In this article we’ll explain what checking & savings accounts are, and the process of opening your bank account to start automating our personal finance system. This step is one of the most important as your bank accounts will be the backbone of our financial system.
Before we get started I want to remind you that banks are financial for-profit institutions that make a large portion of their money from fees (Credit Unions excluded, but fees still apply)! Yes you heard that right, so let’s make sure that you never give your hard-earned money to them via overdraft fees, maintenance fees, or any other service they try to sell you.
Let’s get started!
A checking account is a bank account that allows for easy deposit of funds (whether physically walking to your bank account and deposing your money, or your employer paying you via direct deposit), it also allows you to easily withdraw your money via any ATM for any daily purchases.
As I already mentioned the primary purpose of this account is to send your funds here initially for a short period of time, and later move those funds to other accounts (such as savings, and investments). This is also the account we’ll use to pay some of our monthly bills and ensure we never miss any payments to avoid any late payment fees. Moreover, our checking account will be the initial backbone of our automatic finance system that we’re trying to build.
Once you open your checking account, you’ll receive a debit card and a set of paper checks.
Do’s & Don’ts of checking account:
Don’t open a checking account that require you to pay maintenance fees and/or require you to keep a minimum balance in your account.
Do enroll in overdraft protection or set your account to decline any transactions if you don’t have enough funds. This will save you at least $30 worth of overdraft fees.
Do check the daily withdrawal limit to ensure this works with your needs.
In short, the purpose of having a checking account is to have an easy way to withdraw money frequently if necessary; however, the money should be here temporary before it gets transferred to your savings or investment accounts.
A savings account is the opposite of a checking account in the sense that your money is not intended to be here for a short period of time, but rather a longer period of time. The intent of having a savings account is that it will allow you to save for specific goals (such as saving for a home, saving for a wedding, starting a business, vacation, etc.). Another important aspect of savings account is that it is an interest-bearing account that typically gives you a fixed rate return for having your money sitting there (this will vary depending on the bank that you sign up for). This is also essential for our automatic finance system that we’re trying to build.
In short, a savings account will allow you to save for a purpose, and at the same time accrue interest while the money is sitting there which your checking account doesn’t do (some do, but it’s not worth it in my opinion).
Do’s & Don’ts of Savings account:
Do sign up for a high interest rate or high Annual Percentage Yield (APY) that will give you a decent return on your money.
Do understand that most transfers/withdrawals will take at least a day (specially if you sign up with an online bank), again the intent of a savings account is not to constantly withdraw your money.
Choosing a bank
Make sure you choose a bank that fits your needs and doesn’t charge you maintenance fees. Some banks will waive your fees if you setup direct deposit with your employer (which we’ll need to do). Additionally, your bank should not charge you for any kind of money transfer between your accounts as you will be doing this quite a bit. Lastly, as a reminder, ensure you have the ability to protect yourself against overdraft fees as this is how many banks make their money.
Some of the questions you should ask yourself are:
Do I need to withdraw money frequently from an ATM? If so maybe it makes sense to get a bank that has many branches near you. Alternatively there are many banks that will waive your ATM fees; therefore, it doesn’t matter if you’re not using that bank’s ATM.
Do you need physical checks for any reason? To pay your rent, etc. Ensure you are not paying too much for these.
Do I care about customer service? Do you need a bank that answers your concerns in a timely manner, or are you willing to wait on email/web portals to have your questions answered.
NOTE: You can open an account online or in-person at any of your local branches, or you can always open an online banking account for both your checking & savings.
Here’s two great resources for bank comparisons so you can do your due diligence before opening your bank accounts:
Typically you will need the following in order to open a bank account whether physically or online:
Driver’s license/state ID (Matricula card)
Social Security number or ITIN
Contact information (name, home address, email address, phone number)
Money for opening deposit (may vary).
Your bank account will be the backbone of our automatic finance system, therefore it is essential that we choose a bank that works for us and doesn’t take away from your hard-earned money in the form of fees. Whether it is your local credit union, or a national bank ensure that it is convenient for you and most importantly that you trust that financial institution.
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