Financial Friday - Types of Accounts

Like many things in life, understanding and properly using the tools available to you makes reaching goals a little easier. Finances are no different. Utilizing checking, savings, and credit accounts correctly can set you up for financial success and help you achieve your financial dreams sooner rather than later. Here is some basic information on how to use each bank account effectively. 

Checking: 

A checking account is used for day-to-day transactions. The money in checking accounts can be accessed in multiple ways, such as by writing checks, depositing or withdrawing cash from an ATM (automated telling machine), and using a debit card. Checking accounts sometimes come with monthly maintenance fees, ranging from $5-$15. 

As a student, you can open a student checking account, which will often include a few perks,  such as waived monthly fees. To help you pick out which student checking account is right for you, here is one resource that compares different options side-by-side. 

Savings: 

Savings accounts are accounts that are used for emergencies and/or long-term savings goals like a down payment for a car or a deposit on a house. Unlike a checking account, a savings account isn’t meant to be accessed as frequently. Fortunately, it’s pretty easy to open both accounts at once. 

Determining exactly how much to store in your savings account versus your checking account may seem like a challenge. Whenever possible, experts recommend keeping at least 90 days worth of expenses in one’s savings account for emergencies. On the other hand, if you keep all of your money in this account, it may be more difficult to access for everyday expenses. This is why budgeting is important (a topic we will cover next week)! 

We recommend having your employer split your paycheck if you use direct deposit. With this option, a percentage of your paycheck will be directed to your savings account, which would put your savings on autopilot. If you have a checking and savings account with the same bank, you can transfer money between the two accounts easily. However, some banks only allow a limited number of transfers each month. Each bank differs, so be sure to check your bank's policy to avoid paying fees.

Credit: 

There are different types of credit, with the most common one being “revolving credit.” Revolving credit usually comes in the form of a credit card. Credit cards allow you to borrow up to a certain amount of money (called your credit limit) each month. At the end of each month, account holders are expected to pay the balance that they’ve used, with any unpaid balances accruing interest. 

Overspending on your credit card can cause problems with high-interest rates and monthly minimum payments. Always spend smart!

Where to Bank: 

The number of choices on where to bank can be overwhelming. While big banks may be more recognizable because of their extensive advertising, they also have their downsides. Here are a few great entities that provide better perks than commercial banks, which you may consider partnering with: 

Credit Unions: 

Credit Unions conduct business for a completely different reason than big banks. Stephen Lark, Vice President of Marketing and Corporate Development for Communication Federal Credit Union says that credit unions are “founded on the philosophy of people helping people.” Unlike major banks, credit unions are not-for-profit organizations that support higher rates on savings accounts, more lenient qualification standards on loans, and credit help if your credit is poor. Small banks such as Bell Bank, Village Bank, and Farmers & Merchants Banks offer similar perks. 

Unfortunately, using a credit union or small bank has its drawbacks. ATM locations are limited, rewards programs and sign-up bonuses on credit cards don’t compare to those of commercial cards, and credit unions are usually only open to members of a community or workers in a specific profession. 

Alternative Banking Options:

The advancement of financial technology has brought the development of some great banking options as well. Acorns and Qapital are app-based banking platforms that promote smart spending, investing, and savings. The fee for an Acorns debit card is $3 per month for an individual and $5 for a family. Qapital costs start at $3 per month and increase to get more features like a Qapital Invest account and the ability to split your paycheck between two accounts. Neither of these platforms offer credit cards. These low fees make platforms like these a great option to consider. 

Next week we will be covering budgeting! We will be providing a PDF budgeting sheet that you can download and fill out for yourself. We will see you next Friday!