CommonLounge Archive

Money and the Day to Day — Banking, Identity Theft, and Windfalls

March 23, 2018

Thinking about personal finance can be overwhelming. It’s the reason many people turn and run the other way when they hear words about investing or a budget. This article is just about the day to day uses of money and what simple things you need to know. These are the big three items that may impact your daily life.

Paying for Goods and Services — Banking

We fund our spending habits with our paycheck. Most of us get our paycheck direct deposited these days, and even if you don’t, it is likely you will deposit some of that money into a bank account. You will pull out cash periodically or use a debit /credit card for your spending. Banks are a part of our life every day, and you need to understand how they operate.

Banks and Credit Unions Operations

Banks are public or private for profit institutions that offer individuals money-related products or services. The products or services offered by banks may include the safe-keeping of your money, loans, or credit cards. Since they are for-profit organizations, so this means their products and services will come at a cost to you. Banks work with the Federal Reserve to operate and set their prices, also known as interest rates, for their goods and services.

What is the Federal Reserve? Back in 1913, the U.S. government passed the Federal Reserve Act which established a central banking authority, known as the Federal Reserve. While the Federal Reserve is not “owned” by the U.S. government, it works closely with it to ensure the U.S. economy runs as smooth as possible and that the money supply is controlled.

The Federal Reserve and it’s member banks supply money to the commercial banks we use on a daily basis; such as Chase Bank, Bank of America, and Wells Fargo. The Federal Reserve is their supplier, and they will charge our bank a fee or interest rate. Our bank will pass on an interest rate to us as individuals to cover the cost of their money supply and make a profit. The Federal Reserve not only supplies money and sets interest rates but they also indicate to our commercial bank how much money they must have readily available or on hand at any point in time.

They call this a fractional reserve banking system. A bank does not have to have 100% of the money at all times to meet a potential liquidation of all customer counts. They are only required to have a percentage or fraction of that amount to meet an estimated daily request by it’s customers. The fractional reserve banking system is used by many countries. You can read more about the ins and outs of the Federal Reserve here.

Credit Unions are non-profit banks that provide banking products and services to a specified community. The community may be defined by employer, faith organization, or another organization membership of some kind. Credit unions can offer discounted interest rates on loans and possibly higher interest rates on deposit accounts because they do not have to pay profits to a board. Credit Unions are regulated by the National Credit Union Administration, and get their supply of money from the Central Liquidity Facility, who will also set their reserver requirements.

Safe Keeping

Other than the bank’s structure, it is essential you also understand how your money is protected while in the bank. The FDIC is the Federal Deposit Insurance Corporation and they exist to protect your money in the event of bank or credit union failure. The FDIC is backed by the U.S. government but it is an independent agency. These deposit accounts are protected by the insurance offered by the FDIC (though not all bank or credit union products are covered):

  • Checking accounts
  • Savings accounts
  • Money market deposit accounts
  • Certificates of deposit

The insurance is for up to $250,000 per account held at the bank. For example, I own a joint account with my husband that has$25,000 in it, a savings account in my name only worth $100,000, and a money market account in my business name with$300,000. FDIC insurance would fully cover my checking and savings accounts, but only $250,000 of my business’s money market account.

Deposit Accounts

Checking, savings, and money market accounts will allow us to make purchases and deposits either by taking out cash, writing a check, or using a debit card. A debit card offers a way to make an electronic payment, like a credit card, and the purchase amount is automatically deducted from the deposit account to which it is linked. The card will only allow the transaction if there is money available in the account to give to the vendor electronically. A credit card, however, would allow you to borrow funds to make purchases rather than take from money you already have available for use.

If a check is written or a debit is made for more money than is available in a deposit account it is called an overdraft. Most banks encourage you to link another deposit account, such as a savings to your checking account, to cover any overdrafts that may occur. This can help you avoid fees charged by vendors for not having enough money in your account to complete the purchase. Banks will also charge you an overdraft fee for each overdraft purchase made.

Here are the types of deposit bank accounts you should know about for your day to day activities.

Checking Account

Checking accounts are specifically designed for daily transactions, including deposits and withdrawals. The truth is there isn’t a whole lot of difference between competing banks’ checking accounts but here are some features to look for:

  • No minimum balance
  • Interest earning – while this might sound enticing it will be minimal if at all for a standard zero or low minimum account; less than 1% has been common in recent years.
  • Free check writing
  • Direct deposit available
  • No monthly fee
  • Free bill pay
  • Free online access, transfers, and mobile banking
  • Free ATM access
  • Free online budgeting and savings tools

Savings Account

Savings Accounts are not intended for daily transactions but accumulation or safekeeping purposes. This is a typical place to keep an emergency fund. Most banks offer an autosave feature that will round your purchases up to the nearest dollar, and the change will be automatically transferred to the savings account. Another good one is for every transaction $1 is transferred into savings. Here are features to look for:

  • No minimum balance
  • Interest earning – higher minimum requirement accounts will offer a higher interest rate, but don’t expect a lot. Less than a 1% interest rate has been common in recent years.
  • 3+ withdrawal allowance per month
  • Direct deposit available
  • No monthly fee
  • Free online access, transfers, and mobile banking.
  • Free ATM access
  • Overdraft protection linked to your checking account

