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In the old days, banking was done mostly on paper and in person. As with most things in the electronic age, banking has become increasingly digitized. Electronic banking is becoming the norm. Electronic banking—also known as e-banking, virtual banking, and online banking—refers to services that allow customers to access bank information, conduct financial transactions, make deposits and withdrawals, and pay bills electronically without visiting a bank. Customers may access banking facilities conveniently using their computers and cell phones.

This lesson addresses electronic monetary transactions, which include automated teller machine (ATM) deposits and withdrawals, debit cards, and direct deposits.
Illustration of people holding oversized coins, a calculator, and a sign that says "Savings," all standing around an oversized piggy bank

Source: Vecteezy

Types of Bank Accounts

Banking accounts make financial transactions much easier to complete. The last lesson covered the two most basic types of bank accounts available—savings accounts and checking accounts.

Savings Accounts

A savings account is for saving money: customers can deposit (or put in money) or withdraw (or take out money). By using a savings account the customer’s money is safe at the bank, thanks to the Federal Deposit Insurance Corporation (FDIC). Money in savings accounts also earns interest.

Source: Vecteezy

Checking Accounts

If an individual plans to use their money frequently to make transactions, they will probably need a checking account. A checking account allows for many more withdrawals and deposits each month—this means the funds are very liquid.

How can a customer get money out of their checking account? There are many ways:

They can withdraw cash by visiting the bank in person and filling out a withdrawal slip for the amount they need.
They can write a check with the date, the amount of money they would like to withdraw, and the name of the person who will be receiving the funds. The person receiving the check can present it to the bank in exchange for cash.
They can receive a debit card to pay for items with money in their checking account without writing a check. Stores that allow individuals to pay by credit card typically will allow them to pay with a debit card, too. The difference is that, unlike a credit card, when they use a debit card, they are paying with money they have in their accounts.
They can use an ATM card. ATM stands for “automated teller machine.” The magnetic strip on the back and/or chip on the card stores information about your account; so, when individuals put the card in the ATM, transactions are conducted electronically.
They can manage their accounts online. Customers cannot get cold, hard cash this way, but they can arrange for automatic payments for regular monthly expenses, such as a cell phone bill or a car payment.

In today's world, it is possible to get by without a savings or checking account, but it is extremely difficult. As covered in the last lesson, those without bank accounts face higher costs to cash checks, lack a safe place to store and save money, and may struggle to pay bills in locations that will not accept cash.

Opening a bank account is one way for a bank to get to know an individual as a potential customer. As a result, it is easier to get larger loans (say, for a car or a college loan) if the individual has established credit and has proven that they can manage an account responsibly. Without a bank account, they have no track record as a responsible money manager.

Customers need to decide if they want a bank that has brick-and-mortar branches or one that is online. Online banks generally have lower costs than traditional branch banks, and that means lower fees and higher interest rates on savings. ATMs are widely available for online banking, as well as good mobile banking services including check deposit through an app on the phone.

Sometimes having a bank with physical branches is important, such as when you prefer the personal interaction with bank employees or you frequently need to deposit or withdraw cash. Both credit unions and banks offer accounts and financial services. Banks tend to have more technology and a larger number of ATMs, but credit unions historically offer lower fees and better customer service since they are non-profit organizations.

If a customer is under 18 years old, most states will require that a parent or guardian open the bank account for them. Until they turn 18 the access to some services will be limited.

Regardless of the type of account that is opened, the application process itself is short and will have the customer participating in banking services in no time.

Customers should pay attention to their balances to avoid overdrawing their account, which means taking out more money than is available. Overdrawn accounts are charged fees, so the customer will need to pay the fee plus make up the amount of money that caused the overdraw in the first place.

Many checking accounts offer overdraft protection. This service allows customers to automatically transfer money from another account into their checking account if a transaction takes their balance below $0. While convenient, this is a service that the bank charges a fee to complete. To avoid paying those fees, keep a close eye on the balance in the checking account and never allow it to drop below $0.

When investigating banking options, consider the technology that is offered with your account. Online bill pay services and mobile depositing through an app are real time-savers, so if those features are important be sure to verify the bank or credit union offers what is needed.Opening Your Own Account

Opening an account is very straightforward. The first step is to choose a bank. It is a good idea to find a nearby bank, so it is easy to do business if you need to physically visit the bank. Ask friends, neighbors, and mentors for their recommendations. Research nearby banks online to find one that offers the services you need. The customer should check that their bank has business hours that are convenient for them even if they plan on doing most of their banking electronically.

A tablet device displaying an "application form"

Source: Gerd Altmann, via Pixabay

The next step is to fill out an application that usually asks for basic information, including the date of birth, address, and Social Security number of the applicant. Most banks require the applicant to provide two forms of identification. Options include the customer’s driver's license or learner's permit, their passport, their state-issued identification card, their military identification card, their certificate of citizenship or naturalization, as well as other forms of government-issued identification. Most banks also require their customers to be at least 18 years old, but some banks offer programs for individuals aged 16 to 18 with parental consent. Make sure to check out the local banks' guidelines on opening a checking account. Upon completion of the application, the customer will meet with a bank representative to open the account and answer any questions.

