TD Bank’s inaugural Financial Preparedness Report revealed that 44% of Americans think about their financial preparedness daily, but 36% of respondents reported being unconfident that they had enough savings to cover unexpected bills that could arise. While planning for the unexpected can be challenging, it’s essential to start by ensuring that your finances are correctly set up with your banking accounts.
What are the most common and costly mistakes that people make when setting up their accounts? GOBankingRates spoke with banking experts to find out the mistakes that you want to avoid to ensure that your banking setup aligns with your financial goals.
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“The mistake that is most likely to happen to people when they establish their bank accounts is putting everything under the same roof,” said Ryan McCallister, a banking expert and founder of F5 Mortgage. “They operate their spending, savings and bills as well as emergency funds out of one checking account, and this makes it difficult to tell where money is actually going.”
You want to ensure that every banking account serves its own purpose so you don’t get confused about what’s happening with your money. By having all of your funds in one account, you can easily spend more money than you intended to or touch your savings without realizing it.
McCallister suggests dividing your accounts by purpose:
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Another common mistake when setting up a bank account is not understanding its purpose. McCallister stated that it’s vital that you understand the significance of every account within your complete financial picture. You don’t want to make the mistake of opening multiple accounts to chase a promotional rate or some bonus. Before you open any kind of banking account, make sure you need and want the account — that it plays a designated role in your finances — so you don’t have your funds spread out over random accounts.
McCallister stressed that people tend to neglect automation. They use memory to send money to savings or to pay bills and this can result in late payment or inaccurate savings. When setting up a banking account, you also want to take out the guesswork about budgeting by automating transfers. This basic setup performed at the early stages can spare you headaches and overdraft charges in the future.
“Overdraft protection can prevent declined transactions or costly overdraft fees when your balance runs low,” said Denise Romanelli, assistant vice president of corporate social responsibility and certified financial counselor at TruMark Financial Credit Union. “You can typically link a savings account, credit card or line of credit to your checking account so funds are automatically transferred to cover shortfalls.”
Since every financial institution has different policies on overdraft handling, you want to ensure that you know what you’re signing up for. You’ll want to take some time to understand the terms before opting in or making a decision about overdraft protection.
Romanelli pointed out that digital tools can help you manage your money more efficiently and securely, but that many consumers will forget to set these up when opening a new bank account. She added, “Start by setting up real-time alerts for things like low balances, large transactions or direct deposits. These notifications help you monitor activity instantly and spot suspicious charges early.”
Some of the digital banking tools you want to look into are:
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Mobile deposit to deposit checks without visiting a physical branch to save you time in the future.
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Two-factor authentication (2FA) for your financial institution mobile app or online portal for an extra layer of security.
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Free credit scores and reports to see where you stand with your overall financial picture.
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Spending tracker and budgeting insights to know what’s happening with your money.
Leveraging these features can help you avoid late fees, stick to a budget and stay in full control of your finances.
Romanelli warned that failing to name beneficiaries when setting up bank accounts could lead to serious issues. “Naming beneficiaries is a key step when opening your account because it ensures your funds are passed directly to your chosen individuals without going through probate, saving time and legal hassle,” she said.
While it’s important for traditional bank accounts, you also want to designate beneficiaries for digital investment platforms and savings apps as well. Handling this aspect is an important part of overall financial planning.
A final pitfall when setting up a banking account is the failure to read the fine print of the account. McCallister noted that individuals often open accounts without reviewing the minimum balance, monthly charges and transaction limits.
Those little fees slowly erode your balance, and you didn’t even see them coming. This is why it’s crucial that you read the terms and never use accounts that charge you to access your own money.
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This article originally appeared on GOBankingRates.com: I’m a Banking Expert: 7 Mistakes I See People Make When Setting Up Their Bank Accounts
