Teens and Money: Checking and Savings Account
One of the first steps toward real freedom (and adulthood) is having a checking and savings account in your own name. These accounts allow you to save money, make purchases, and pay bills efficiently. Both, however, require you to take an active management role, so that you can achieve your goals and avoid errors.
Where to open the accounts
A good place to open your first accounts is a credit union. These not-for-profit financial institutions are owned by their members (account holders), and tend to have better loan rates and lower fees than banks. Some may even offer accounts specifically for teenagers. However, most financial institutions do not provide individual accounts for those under 18, but they may offer custodial or joint accounts if a parent co-signs.
Start a savings account
Getting into the habit of setting money aside regularly is the foundation for a successful financial future. Be sure to sign up for automatic transfer of funds when you open the account. Once done, saving will be a breeze. All you have to do is choose the amount you want deducted regularly from your checking account and deposited into your savings account.
If you save a portion of every paycheck, it won’t be long before you accumulate an impressive sum. Financial experts recommend keeping three to six months’ worth of expenses tucked away in a savings account as a cushion, because there is no tax consequence or penalty to take funds out. However, after you have built up enough to tide you over in the event of an emergency (job loss, unexpected car repairs, health problems, etc.) you can take the excess and begin to invest; your money will actually work for you instead of the other way around.
Managing a checking account
After you open your checking account, it is your responsibility to handle and monitor it correctly. This means knowing how much is in your account at all times, reading your statements for accuracy, and never writing checks for more money than you have in it.
Don’t “bounce” checks
Bouncing checks is serious and expensive business. If there aren’t enough funds to cover a check, it will be rejected when it comes in for payment. The check will be sent back to the person who deposited it and you will be charged for “bouncing” it. How much? A lot. The merchant you wrote it to cannot only charge a returned check fee, but you may be charged a hefty fee from your institution. One bad $12 check could cost you $50 or more! In extreme cases, you may even be subject to court proceedings and be required to take special classes on money management.
To prevent bounced checks, many financial institutions offer overdraft protection. With it, if you write a check for more than is in your account, the overdraft protection will kick in and the check will be covered. Typically linked to a savings account or credit card, there is a fee for this service (though it is much, much cheaper than bouncing a check).
You can avoid accidentally writing bad checks by always knowing how much you have in your account. Keep track of the deposits you make, checks you write, ATM withdrawals, debit transactions and fees you are charged in a check register. Never write a check before you make a deposit, counting on the “float” time. A check can clear the financial institution the same day you write it.
Keep your account balanced
Always read your account statements (or log in to online banking) and compare your balance with what the financial institution says you have. If there is an item on your statement that is not listed in your check register, first determine if it is accurate. You may have forgotten to record something. If the item is correct, write it in your check register. But if you believe the item is wrong, contact your financial institution to have it investigated immediately.
Using your ATM/debit card
When you open your checking account, you may be issued either an ATM (automated teller machine) card or a debit card. There are differences between the two:
- ATM card. You can use an ATM card to withdraw cash, make deposits, transfer money between accounts, obtain your balance, etc., without having to go into a branch and speak with a teller.
- Debit card. You can use a debit card at a store or restaurant as well as the ATM. It may look like a credit card, but it is not; money is automatically deducted from your checking account when you use it. If has the Visa® or MasterCard® logo on it, some financial institutions will allow you to exceed your balance as long as you have overdraft protection in place.
Whichever card type you have, be very careful with where you keep it and how you use it. Memorize your personal identification number (PIN), never share your card, and contact your financial institution immediately if it is lost or stolen.
Managing all of your accounts well is important. If you do, you will you always have the security a savings account brings, and you’ll never waste money on checking account mistakes. Need more incentive to pay attention to your accounts? If you treat them right you’ll create a valuable ally with your financial institution. After all, you may be turning to them for a loan or line of credit one day.
Revised January 2016.