The Basics of Banking: Part 3

 

Checking and savings accounts are two of the most common services banks provide. But why do we need them? Why put your money in a bank in the first place?

In this installment, we’re answering common questions and breaking down the difference between checking and savings accounts. Ready to learn how each can help get you closer to your financial goals?

Why your money is safer in a bank

You could keep all your money in cash, but you’d have to carry it with you at all times or keep it stored somewhere. Cash that isn’t in a bank is typically more vulnerable to theft or misplacement, and can be damaged in events like fires and floods.

Depositing your money in a bank is a much safer option. Banks follow very strict rules to keep your money safe. The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per depositor for each ownership category as long as the institution is a member firm. That means you can still access your insured funds, even in the unlikely event of a bank failure.

How does a checking account work?

At banks, most people keep their money in checking accounts and use these accounts to purchase everyday items like groceries or pay monthly bills. Using a checking account is simple: just write a check, swipe your debit card, or tap to pay for the amount you owe. While most people now opt for the convenience of a card over a check, writing checks is still important for some types of rent payments, municipal bills, and other high-value transactions.

However, if you write checks or swipe your card for more money than you have in your account, you’ll get charged overdraft fees. This means you’ll have to pay the bank for the amount of the transaction plus an additional fee. Overdraft charges can add up fast and cause financial strain, so be sure to stay on top of your spending so you always know how much money is in your account.

How does a savings account work?

Checking accounts are a necessity for daily spending, but if you want to save money over the long term, a savings account is a better choice. Savings accounts earn interest, which means the bank puts a small amount of extra money into your account each month based on your balance. The more you put into the bank, the more interest you earn over time.

Start banking early

You don’t have to be an adult to have either a checking or a savings account. Many banks allow kids as young as 13 to have their own accounts. In fact, many experts recommend that teens open an account as soon as parents or guardians are comfortable, so they can learn to manage their own money.

Opening a checking account early helps kids learn basics like filling out deposit slips and keeping up with transactions. They’ll also discover firsthand the value of saving, setting goals, and investing time and effort into meeting those targets.

Origin encourages parents to involve kids in financial decisions, small or large, at an appropriate age. Talk about how financial decisions are made, how you create your monthly budget, and how it helps you manage your money.

It’s never too early to build good money management skills. With a solid foundation, kids and young adults can develop the knowledge and habits that help them become independent adults and avoid common financial mistakes.

Next up in our Basics of Banking series, we’ll discuss the basics of ATMs, debit cards, and credit cards. Explore the Origin blog for additional, approachable financial resources.