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Military Family

Military Banking: The Basics

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bankingAs a member of the military, you have opportunities to save money that are not often given to the general civilian population. You should be taking all of the advantages of these opportunities. You can use them to start saving, spending, and investing in the correct way.

The purpose of creating and maintaining a continual savings account while you are in the military is generally prevention. Being a member of the military creates situations and emergencies that may need to be paid for out of pocket. If you don’t have a savings account that provides some sort of financial cushion, you may find yourself in a difficult spot.

The best way to start saving part of your income is to start thinking of savings as being mandatory, like a bill. Make your savings automatic through programs that are available to service members.

Thrift Savings Plan

In 2000 the Floyd D. Spence National Defense Authorization Act was signed into law, and it contained a provision called the Thrift Savings Plan (TSP) for military personnel.

The TSP allows you to determine how much money you would like to put into your retirement fund. This eliminates the temptation to spend extravagantly after deployment, and provides for a better investment into the TSP.

The TSP is a defined program when it comes to benefits. You do not need to retire to access this benefit. This is because the former retirement system options only determined your retirement pay on the number of years of service, your rank at retirement, and other factors. The TSP is more equitable; it allows you to add as much money as you would like and when you would like, keeping your savings relative to your current career and spot on the pay scale.

The TSP is accessed through your branch of service, and the contributions are taken directly from your own military pay. You reap the benefits of any earnings accrued, and will enjoy that money whether or not you complete a full service stay of 20 years. The amount you contribute is up to you, and you can decide this based on your situation and pay scale.

Savings Accounts

 Different than a standard checking account, a savings account is a banking opportunity that allows you to deposit money and earn interest on it. The bulk of the balance is often left untouched, though you can make withdrawals.

 The interest accumulated with your money in a savings account is a useful tool for those who have limited amounts of cash to save. Young service members especially find savings accounts as a convenient way to put their money aside, and allow the cents and dollars to add up. Savings accounts let you start small and deposit whenever you want, as much as you want, with no minimums or restrictions. Savings accounts then become popular because, like checking accounts, you can access and withdraw your money if needed.

As with any saving option, research should be done before determining where to set up your savings account. Make sure to find the best interest rates and know the required minimum deposits and minimum balances with your bank or your credit union.

Checking Accounts

Checking accounts usually include personal checks, debit cards, and ATM services. Like a savings account, a checking account allows you to protect your money at an FDIC insured institution, and terms and capabilities vary from bank to bank.

Checking accounts can be found at nearly any bank, and they often require a minimum deposit. These can be had with little money and you can often be approved as a student or a low-income applicant. These accounts are beneficial for those who are not able to maintain a high balance.

You should track the posting of deposits and withdrawals to be sure that you have enough money in your account for checks written or withdrawals made. If a check is written for more money than you have saved in your account you will be subject to large bank fees and, possibly, minor legal action. Checking accounts often have several convenient methods for checking your account balance, which include monthly statements, websites, and ATMs. You can also record your balance in a checkbook or journal and compare the records.

Interest-Bearing Checking Accounts

 This is a hybrid checking-savings account because it has aspects of both. It functions as a normal checking account but also allows you to earn interest on your balance.

 Pros: They provide the easy access of a checking account with the higher interest rates of a savings account.

Cons: They can have restrictions such as minimum transactions, balance requirements, and service fees.

 Banks, Credit Unions, and Savings Institutions

 These three main types of financial institutions operate on charters from state or local governments. Their deposits are insured by either the FDIC (Federal Deposit Insurance Corporation) or NCUA (National Credit Union Administration). They all offer basic banking services, but they have different structures and priorities. Some of their differences are discussed below:

 Banks

  • Owned by private investors. Governed by board of directors and some stockholders.
  • Emphasize accounts for businesses and consumers.

 Credit Unions

  • Non-profit, owned by members. Directed by elected members.
  • Emphasize deposits and loan services.

 Savings Institutions

  • Usually a corporation governed by board of directors.
  • Most known for real estate financing.

 Online Banking

 Online banking gives you the opportunity to access your accounts from around the world using only the Internet. You can pay your bills, transfer money, and even make deposits and withdrawals. It is safe and secure, and protects you from fraud. For many, especially those with limited experience, online banking can be confusing. But it can be learned with the right mindset.

Online banking services allow you to save time by completing all of your transactions with a point and click mentality, and this allows you to put your finances always within reach. You can apply for and open an account online with most banks. You will have access to automatic deposits, bill paying services, and balance checking. You can access your account any time of day and any day of the week, and can also report lost balances or cards, and transfer money to other accounts.

