Meet Carlos. Carlos is a rising freshman at State University.
Carlos will be arriving on campus in a month, and has quite a list of things he needs to
buy: books, laundry baskets, food, and so on.
Sadly for Carlos, those items also require money, so he’ll need to open a bank account
that he can access while on campus. Unfortunately, he has no idea where to start. What should
Well, we’ve got him covered.
Let’s start with the basics. There are two types of bank accounts, checking and savings.
Checking accounts are designed to give people easy access to their money. They can be used
to deposit checks, pay bills, and even transfer money between accounts. Plus, they have no
limits on ATM or online transfers and come with both checks and a debit card. This makes
them an ideal homebase for your money.
In contrast, savings accounts have no online bill pay and no debit cards, plus, all ATM
withdrawals and online transfers are limited to six times per month, beyond which a hefty
fee is charged.
So clearly, savings accounts are inferior right? Well, not so fast.
Unlike most checking accounts, all funds kept in a savings account earn a small amount of
money each year called interest. While this money isn’t very large, and normally way
smaller than anything you’d earn with any investment account, the money put into a savings
account isn’t subject to risk, unlike invested money.
This makes savings accounts a great home for your emergency fund, and any saved money you
need in the next five years. For more details on building an emergency fund, be sure to
check out our video “Funding Your Future”.
Hopefully you and Carlos now better understand how checking and savings accounts work. Be
sure to check our next video, where we’ll teach you how to get a great bank account,
and be sure to check out our website, where you can find more educational material and
free recommendations for great bank accounts.