Money Market Account

Money market accounts are similar to savings accounts in that they are meant to hold and keep money safe. They were designed to earn more interest than a standard savings account, but a higher minimum will be required. Bank money market accounts are not tied to an investment, like a money market mutual fund offered by an investment management firm (also note that money market mutual funds are not FDIC insured). These are features to look for:

  • Interest rates higher than your savings account
  • 5+ no fee transactions per month
  • Check writing
  • Direct deposit available
  • Free ATM access
  • Free online banking, transfers, and mobile banking
  • No monthly fee

Certificates of Deposit

Certificates of deposit (CD) are savings accounts that have a fixed interest rate and a fixed date of maturity or withdrawal. This means when you deposit money into a CD, it is locked in until the date of maturity. The benefit of locking up the funds is to earn a higher interest rate. Maturity dates can vary, 3 months to 5 years is the norm. The further out the date the higher the interest rates — the range today is 1.50% to 3%.

Identity Theft

Identity theft is no longer something you should be aware of but something you should plan to happen to you. Our daily lives include the internet where valuable information is kept about ourselves and our families. Corporate security systems are breached daily, and companies are struggling to keep up and utilize methods to keep out the next hacker. Because you bank online, make purchases online, and make announcements online as to your whereabouts you must follow the below ways to protect your identity, purchasing power, and wealth:

  • Only use one card for online purchases and make it a credit card, not a debit card. It is much easier to refute a charge on a credit card than your debit card, and you aren’t out any cash while the card company investigates your claim.
  • Protect your online passwords with a password manager, especially for your most important accounts. The best rule of thumb is stop using the same password for everything and avoid using birthdates. Here are some comparisons of providers The Best Password Managers of 2018 and some free providers are covered here, The Best Free Password Managers of 2018.
  • Set up multi-factor authentication. It is critical that your most valuable accounts have at least 2 factor authentication, which just means the account will ask you for another piece of info to identify yourself besides the username and password. Many times this will be a code sent to you via a text message to your mobile phone.
  • Set your phone to lock with a passcode or thumbprint, and also assign a pin to avoid fraudulent transfer or your phone number. Contact your carrier for instructions on locking your phone number.
  • Shred credit offers in your postal mailbox. Many credit offers come with a barcode printed on them, and that may be linked specifically to you. The offer will likely come with a credit application or a site where one can be completed. Mail is regularly stolen too, so you must to be checking for unauthorized credit card inquiries or new credit showing up on your credit report.
  • Once a year, request a credit report for you, your spouse, and your children. Request a credit report for recently deceased loved ones as well. If you have a social security number, you are susceptible to having your identity stolen. For your children who are under 18 and deceased loved ones, you should add a freeze to their credit to avoid any suspicious activity.
  • Consider having your credit monitored by a firm who specializes in credit monitoring services. Credit Karma is an example of one you may have heard about. They offer a free monitoring service that will notify you as inquiries are happening and new accounts are opened in your name. Lifelock and Transunion are additional firms that provide this service.
  • Report any instances of identity theft. If you have been a victim of identity theft, it is vital that you alert the authorities so they can track and learn from each situation. While there isn’t much they can do today to catch the thief; the knowledge will help us defend ourselves in the future. The U.S. Federal Trade Commission has a website to help you report identity theft and how to come back from it.


Windfalls don’t occur daily, but you may have the good fortune, or skill, to receive one. What would you do if you received a significant amount of money? Here is what you should think about if this happens to you:

  • Don’t tell anyone. Yes, it is hard to keep a secret like this, but think about it first and process the fact that your life may be changing for the better. If the cash is in hand, deposit it into the bank and don’t spend it until you have time to think. Avoid investing it right away, just keep it safe until you have had time to plan.
  • Talk to your spouse or immediate family. Let them know what is happening but request they keep quiet with other family members until you have had time to talk to some professionals. Money brings out emotions in people, and you may find distant relatives and friends suddenly giving you a call when the news travels to them.
  • Talk to your accountant and financial advisor, or seek to hire one if you don’t already have one. Let them know your situation, and you can begin making a thoughtful, well-advised, plan for your money. Taxes will have an impact on your new situation. Therefore it is critical to avoid hasty decisions. Ask lots of questions for any recommendations a professional may give to you. Educate yourself before making a decision and remember a key to financial freedom is eliminating consumer debts and having a budget. This is true for multi-millionaires too!
  • Don’t rush to quit your job. No one at work needs to know your finances. Slow down and keep things as normal as possible for some time. Taking a couple of sick days would be ok though!
  • Estate plan with a specialized attorney. If the sum of money you have received is large enough, you will want to plan for yourself but also your heirs. Talk with an attorney about setting up trusts for your children and how to protect them from squandering away any inheritance. Your accountant should also be in on the conversation to help you avoid estate taxes. Slow down again and educate yourself. This may all be new to you, and it is a lot of information to digest.

Money is as much a part of our daily life as brushing our teeth. There are a lot of ways we can make life easier for ourselves, but we cannot forget how banks, credit, and budgeting works. Making a mistake may cost you, but staying educated and knowledgeable about an evolving money system will keep you secure.

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