Saving and Banking

Saving (setting aside) money is the most important step to ultimately meeting your financial goals. There are a variety of methods for saving your money, but by and large the vast majority of people save their money at savings institutions such as Banks or Credit Unions.  

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A Bank is a financial institution which allows its members to deposit, store, and withdraw their savings. Banks are also typically lenders of home, personal, and small business loans. Both physical (brick and mortar) banks and completely online banks exist.
A Credit Union is a not-for-profit, member-owned cooperative whose membership consists of people with at least one common trait (such as occupation, association, or community). Credit Unions share their profits amongst their members and typically offer financial services similar to major banks (including deposit accounts and a variety of loans). 
Before committing to a particular savings institution, consider the following:
  • Convenience - Is it conveniently located? If not, you may end up spending quite a bit of money on gas driving back and forth to it or on ATM fees (should you need to make withdrawals at other, more convenient locations).
  • Fees – Is there a monthly or annual fee? Is there an ATM fee; and if so, how much per transaction? Is there a minimum required balance fee, and what is the minimum your account balance must be in order to not be charged this fee? Do you receive free or discounted checks?
  • Online Account Management Options – Does the savings institution offer free online bill payment and free online statements? Can online transfers be made between accounts free of charge? If so, how many can be made a month?  Can you make mobile deposits?
  • Interest Rates – Interest rates vary from institution to institution, so make certain to go online and compare interest rates before opening an account with any one particular institution.
  • Insurance – The savings institution that you select should be insured in order to protect the money you deposit in the event of the institution’s closure or other unforeseen financial problems. Insurance covers up to $250,000 per depositor, per insured savings institution, for each account ownership category.
    • Banks can be insured by the Federal Deposit Insurance Corporation (FDIC), an agency of the US government which protects all deposited accounts at Banks.
    • Credit Unions can be insured by the National Credit Union Administration (NCUA), an independent federal agency that regulates, charters, and supervises federal credit unions. 
A Checking Account is a transactional account in which money is very accessible and is frequently deposited and withdrawn. Checks, debit cards, online bill payment, and ATM withdrawals are typically tied to Checking Accounts.
A Savings Account is a deposit account in which money earns interest but is less accessible (checks are typically not tied to savings accounts and fewer monthly transactions may be allowed).  The interest rate for this type of account is typically fixed (does not fluctuate regularly).
A Money Market Account is a deposit account in which money typically earns interest at a higher rate than a Savings Account, but which is even less accessible (typically higher minimum balances are required and fewer monthly transactions may be allowed). The interest rate for this type of account is typically variable (fluctuates regularly based upon money markets). 
A Certificate of Deposit (or CD) is a deposit account in which money is invested for a set period of time and typically earns interest at a similar or higher rate than a Money Market Account, but may not be accessed during that set period of time without being charged a penalty fee. The set period of time can range from a few months to several years. 

This decision is truly one of personal preference, but below are a few options you might consider:

Open both a Checking Account and a Savings Account at the same savings institution.

  • Use your Checking Account to pay for all of your monthly expenses since it allows for unlimited transactions, online bill payment, and often is not required to maintain a minimum balance.
  • Transfer any remaining money to your Savings Account (which earns interest, but allows for only so many transactions each month).  Should your Checking Account start running low on money at any time during the month, you could electronically transfer funds from your Savings Account to your Checking Account (just remember not to exceed your Savings Account transaction limit for the month). 
  • If you set up an Automated Monthly Transfer from your Savings Account to your Checking Account, you can force yourself to budget your money by only spending the amount of money transferred each month to your Checking Account.
Open one Checking Account and multiple Savings Accounts (one for each of your financial goals).
  • By moving funds from your Checking Account each month to a Savings Account specifically intended for one of your financial goals, you’ll make it easier to see progress towards your goal and harder to spend that money on something else. 
Open a Checking Account and a Savings Account at different savings institutions.
  • Saving your money at a completely different savings institution may make it easier to “forget” about that money and harder to spend it.
Savings institutions charge the following fees (among others).

ATM Fees – Fees charged for using ATMs provided by savings institutions. Note that if you use a different savings institution’s ATM, that savings institution along with your own savings institution will likely each charge you an ATM fee.
Minimum Balance Fees – Fees charged for not maintaining a minimum account balance.
Returned Check Fees – Fees charged for writing a check which “bounced” (could not be deposited by the Check recipient for lack of funds in your Checking Account).
Overdraft Fees – Fees charged for using more funds than existed in your Checking Account.
Annual Fees – Fees charged each year by the savings institution for simply having the account open.

