Making sense out of checking and savings
Posted on February 18, 2008
Checking and savings accounts are the most fundamental components of the modern-day financial savant’s banking system.
Some banks allow customers to receive e-mail statements stating how much money is left in their account. This prevents users from having to pay for access to account information.
“Checking your money online is the young version of balancing your checkbook,” senior Jenny Baker said.
Brad Barnett, senior associate director for the office of financial aid and scholarships, recommended students track their money as they’re spending it.
“Most students don’t have that skill so they’re just spending money they don’t have,” he said.
Make sure that accounts do not charge annual or maintenance fees, because there is usually a costless alternative. Sometimes banks waive fees if a certain amount is directly deposited into the account each month. For most people, this amount is a paycheck, as more and more employers are starting to endorse direct deposit.
Traditional savings accounts just won’t cut it by today’s standards, as many banks do not offer interest on investments. To remedy this situation, switch to an online bank, such as E*Trade or HSBC, that can offer high interest rates. These banks are FDIC-insured up to $100,000.
Another benefit of online accounts is the ease with which users can link them. Customers can easily set up an automatic transfer between checking and savings accounts, reducing the temptation to spend needlessly.
Another effective method for countering buyer’s remorse is for spenders to keep their wallets in check by paying cash.
“Cash has such an emotional content to it,” sophomore Bonnie Weatherill said.
Baker also thought using cash would help students save.
“It’s helpful knowing where [your money] is going instead of having that sick feeling in your stomach when you swipe your card,” she said.
Another option for saving-savvy college students is a money market account. A money market account is a type of savings account that usually provides a higher interest rate but often has a higher minimum balance requirement as well as large withdrawal penalties. Barnett suggests reading the fine print carefully in case there are hidden penalties.
Certificates of Deposit, commonly known as CDs, are yet another option. CDs are time-sensitive deposits that accrue interest over a set period, usually three months to a year, at the end of which there is a withdrawal period. Many offer the option of switching that money to another CD.
There is an important distinction between APR and APY. APR stands for Annual Percentage Rate and involves the annual rate of interest less any compounded interest, while the Annual Percentage Yield, or APY, does take into account this extra interest. Customers earn an APY and pay an APR. Look for a high APY on that online savings account, but a low APR on credit cards and other loans.
