Bank smart: Choose the right account
FROM fees to flexibility, the differences between bank accounts can have a significant impact on your financial well-being, but are you making an informed choice?
Michelle Sinclair Doyley, manager of client financial education at JMMB, sheds light on how to choose the right bank account tailored to your needs.
A bank account is a fundamental financial tool that enables secure and convenient management of your money with a financial institution. It facilitates various transactions including deposits, withdrawals, bill payments, fund transfers, and interest earnings in some cases.
“There are two primary bank accounts to consider: chequing accounts, which allow cheque writing, and savings accounts. Both typically come with ATM cards, offering flexibility and ease of use,” said Sinclair Doyley while speaking with the Jamaica Observer.
By understanding the distinctions between bank accounts and their purposes, individuals can make informed decisions to optimise their financial management and achieve their goals. Fixed-deposit accounts are another common option, ideal for longer-term savings with higher interest rates. Sinclair Doyley pointed out that chequing accounts typically do not earn interest. Savings accounts, on the other hand, offer a small amount of interest, usually below the inflation rate.
“The interest on savings accounts is generally lower than the inflation rate because the purpose is to provide quick access to your funds when needed — it’s not intended for long-term savings goals like buying a house, a car, or funding your children’s education,” she explained to Sunday Finance.
While many view a bank account as simply a means to store money and conduct transactions, Michelle Sinclair Doyley aimed to address common misconceptions Jamaicans hold when selecting a bank account. The first thing she highlighted was that selecting an account which doesn’t align with specific financial objectives — such as savings or emergency funds — can hinder progress towards those goals.
“The chequing account, you can use it for daily use. You may want to have one savings account that you use for regular transactions; you may want to pay your bills from it, etc. And you may want to have another savings account that is earmarked for emergency purposes. So one is for transactions, and one is earmarked for emergencies. But no matter what, both of them can access money pretty quickly,” she said.
She also pointed out that a fixed-term deposit account can be used as an emergency fund. Emergency funds typically cover three to six months of expenses, which can be a substantial amount considering your monthly outgoings.
“You want to ensure that a portion of your emergency fund earns a higher rate of return,” she explained.
To illustrate, she provided an example: “Let’s say you need a six-month emergency fund of $600,000, given your monthly expenses of $100,000. You might consider keeping $300,000 in a readily accessible savings account for emergency use only and rolling the remaining $300,000 into a fixedterm deposit account to earn a higher interest rate.”
Another crucial consideration that Jamaicans often overlook when selecting a bank account is the minimum balance requirement, which can lead to unnecessary fees or account closures. Additionally, other fees associated with bank accounts — such as maintenance fees, dormant fees, ATM charges, and bill payment fees — can quickly add up.
“Some accounts charge fees for almost everything!” Sinclair Doyley pointed out with frustration.
However, she emphasised that not all institutions charge fees for every transaction, and in order to make an informed decision it’s essential to examine the fee structure and calculate your total fees to determine which account is best for you. She explained that sometimes an individual may find that within the same institution, one account attracts numerous fees while another does not. As such, she encourages everyone to be sure to ask their bank which account is ideal for their specific needs, based on how they plan to use it.
Regardless of where an individual chooses to open a bank account Sinclair Doyley stresses the importance of ensuring your money is protected by deposit insurance, which typically covers up to $1.2 million. Another significant factor to consider is the ATM network and accessibility, as this can impact convenient and cost-effective access to your funds. She advises individuals to shop around and compare the offerings of different banks. With the growing importance of digital banking it’s crucial to evaluate online access and security features to prevent vulnerabilities to fraud, as regularly monitoring your account activity can help detect unnoticed fees, errors, or fraudulent activity.
“In some organisations, every minute you hear about some hacking and that kind of thing that happens with people’s accounts. You do want to check the level of safety that the institution has in place for you to minimise the risk of hacking — and I can’t say eliminate, I can only say minimise,” Sinclair Doyley noted.
If you’re unsure which bank account is best for you, she recommends sharing your needs with your financial professional who can guide you accordingly.