One of the first steps in your financial life is opening a bank account. But what is the best type of account for you? There are more options than ever and more banks than ever.
Banks need you. Banks rely on the funds deposited by their customer to lend money to others. Banks are required by law to keep a certain amount of money on hand at any one time to pay customers if necessary. The more customers a bank has the more money they are required to have on hand and the more money they will be able to lend to others. Interest from loans is one of the biggest ways banks earn revenue. That means that you are important and your business matters.
Which account is right for you? Chances are you will need both accounts in your life. Both checking and savings accounts have value. But each account has differences that will impact your wealth over time.
Checking accounts give you a level of protection and quick access to your money through online access and debit cards, checks, and ATMs. Checking accounts have lower interest rates than Savings. That means that you will earn virtually nothing for keeping your money in the account. These accounts also allow you to easily move money from one account to another. Banks are also generally safer than storing all of your money in your mattress. It is more difficult to rob a bank than your house.
Banks are also backed by the federal government. This makes it easy to make payments on credit cards and loans. Many employers require employees to have a bank account for direct deposit of employee paychecks. Some checking accounts also have fees, do your homework and choose one that does not have costs associated with it.
- Convenience – ATMs, online banking, debit cards
- Direct deposit
- Low interest rates
Savings accounts offer higher interest rates than checking. Make sure you shop around for the bank with the highest interest rate, because they are all different. But Savings account only allow a certain number of withdrawals per year. So they are not good for making everyday purchases.
Savings are great for personal emergency funds. The money is there if you ever need it, but it is also earning interest over time. You can never have enough savings. It is one of the safest places for your money. But there other financial vehicles that can give you greater returns, but also come with more risk such as CDs and Stocks.
- Higher Interest rates than checking accounts
- You can only withdraw your money a certain number of times
I would recommend having both a savings and a checking account. The accounts work best together. But it is important to understand the differences that each one offers and come up with a strategy that works best for your life.
Watch out for fees. Too many financial institutions charge ridiculous fees.
These accounts are important because they protect your money against inflation.
It is smart to keep the majority of your money in your savings account to earn a higher interest rate and only keep funds needed within the next 6 months in your checking. It is also advisable independent retirement account like a 401k or ROTH IRA. There are also lots of advantages to owning equities like stocks and bonds. Make a plan and execute it over time and you will be successful.
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