Bank Accounts :: Savings Account :: Checking Account

Little kids get allowance to spend for treats. The next step is to go to the bank and open your first account. I think for most if not all of us that first account was a savings account. When you get a job you need an account to manage your income and cash outflow…a checking account.

Savings accounts

Basic savings accounts do not get paid a very high rate of interest. The most important thing about savings accounts and savings plans is saving!!! Whether it is your little kids account or your retirement plan, the most important part of savings is putting money out of your income into the account.

You must take money from your take home pay and squirrel it away in some form of savings account. The balance will grow from you depositing block on block of savings. Like a wall is built a brick at a time savings is build a deposit at a time. There I have said it 3 different times 3 different ways.

Savings accounts usually have a purpose…a goal. Your list of savings goals over a lifetime will include education savings, travel savings, saving up for a car down payment, saving up for a house down payment and saving for retirement. A very important savings account to have is one for life’s little “contingencies”. You may need to fix your car or address some other “surprise expense”. Life is full of these little surprises and it is best to have savings set aside for them if you can. If you only have one savings account you can lose your vision of what you are saving for and then you may make a bad decision. You may take savings that you had planned for retirement to accomplish a more pragmatic goal and forget to replace them once you have achieved that goal. To keep track of your savings missions you should have a savings account for each goal. You can keep them exclusive of each other or borrow from one to expedite the other. In the latter case you can make a contract with yourself to pay back your accounts with interest. This sort of thing not only saves you borrowing costs, it builds character and discipline.

Checking accounts

Your budget has your incomes listed on the left side and your expenses listed on the other. A checking account is your tool to manage this job on a day to day basis. You can deposit your paycheck or it may be directly deposited to your account by your employer. Then you can manage your spending by using a debit card, checks or cash withdrawals to distribute it to address the items on the spending side of your budget. A lot of these monthly transactions can be accomplished on line through soft ware available from your bank. Online banking has two advantages. It is amazingly convenient. The second is that it accomplishes one of the other services of checking accounts in real time. The second facet of checking accounts is that they help you track your spending and how much you have left of your income as you wait for your next installment of income. You can have statements mailed to you weekly, bi-weekly or monthly or you can track your account in real time with online banking.

Long term Savings

Certificates of deposit/Guaranteed investment Certificates are the same, just named differently depending on where in the world that you live. They are a tool to deposit your savings into when you have saved a substantial amount and have a time in mind when you want those savings to be available to you. The advantage is that they get a higher rate of interest in return for you making the commitment that you will leave the money in this tool for months or years. If you commit your money to this savings tool the interest for 1 year is more than 3 months, 3 years is higher than for 1 year and so on. The interest is paid to your checking or savings account every 6 months or 1 year or it can be compounded.

Conclusion

You can use these basic tools to accomplish basic financial goals. Balance your budget and your checking account will also balance every month. You will not incur wasteful penalty fees for NSF checks or overdrafts. Build your savings and you will have assets on your balance sheet. These are very helpful as you grow into a career and a family. Life is very challenging and managing these basic tools properly is more important and challenging than most folks think.

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Outline…Basic banking includes savings accounts and a checking account. Checking is for managing cash flow and savings grows in to CDs/ GICs. They are tools to work within the confines of your budget and your balance sheet.

Back to: Personal Finance Budgeting