The last step is to complete a signature card. The bank will keep a card with the customer’s signature to prove your identity.

Electronic Services Offered by Banks

In addition to the ATM and debit cards, other electronic financial services include direct deposit, wiring of funds, and electronic bill paying. Electronic banking is broadly known by the term electronic fund transfer (EFT).

Direct deposit can be beneficial for many workers. They can arrange with their employers to deposit their paychecks directly into their checking account. Some banks and credit unions offer no-fee checking accounts for customers who use direct deposits.

Most financial institutions offer wire transfer services. If a friend or a family member needs money, customers can send the funds electronically through their bank. Usually, the financial institution will charge a fee for this service.

Paying bills online is another convenience of electronic banking. For instance, a customer does not need to write a check, pay for postage, or mail an envelope to pay their bills. They can set up electronic bill paying through their financial institution—there may or may not be a cost for this service. Alternatively, many businesses have apps that can process payment. This electronic process can be set up to automatically withdraw the amount owed from your bank account.

Bank Statements

Whether an individual chooses to write paper checks or engages in electronic banking, it is important for them to keep tabs on their bank statements. Simply put, a bank statement is a monthly record of what has happened with your bank account. Each action—a deposit, a withdrawal, a transfer, interest earned, or a fee—is a transaction. Banks will send out monthly bank statements to account holders in either electronic or paper format, depending on the preference of the customer.

Below is a sample bank statement.

Sample bank statement (PDF)

Produced by J. Frankland for Virtual Virginia, 2020

Reconciling Your Bank Statements

Once a customer gets their bank statement, they need to make sure their records match the bank's records. Why is this important? There are two good reasons:

You want to make sure you have not made any serious errors in your records—you need to know how much money you have!
Believe it or not, the bank sometimes makes mistakes. If you catch an error right away, you can talk with a teller or branch manager at the bank to fix it.

How can a customer do this? They can use their check register or banking software to compare transactions. Throughout the month, the customer has been entering debits and credits into their check register or banking software and keeping track of the transactions they have made. After they receive the monthly statement from the bank, they can compare their information to what they have entered in their register or software.

Customers may also find that they forgot to record a transaction in their register. For example, if they went to the movies and bought tickets with their debit card, they might have forgotten to make an entry in the register. The bank statement will remind them of that transaction, which the customer can then add to their register.

The customer might also find that their bank statement contains transactions they did not authorize. In this case, the customer should contact their bank at once. The customer’s bank statement will also detail any fees charged to their account. For instance, if they ordered new checks, the fee for the checks will appear on the customer’s statement and have to be added to the register. Or, the customer may have neglected to record a fee that was charged for using an ATM from another bank.

The process of matching personal records to the bank's records is called reconciling. The reconciliation is the responsibility of the account holder. This process is how an individual can make sure that they—and the bank—are on track and that the bank and the customer both know how much money the customer currently has. Here is how to start:

Open and review your bank account statement as soon as you receive it.
Look for transactions that appear on the statement but that do not appear on the register.
If a transaction or fee was not added to the register, add it immediately.
Check off every transaction that appears in both the register and the bank account statement in the "reconciled" column.
After every transaction is reconciled, the register balance should match the bank statement balance.

Date	Check #	Paid to	Payment/ Debit	Deposit/ Credit	Balance	Reconciled
7/19	253	Nick C.	29.00		496.51	✓
7/20				135.00	631.61	✓
7/26	ATM		20.00		611.51	✓
7/27				135.00	746.51	✓
7/29	254	Ella G.	17.50		729.01	✓
8/3				135.00	864.01	✓
8/7				50.00	914.01	✓
8/10	ATM		20.00		894.01	✓
8/14	Paypal	Mrs. Charles	38.50		855.51	✓

The table above shows a customer's check register for the same account reflected in the sample bank statement, also above. In the statement, the ending balance was $855.51. You can see that the customer’s check register balance on 8/14 matches this, which means she and the bank agree on her balance—the account is reconciled.

Why the Bank Balance and Your Balance May Differ

In the picture above, we see that Isabella realized her balance doesn't match the balance that the bank account reported. If a customer finds that their bank balance and their check register doesn’t match, they shouldn’t worry. They just need to look over the transactions on their bank statement. As long as nothing looks out of place, there is probably not a problem. However, if they see a withdrawal they did not make—especially a large sum—they should contact their bank immediately.

Once Isabella gets her bank statement, she needs to make sure the records she keeps at home match the bank’s records. Why is this important? There are a few good reasons.

Make sure you are right. The customer needs to make sure they have not made any serious error in their records—they need to know how much money they have!
Make sure the bank is right. Believe it or not, the bank can sometimes make mistakes. If the customer catches an error right away, they can talk with a teller or branch manager at the bank to fix it.
Identity theft. Computer hackers are out there trying to steal and use bank account numbers. Check every transaction!
Patterns and spending. If customers are having trouble meeting their savings goals, look at the numbers. They will start to see spending patterns that they can change.