any of these fees. Here are some tips on avoiding those fees:

  1. Shop around for free checking. When banks refer to "free checking," they mean an account with no monthly maintenance fee. Avoiding these fees is significant, because on average they run to nearly $150 a year. The latest MoneyRates.com Bank Fee Survey found that only about three out of every 10 checking accounts has no monthly maintenance fees, which means they are in the minority, but can be found if you shop around.
  2. Consider an online bank. That same fee survey found that your chances of getting free checking more than double if you look at online banks.
  3. Opt out of overdraft protection. At an average of $31.60 per occurrence, overdraft fees are expensive and unnecessary. Opt out of overdraft protection and learn good record-keeping habits so you don't overdraw your account.
  4. Choose a bank whose ATM network matches your travels. Make sure ATM locations are convenient enough for you to avoid incurring fees for using out-of-network machines.

While a checking account will give you ready access to your money, savings accounts and money market accounts are better equipped to help you meet your goal of saving money, so you might want to open one of these in addition to your checking account. Chances are, you'll find that checking accounts offer a negligible amount of interest, if any at all. Interest rates on savings accounts and money market accounts aren't great these days, but you can find rates close to 1 percent if you shop around -- and once again, be sure to consider online banks, because these typically offer higher savings and money market rates.

Finally, while it can be convenient to do all of your banking with one institution, don't be afraid to choose separate banks for checking and saving if you find distinctly better deals for each at different banks.

Got a financial question about saving, investing or banking? MoneyRates.com invites you to submit your questions to its "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.

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