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Chapter 2: Checking and Savings Accounts

If you do not have both a checking and savings account in your own name yet, now is the time to get them. These accounts allow you to save money, make purchases, and pay bills efficiently. When deciding where to open an account, pay attention to the fees. Are you charged a monthly maintenance fee for not keeping your balance above a certain amount? Are you charged a fee for ordering checks? Credit unions can be a great place to open checking and savings accounts – since they are non-profits, they frequently charge lower fees than banks. Many financial institutions also offer special checking accounts for college students, which can have lower fees as well.

Checking accounts
Having a checking account allows you to make purchases and pay bills without having to carry around or store a lot of cash. If you live in a dorm or apartment with roommates, you probably do not want to keep your money in a shoebox under the bed! However, when you pay for things with a debit card or check, instead of cash, your spending is not automatically limited by the cash you physically have. What happens when you try to charge or write a check for more than what you have in your account? That depends on your financial institution and the way your account is set up:

  • Your debit card transaction could be denied, and your check could bounce. Not only could this cause you embarrassment, but it may cost you money as well. Hefty fees are commonly charged for bouncing checks.

  • The transaction could go through, but your account becomes overdrawn. You are spared the embarrassment but not the costs. Just like with bounced check fees, overdraft fees can be high. Plus, you now owe your financial institution money. Typically, as soon as you deposit more money in your account, they will take it out to cover the overdraft, leaving you with less money to pay your bills.

  • If you have overdraft protection, the transactions will go through, and you avoid having to pay overdraft fees. Since overdraft protection is usually cheaper than bounced check or overdraft fees, it can be a good thing to have. When you overdraw, either the funds are withdrawn from your savings account or charged to your credit card or line of credit, depending on how the overdraft protection is set up. Still, even if you have overdraft protection, overdrawing your account is usually not a good idea – you are either taking away money from your savings or increasing your debt.

The best way to avoid problems is to know your account balance before you make a purchase. It is easy - most financial institutions will let you check your balance on the phone or on-line. Don’t make a purchase if you know the money is not there. Another way to avoid problems with your checking account is to keep your debit card, statements, and receipts safe. Don’t let someone borrow your card or leave sensitive financial information lying around. If your card gets lost or stolen, report it to your financial institution immediately.

Savings accounts
It may not feel possible to save money when cash is tight, but getting into the habit of setting money aside regularly is the foundation for a successful financial future. Saving even a couple of dollars per month is a step in the right direction.

  • Save for emergencies. If you are working while going to school, consider saving a portion of every paycheck, until you have at least a few months’ worth of expenses tucked away for emergencies, such as job loss, unexpected car repairs, and health problems.

  • Save for goals. Remember the goal chart in the first chapter? Saving provides a way for you to achieve your goals, whether it is a new car, Caribbean vacation, or something else.

  • Sign up for an automatic transfer of funds. You can make building your nest egg easy by signing up for an automatic transfer. All you have to do is select the date that you want a specific sum deducted from your checking account and deposited into your savings account – and then watch your money grow!

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