Fees can quickly offset all of the interest your account might earn in an entire year so it’s more important to avoid fees than it is to maximize your interest rate.
For example, if you maintained a balance of $1,000 in a Savings Account and earned 1% interest throughout the year, you would earn $10 in interest by the end of the year. One Overdraft Fee could easily cost you twice that.  
Savings institutions typically offer new Checking Account customers Debit Cards which allow Checking Account holders to do the following:
  • Purchase items in the same manner as a Credit Card.
  • Make deposits and check account balances at ATMs.
  • Withdraw money from a Checking or Savings Account at an ATM.
  • Get cash back at the grocery store and some retail stores. 
Debit Card holders must establish a PIN (Personal Identification Number) when they receive their Debit Card and are required to enter their PIN at the time they make purchases or use an ATM.
Although most payments can now be made electronically online or by using a Debit Card, some payments must still be made using cash or Check. Until a Check is processed by the Check recipient’s savings institution, the money has not been transferred/paid by the Check writer to the Check recipient (so there is a level of risk involved until the Check is processed). The Check writer needs to record the Check number and dollar amount in their checkbook register and monitor their account balance to ensure that there are enough funds remaining until the Check is processed and the funds are withdrawn from their account.
How to write a check:
  1. Write the current date beside “Date”.
  2. Write the name of the Check recipient beside “Pay To The Order Of”.
  3. Write the dollar amount to be paid to the Check recipient in the box on the right hand side of the Check.
  4. Write the dollar amount (in words) to be paid to the Check recipient on the line beside “Dollars”.
  5. Sign the Check on the bottom right line.
  6. Write a description of what the money is being paid for beside “For”. 
Checking Account owners will complete a Deposit Slip at the time they open their account and in the future when they deposit additional funds into their Checking Account. Each Checkbook contains Deposit Slips which include the account owner’s name and account number. Account owners can also request cash back from their savings institution at the time that they provide their Deposit Slip and funds to be deposited to their savings institution (account owners are typically asked to sign the Deposit Slip in such instances).
How to write a Deposit Slip:
  1. Write the current date beside “Date”.
  2. Write the dollar amount of cash being deposited beside “Cash”.
  3. Write the Check number for each Check in the lines next to “List Checks Singly”.
  4. Write the dollar amounts for any additional funds being deposited by Check beneath the cash dollar amount.  
  5. Write the sum of the deposits from both cash and Checks beside “Sub Total”.
  6. Write the dollar amount to be received in cash back beside “Less Cash Received”.
  7. Write the net amount being deposited (Sub Total – Less Cash Received) beside “$”. 
  8. If you are receiving cash back, then sign the Deposit Slip above “Signature Only If Cash Received From Deposit”. 
A Deposit is any transaction in which you add money to your account (i.e. when your paycheck is electronically deposited into your account, when you add the birthday money you received to your account, etc.).
A Withdrawal is any transaction in which you reduce money in your account (i.e. use funds from the account to pay for rent, take cash out of your account to make small purchases, etc.).
It is important to keep a record of your Deposits into your account (+) and Withdrawals from your account (-) so that you know if you have enough money left in your account for your next Withdrawal. Doing so will also help you to find mistakes and discrepancies in your account that you would have missed otherwise.
A Checkbook Register is a balance sheet stored in your Checkbook which allows you to keep track of your Deposits and Withdrawals so that you know what your account balance is before you make your next Withdrawal. This will minimize your chances of making Withdrawals in excess of your account balance. This is called Overdrafting and it can cause you to be charged Overdraft Fees.

Below is a sample Checkbook Register which has been balanced in blue. 

At the end of each month, your savings institution will provide you with your monthly Checking Account Statement which lists all Deposits, Withdrawals, fees charged, and interest earned during the most recent month. If you have balanced your Checkbook correctly throughout the month, then your Checkbook balance and your Checking Account Statement balance should match.
A large number of Americans live paycheck to paycheck and if anything ever goes wrong such as job loss, car repairs, or medical costs, many people go into panic mode to deal with the situation. A much better approach would be to open a Savings Account now and start building your emergency fund right away. For now, just try to save up to $500-$1,000. Once you reach your savings goal, celebrate! Then go right back to saving so that, over time, you ultimately have at least 6 to 9 months of living expenses set aside to prepare for unforeseen emergencies. If an emergency pops up, having an emergency fund will allow you to deal with the emergency without having to derail your financial life (which in turn can make you incredibly stressed and anxious about your future).
Having an emergency fund also gives you a better ability to pick your job and where you do it. Someone without an emergency fund who hates their current job is too worried about going broke to quit and try to move on to a better job. If they had an emergency fund, they would have a better chance of being able to leave their current job and stay financially afloat until they start making income at a job they actually like. So, as crazy as it sounds, an emergency fund can actually improve your job satisfaction!
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