Lesson #2: Knowing Different Types of Banking Accounts is Important

I thought I knew something about money. I remember when I was little my dad took me and my first $100.00 worth of allowance money and opened myself a savings account. I still have that account today. What I didn’t know that a Savings Account does not have the same benefit as a Checking Account. Also, when you have a credit card sometimes you get Rewards points that you didn’t even know you were accumulating. For everyone who doesn’t have time for the technical stuff, I am going to try and make it as simple as possible (to the best of my ability).

Savings Account

A savings account is where you put money in that you want to save. Boom! I use this account as my “life goal” fund. This includes a down payment on a house, buying a car, or vacations. This does not include shopping money. Do not do what I did and use this account for shopping money I beg of you. You can go from $1,000.00 to $100.00 really quick. Here are some of the benefits of a savings account, especially for young people like myself.

Pros:

You are saving money and you feel like an actual adult
You save money for future adult things (like buying that dream home you have on your Pinterest board)
A savings account has interest. You are earning money without even trying! It’s like the laziest way to earn money! (You still have to keep your job though)

Checking Account

Remember in your Finance class in High School where you learned all about writing a check? Well, you get to actually do that now with a checking account. You will be distributed a handy dandy debit card and a checkbook with this account. I use this account for “budget shopping”. How much do I need for bills? How much do I want to spend on groceries in one month? These are the types of things that I use a checking account for. A checking account is tricky because of two things. One, it is easy to lose track of how much you are spending a month. With the convenience of a debit card and the ease of writing a check, you can spend more than you realize. Two, you have the possibility of identity theft which is that scary thing you see in commercials where the evil waitress at the neighborhood diner uses your money to buy shoes. Although scary, the benefits outweigh the negatives.

Pros:

Convenient way to shop (especially online)
You can easily pay for bills
You know that crucial money is taken care of (if you deposit according to your budget every month)

Credit Card

I am afraid if credit cards and it is only natural. With all of the stories of people going over their limit, their card is declined, and the dreaded in store cut up (I am scarred from Carrie’s situation in Sex and The City), it is no wonder 30-year-olds today are walking around with horrible credit, unknowingly. What a credit card does is it provides you with what you need with the agreement to pay it back later. Depending on your type of card, credit cards have a maximum amount you can spend. I personally have chosen a low amount for my credit card for reasons I will tell you. Credit cards demand a minimum payment once a month. Depending on the type of card you have, you can either pay off the amount you are due “in full” or you can make a minimum payment which is set by your personal bank. Although credit cards can seem like easy spending money it really isn’t. You still have to pay the money back even though you think that Sephora splurge was worth it. Although scary, there are some perks.

Pros:

You can make big purchases and pay later.
You can earn “cash back” rewards to buy other things
If you pay on time, you can build your credit which will let you do later adult things (like buying a house!)
Do you have some financial background and can give some insight? Would you like to share some of your banking horror stories? Please comment below!

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3 thoughts on “Lesson #2: Knowing Different Types of Banking Accounts is Important

  1. lifeinexchange says:

    I like your discussion of checking and savings and might reference your blog it in my brief discussion of finances with my intro to college class. 🙂 Not teaching until the Fall semester. Would that be okay?

    Like

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