Debit Cards

Like online banking, these cards allow you to access your account electronically from most ATMs around the world. With a debit card, you will have the ability to make payments at most stores and restaurants. With this type of card the money comes directly from the balance in your account, and you will not have to worry about accruing an interest rate or maxing out your credit card. You can also withdraw money from any ATM – though machines not affiliated with your bank will likely incur a fee on your card.

Draft Acceptance

 Online Draft Acceptance is an important feature that you should look for with all of your potential bank accounts. This feature allows you to pay your bills online and will eliminate the stress of late payments, which can create strikes on your credit report. You can keep records of your bill payments, and set up your accounts to pay them automatically once they are ready. This can eliminate a burden for your family.

Overdraft Privileges

 Bounced checks can ruin your credit, cost you large service fees, and simply be embarrassing. As a member of your military credit union, you may have the opportunity to tie multiple accounts into your regular checking account if the amount in your checking account doesn’t cover the amount of your purchase. If you do not have money in a savings account from which to take, your credit union may tie those overdraft charges into a credit line to protect you from fees. They will then expect to be paid back when you deposit more money and this will be detailed in your next bank statement.

 Applying For Credit

 There are a number of factors that are looked at when you are applying for credit. These include a number of the following:

  • How much you are making in your different avenues of income, how much you owe, and how much you expect to be able to repay. These must all be taken into account by a bank so that they know how much they can lend you, and how much they can reasonably be expected to make or lose in interest.
  • Your length of employment, what type of job you have, how much you make in your job, and your job security. They will decide how well you are equipped to handle debt if you accumulate it, and they will then decide your approval status based on your past credit payments and histories. They will also have to assess what you own in case the creditors need to take it from you to repay your debts.

 Your Credit Score

 The credit scoring system is used for determining how much a bank should lend you. It is a summary of all your past credit transactions, and it uses a large amount of data to determine what makes up your spending, savings, and borrowing past. If you own a home, have a steady job with a good income, and have made all past payments on your credits you will likely have a very high credit score.

Your credit score can determine a number of important things in your life. A bad credit score can stop you from getting a job in some situations or in some fields, and it can also prevent you from getting a credit card. With a bad credit score, you will not be able to purchase things on loan.

Your credit score determines how much money you will be allowed on your credit card, and this can mean the difference between around $1,000 and as high as $5,000. Credit score is also an important factor when you are considering purchasing a house or a car. If you do not have good credit, you will not be approved for a higher mortgage amount for your house.

If you are buying a car you might not get financed for a five-year payment plan and you may not enjoy the best interest rate with a bad credit score. The best way to maintain your credit score is by making your payments on time; not skipping any payments; and keeping your checkbook, credit cards, and bills organized.

 Protecting Your Rights

 There are several government acts that are poised to put you in the best position possible when borrowing money, and these also allow your bank to feel safe when giving you money.

  • The Truth-in-Lending Act gives you the opportunity to feel safe from credit card disclosure abuse, and you will be protected against any fine print that will leave you uninformed. All disclosures in your policies must be clear and concise, and these will be available to you and all other consumers.
  • The Equal Credit Opportunity Act (ECOA) is used to prevent discrimination. This means that you will have the same opportunity for a loan whatever your sex, veteran status, or personal situation.

 Identity Protection

 Identity theft is a serious matter, especially when it involves financial institutions and potentially large amounts of money. Most banks and credit unions have protections against this crime, and will notify you of any fraudulent or suspicious activity. If your card is stolen and money is spent, they may even refund your money. When choosing a financial institution, be sure to research their identity protection options. In some circumstances, identity theft can result in bad credit and even a dishonorable discharge, so it is important to know if your bank is protecting you against these problems.

 Power of Attorney

 It is highly recommended that a power of attorney is established for all of your accounts in the case that you are away, deployed in action, or unable to access your account yourself.

General power of attorney is a broad definition that allows you to appoint someone to control your account. This control often includes the power to handle transactions, enter safety deposit boxes, buy and sell property, purchase life insurance, and exercise stock rights. If you are traveling, or are physically or mentally unable to control your account, general power of attorney can be a powerful tool for your family or loved ones.

Special power of attorney, on the other hand, gives specific powers to your agent, and these powers can be spelled out by you for your account. There is a difference between a Special Power of Attorney and a Military Special Power of Attorney (MSPA). An MSPA is critical for military members because it is specific to active duty and spells out who is commanded control over your finances in the event of health complications or extended absence.