Banks and Credit UnionsYears ago, Sam and I helped a couple dig out of a financial mess. They came to our apartment and, one bit of data at a time, entered all the transactions they ‘d made in the past year.

Why did we have them do this? To show their spending habits and patterns.

Not only did they spend more than they ever imagined on dining out, tools, and other expenditures, but they also had a cascading problem. They never bothered to look at their bank statements (!), just making a general estimation about how much was in the account given their salaries and expenses. They had bounced a couple of checks early in the year without realizing it. These checks were covered by an overdraft, which charged a hefty fee and interest charges. Due to the initial fee and interest, more checks bounced. When their paychecks were deposited, it would cover the minimum overdraft payment — which they didn't realize was kicking in. Given all the fees and interest, their actual balance was far less than their guesstimate. So more checks bounced.

By the time they realized they were in trouble, the trouble was serious. It had spiraled out of control and took years to recover.

You probably know that banks and credit unions are insured by the government under the Federal Deposit Insurance Corporation (FDIC). What you may not now is that FDIC insurance doesn't make all banks equal. Before you open a personal or business checking account, make sure you know what your bank's operating policies.

What happens if there are insufficient funds to cover an withdrawal? When are deposits credited? What fees are charged to your account on a monthly or annual basis? What other charges can accrue? And in this economic climate, you even have to ask what happens if you bank fails?

If your bank policies cause a domino effect on your finances — like it did with our friends — you not only get a huge financial hit, but it can ruin your reputation as well. So before selecting a credit union or bank, do you due diligence and give them a thorough interview!

One simple way to analyze a bank is to understand the star rating. The results are easy to understand:

5 stars = Superior

4 stars = Excellent

3½ stars = Good

3 stars = Adequate

2 stars = Problematic

1 star = Troubled

Star ratings are based on asset size, net worth, tangible capital ratio, risked-based capitol ratio, and year-to-date net income, among other things, and use data reported to federal regulators. This information is tabulated and analyzed before being put into this simple scale.

Don't confine yourself to the big banking names. Often it is the local, independent institutions, like Westfield Bank Ohio, where you can have a personal relationship with a banker who is uniquely qualified to help you make the best choices and be the best banking fit. This can give you security and peace of mind.