OOnce you graduate from college, it’s overwhelming to think about what’s next. Having a checking account and a savings account is one of the first things every graduate should make sure is set up and ready to go – they are basic building blocks to help you achieve financial independence. while making good use of your degree.
There are many reasons why everyone should have a checking account and a savings account. Besides functioning as an accessible place to store your hard-earned money, they help us manage our finances and plan for our future.
If you’re wondering how to open a current and savings account, you’ve come to the right place! Below, we explain the differences between checking and savings accounts, where to find the best ones that suit you and your financial goals, and how to set them up.
What is a current account?
A checking account allows its holder to deposit and withdraw money, and this type of account is used for spending, as opposed to saving. They are synchronized with banks or financial companies to store your money securely.
How does a checking account work?
You can deposit money into your checking account at your bank, through an ATM, direct deposit, wire transfer, or third-party apps like Venmo. You can also withdraw money from your account through banks, ATMs, with a debit or credit card, or by writing a check. The key to remember here is that you can use your checking account to easily access your money for your daily needs.
To be aware:
Many banks won’t tell you that you’ll be charged high fees for every transaction you spend beyond the amount in your account, so be sure to keep track of how much money you have. You can also look for checking accounts that have no overdraft fees, or you can invest in overdraft protection. But the easiest way to avoid these charges is to not overdraw in the first place.
Find a checking account:
Finding the best checking account for you can seem overwhelming; there are a number of places where you can find recommendations and ideas. Some examples can be found on NerdWallet.
What is a savings account?
As the name suggests, this type of account is used for saving, as opposed to spending. A savings account is aligned with a bank or financial institution to keep your money safe, FDIC insured up to $250,000. You can earn interest on the money you have stored in your savings account, but note that banks generally charge a fee to hold your money, although there are some accounts where you can get a waiver of these fees if you meet certain conditions (like having a minimum amount in your savings account).
Savings accounts generally pay small interest. However, you will earn more than just leaving money in your checking account. The average interest rate for savings accounts, to date, is around 0.07% (compared to 0.03% for current accounts).
How does a savings account work?
Savings accounts are good options for emergency funds or short-term needs. You can transfer money to and from your account at a bank, ATM, online, by wire transfer, direct deposit, or over the phone. You are not limited to just one savings account; you can open multiple accounts. For example, you can have one for emergency funds, one for a car, and one for the vacation you are planning.
There are advantages to having a current account and a savings account in the same bank; on the one hand, it is easier to make transfers from one account to another almost immediately. Some banks will also waive some fees, but they might require a minimum balance on both accounts first. Money market accounts typically require a balance of at least $1,000 to waive monthly fees and provide low minimums, compared to a regular savings account. A certificate of deposit (CD) is another type of savings account that generally does not charge a monthly fee. Learn about all the different types of savings accounts and their benefits on NerdWallet.
Linking your accounts can also have drawbacks – you might not get the best rates for both accounts. You could get higher rates by opening both accounts at the same bank, instead of finding the best rates for each account even if it means using two different banks.
To be aware:
The amount you withdraw from your savings account is usually limited; banks can only allow you to withdraw money up to six times a month. If you withdraw more often than that, banks may close your account, charge fees, or even convert your account to a checking account.
Also note that if you earn $10 in interest on money in your savings account, that now becomes taxable income. The financial institution that holds your account will send a Form 1099-INT at tax time if this happens.
Find a savings account:
Like a checking account, there are many places where you can find credible recommendations. A notable example of this is from NerdWallet.
How to open a current or savings account:
1. What you need
- Government-issued photo ID (driver’s license, passport, birth certificate, etc.)
- Social Security number
- Proof of address (invoice, lease, etc.)
- Contact details (name, address, telephone number, e-mail)
- Deposit (if your bank requires one)
2. Complete the application
You can fill it out online or at your bank.
3. Sign the agreement
Once you have been approved, you will be asked to sign the final documents agreeing to the terms and conditions of owning the account.
4. Make an opening deposit
Some banks will require you to immediately deposit a certain amount of money into your account. Note that your transfer may be pending for a few days before it is officially in your account.
5. Use your account
Set up your bank’s mobile app and a debit card to easily access your funds. You can also set up direct deposit so that your paychecks go directly to your account on payday.
Setting up direct deposit:
One of the main reasons for having a checking account is so that employers can deposit your paychecks directly into your checking account on payday. To set it up, it’s important to know where to find your account number and routing number. Many banks and financial institutions these days have an app that pairs with your checking account, so you can either find your routing and account number through the app or on a check. You can also ask your bank teller to print physical checks.
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