Checking and Savings Accounts

Banks usually offer two basic account types: checking and savings. Checking accounts should allow you to take money out without fees. Savings accounts usually limit how often you take money out, but they will pay you a greater interest rate for money that you have in your account. Interest is the amount of money a bank pays you for having money in your account. It probably makes the most sense to start with a checking account and, if there are no extra fees, to also open a savings account.

If you have a separate savings account, it will be easier for you to set aside money for important things, like saving for a car or for emergencies. By doing this, you can learn the concept of “paying yourself first”—which means automatically putting some money into savings before you’re tempted to spend it. Start small if you have to – a few dollars from each paycheck quickly adds up.

Ask banks about these things when choosing an account:

Minimum Balances: Some accounts require you to maintain a minimum balance. That means you must have at least a certain amount of money in the account at all times. If your account ever goes below that amount, then you’ll get charged a fee.

Service Charges: Some accounts charge you a monthly fee no matter what. But why bother paying that service charge every month if you can avoid it? There are enough good banks that don’t charge fees that it often does not make sense to pay for one that does. Some examples of service charges are: fees for checks, check cashing fees, deposit fees, wire transfer fees, fees to use a teller, overdraft fees, and online banking fees.

ATM Services: Your bank will most likely charge you a fee for using ATMs that do not belong to them, and some will limit the number of times you can take out cash from your bank’s own ATMs. Some banks will make you pay an additional fee if you go over that limit. Even though they’re convenient, ATMs can be expensive. Some banks may offer free ATMs and will even refund you any charges that other banks charge to use their ATMs. If you think you will use ATMs a lot, be sure to ask about these fees.

Overdraft Fees: An overdraft is when you take out more money from your account than you have in it, like when you write checks adding up to more money than you have in your account. If you have an overdraft, the bank will charge you fees. These fees can quickly add up to hundreds of dollars. So you really need to understand how the bank handles overdrafts, mainly because young adults are more likely to have overdrafts. Be sure to ask your bank about overdraft fees or special accounts that may not charge overdraft fees to young people.

On a related note, if your check “bounces” because you don’t have enough money in your account, the person to whom you wrote the check may charge you fees on top of what you owe them for the check amount. If you don’t pay them, then the police can charge you with theft. Bouncing checks can result in you having a criminal record, which may also keep you from getting a job or renting an apartment.