So you’ve decided to start a budget and get your finances on track. Congratulations! That is an awesome step towards your financial freedom. Once you get your budget in place, a sense of security will wash over you by knowing where all of your hard earned money goes!
But what if you need help with the very basics of budgets and banking? Well look no further because I am going to go to square one and explain the nitty gritty of banks and accounts. If you’ve got a grasp on this knowledge, please check back for other budget information. If you need a little more knowledge, you’re in the right place!
A little back story about me. I work in a call center of a credit union and I take tons of calls every day ranging from simple requests like balances or transfer to harder inquiries (like trust accounts). I hear and answer all sorts of questions and try to give the best solutions for our members. Luckily I was raised with a small grasp on finances even though my mom was terrible with money (and still is). What if your parent didn’t teach you what a checking account was? Or how a debit card works? Read below and get all of the answers!
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Savings: This is the standard account most financial institutions will open. You earn a small amount of interest on anything you have in this account. As an example, I need to have at least $50 in my savings to earn interest (currently at .10%). Rates and minimums vary, so make sure you check with your financial institution to see what they offer. I want to also note that the Federal Reserve can place limits on how many electronic transactions come out of your savings account (between accounts and ATM). Please check with your financial institution to see what those limits are for your account. Often times a teller can do those transactions without penalty.
Very popular in the 1970’s and still around was the Christmas Club Account or Christmas Savings. It’s a short term savings account with a little higher interest rate than the regular savings. The one main downfall (or perk depending on how you look at it) is you usually can’t access the funds until November. If you need a little help saving for the holidays (or in general), this could help you because you can not take out the funds until a certain time of year.
Checking: A checking account is slightly different than a savings. A checking account is used for every day purchases and transactions, while the savings account is meant for storing funds for when needed. Typically you do not earn interest with a checking account unless you have a higher balance. Also, beware of restrictions with a checking account. Look for “Free” or “Simple” accounts that do not require minimums or debit card transactions. Trust me when I say this, there are many accounts that do not require a laundry list of things to be done. Shop around to see what works best for you.
Almost a thing of the past, you order and write checks with a checking account. Check with your bank to see if they offer a free pack of starter checks. However, I want to advise you, do not write the check until you have the funds in your account. It seems like common knowledge, but it’s often done anyway. Depending on your bank, the check could come out instantly or take a few days. The bottom line: you can not predict the time length. I can’t tell you how many calls I take regarding this. “Well I told the person not to cash it” or “I wrote a different date on it.” The date does not matter. As soon as you physically hand the check to someone, they can legally tender it.
Also a thing of the past, but not extinct, is the checkbook registry. If you are not a paper carrying person, there are plenty of apps to download. Don’t rely strictly on your Online Banking because there can be a delay when transactions post. Stay smart and write it down somewhere else. Banks hand out checkbook registries to anyone that asks or many apps are free.
“Debit or credit?”
A debit card and credit card are different. However, a debit card can be used for debit or credit transactions. Yes, this is why I think it confuses people. A debit card is linked to your checking and savings account. When you use your debit card, it will automatically come out of your checking account. When you go to an ATM, you can select your savings to pull money from. Unless you have some arrangement with your bank, the debit card takes money from your checking when using it at any merchant.
Often times stores will give you the option: credit or debit. Your card can do both, so what’s the difference? Credit transactions typically need a signature while debit transactions require a PIN. A PIN is a 4 digit code associated with your card. You should NEVER give your PIN to anyone. Just don’t do it! With the increase in CHIP debit cards, many merchants will automatically ask you to enter your PIN. You can kindly ask the cashier to run it as credit. While every financial institution is different, I find that PIN transactions process quicker and are more secure, but this might not be the case everywhere. A thing to note: it is possible that when you use credit instead of debit, MasterCard/Visa will offer you an extended warranty on products you purchase. You would call MasterCard/Visa instead of your financial institution to see if it’s offered.
In days of the past, banks also issued an ATM card that was only used for the ATM. The three financial institutions I am part of do not offer that service anymore. Your debit card is now your ATM card. On the bright side, it’s one less card to carry around.
Credit cards are a line of credit that accrue interest. They are a thing on their own. I will discuss credit cards at a later time.
Other types of Accounts:
Money Market: A Money Market is a deposit account that pays interest based on current rates. This type of savings pays a higher interest rate than the standard savings accounts but requires a larger minimum balance (often times at least $2500). Be advised: if you go below the minimum, you get hit with a monthly fee. If you shop around you can find promotional rates for Money Markets. Online banks usually offer higher interest rates. The benefit of a Money Market account is that your money is liquid (you can access it) but you also earn more interest. Some Money Market accounts allow you to write checks from them. Check with your financial institution to see if that’s something they allow.
Certificate of Deposit (CD): A CD is a low risk savings option that earns a higher interest rate than a typical savings account. You place your money into a CD account and it stays there for a certain length of time as it earns interest. CDs come in all term lengths from a few days to several years. Usually the longer the term, the higher the interest rate.
If you need to take out your funds prior the the term date, it’s an option but often times with a penalty. There are different types of CDs, some with penalty free withdraws. A little tip: many CDs automatically renew. If you sign up for a CD with a special promotional rate, it will likely renew to the current rate, so keep an eye on it when it gets close. A CD is not the quickest way to grow your money, but the low risk makes it a great option for your overall portfolio.
Online Banking/Text Banking: Online banking allows you to check your balances, transfer funds, use bill pay, open new accounts, or get loans. Many financial institutions also offer mobile apps. Text banking is amazing for quick balances and recent transactions. If you don’t have the best service to get into your mobile app, you can quickly text to get an updated balance. I strongly recommend using Online Banking and Text Banking as a tool to help you manage your accounts.
Automated Telephone Banking: Before Online Banking, many people called the automated telephone banking to hear balances and transfer funds. This option is still available at most places. Want a quick balance? Just call the number and you have all the information you need! Need to transfer funds, your one phone call away!
Alerts: If you like to spend without *really* knowing what you have in your account, I would recommend setting up alerts. You can have the alert emailed or text messaged to you. Some banks have instant alerts (you spend, it sends) while other places have once a day alerts. Check with your financial institution to see what they offer.
In closing, this is just a brief explanation of accounts most financial institutions offer. This is a helping tool to give you more knowledge. Check with your personal bank or credit union to see what services and accounts they offer. Check back soon for more budget tips.
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