No matter where you are from, you probably know what a bank is. In its most basic form, it is an institution that helps people to store money. However, we can all agree that the average bank has definitely gone beyond just storing money in today’s world. Hence, a more up-to-date definition of banking is that it is a financial institution licensed to accept deposits and offer loans alongside other financial services. The term “bank” can refer to many different types of financial institutions — including trust companies, savings and loan associations, credit unions or any other type of institution that accepts deposits.
Nonetheless, no matter how much you know about banking, moving to a new country —especially one like the United States of America— requires some research about your financial decisions, starting with your bank. Since your financial concerns are also ours at NALA, we have done the research for you.
Let’s start at the beginning.
What types of banks exist for customer use in America?
1) Retail and Commercial Banks
Retail banks, also called consumer banks, provide personal banking services to the general public. These banks typically offer checking accounts, savings accounts, and retirement accounts. In addition to these basic services, retail banks may also provide various credit products to individuals and families, such as auto loans and credit cards.
2) Credit Unions
A credit union is a non-profit financial institution that offers traditional banking services and is created, owned, and operated by its members. Traditionally, credit unions served specific demographic groups, known as a field of membership, often based on factors like employer, geographic location, or membership in a particular organization. However, many credit unions today have relaxed their membership restrictions and are now open to the general public, often requiring only a small fee to join a related nonprofit organization.
3) Savings and Loan (S&L) Associations
Savings and loan associations, also known as thrifts, offer consumers services such as checking accounts, personal loans, and home mortgages. These institutions are owned by their customers or the communities they serve. By law, savings and loans must allocate a certain portion of their lending to residential real estate, with their primary focus being residential mortgages. Unlike banks, which are owned exclusively by shareholders, thrifts can be mutually owned by both customers and shareholders.
4) Investment Banks
Investment banks are financial institutions that specialize in facilitating complex transactions and acting as intermediaries. Unlike traditional banks that focus on lending, investment banks generate revenue by investing either their own funds or those of their clients. For instance, they assist clients with mergers and acquisitions or help private companies go public through initial public offerings (IPOs).
5) Online and Neobanks
Online banks, also referred to as 'neobanks' or virtual banks, aren't technically banks. These tech-savvy companies offer user-friendly interfaces and various perks but typically partner with traditional banks that hold deposits and manage the financial operations behind the scenes. However, some online banks are now securing national charters or acquiring small banks with existing charters. Additionally, your traditional brick-and-mortar or commercial banks may offer online-only accounts or create online-only brands.
What kind of bank account should I open?
The big question. Before you open your first American bank account, you have to know what kinds of bank accounts exist in this new financial system, then, you can decide what works best for you. Here are the four major types of bank accounts, but we will rank them from the most commonly used to the least used.
- Checking Accounts
This is the most basic and commonly used account type in America. It allows for ease concerning the regular use of funds to pay bills or make purchases. Likewise, it is often where your paycheck is deposited. You can use a debit card just like a credit card, but the funds come from your checking account—so you don't get a bill at the end of the month. The caveat is that you have to keep track of your spending to avoid spending more than you have available in your checking account. You can often get a checking account with no fees if you maintain a balance of a certain amount, and some checking accounts often come with additional benefits.
- Savings Accounts
To build strong financial habits, a savings account is essential. It helps you set aside money for future needs while earning interest. When choosing a savings account, it's important to research different banks to find the best interest rates. Some banks offer interest on all balances, while others only pay interest once your balance reaches a certain minimum. Don’t hesitate to explore options beyond traditional brick-and-mortar banks to find the right account for you. While savings accounts are meant for accumulating funds, they still offer easy access to your money when needed. However, to promote saving, some financial institutions may limit the number of withdrawals you can make each month.
- Certificates of Deposit (CDs)
A Certificate of Deposit (CD) is a timed bank deposit that comes with various maturity dates, offering higher interest rates than savings accounts in exchange for locking in your funds for a set period. Be aware that withdrawing money before the CD's term ends may result in a penalty, so it's important to choose a term that fits your financial needs. With both the term and interest rate fixed from the start, CDs provide a low-risk way to grow your money.
- Money Market Accounts
Money market accounts are high-yield savings accounts that typically require maintaining a minimum daily balance to earn higher interest rates. Unlike CDs, money market accounts offer easy access to your funds without penalties while still being Federal Deposit Insurance Corporation (FDIC)-insured for up to $250,000 per depositor, per insured bank, and per ownership category. Although they generally offer a lower interest rate than CDs, money market accounts can be a smart choice if you anticipate needing emergency access to your funds.
How do I open a bank account in America?
With a US bank account, you can set up automatic withdrawals for rent and utilities, access funds without having to wire money, write checks, and easily send money to Africa with NALA.
For your first US bank account, you will need:
- A United States address and phone number.
- Legal means of identification such as your passport and driver's license.
- Documentation about your legal status: If you are on a student visa, your visa and I-20 will be needed.
- Depending on where you are from or the bank account you’re trying to open, you may be required to physically appear at the bank to create your account.
Did you know? You don’t need a social security number to create an American bank account, but your account's functions will be limited. For instance, a bank account without a social security number may not allow you to make transfers past a certain limit through your virtual bank profile. Likewise, if you own a business registered in the US, you can use your employer identification number (EIN) to open a bank account.
As you navigate the USA’s banking system, remember that you always have a choice. Do your extensive research and ask questions where necessary. Finally, remember that NALA is the most reliable way to send love home at the best rates. We value your financial security as you build your new life in America while staying connected with your family. With regulated partners in the US, UK, and EU, and multiple payment licenses across Africa, we ensure your financial information always stays safe.
