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? And why put your money in a bank in the first place?

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.

At banks, most people keep their money in checking accounts and use these accounts to buy everyday items like groceries or pay monthly bills. Using a checking account is simple: just write a check or swipe your debit card for the amount you owe. Most people now opt for the convenience of a debit card over a check, but writing a check is still an important skill.

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, and always know how much money is in your account.

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.

You don’t have to be an adult to have either a checking or savings account. Many banks allow kids as young as 13 to have their own accounts. In fact, many experts recommend 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.