According to recent studies by Fortune, nearly two-thirds of Americans can’t pass a basic financial literacy test. This alarming statistic has many causes, but once you’re financially independent, you can’t worry about what you didn’t learn in grade school, high school, or college. The only path is to educate yourself on personal banking. From maintaining a proper account balance to organizing your bill payments, these tips will help you get your financial affairs in order.
Types of Accounts
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Before you dive into the more complex aspects of personal banking, start by understanding the differences among various accounts. When you open a bank account, you’ll typically deal with three types of accounts:
- Money Market
A checking account is the most common way people pay bills or buy goods and services. Originally, a checking account was linked to a checkbook that you could use to pay third parties if you didn’t have cash on you. While many individuals still use checks, the debit card has eclipsed the check as the most popular method of payment, thanks to its ease of use.
Even with the ease of using a debit card, it’s still important to know how to balance a checkbook to fully understand your finances. Keeping your checkbook balanced helps you keep track of your money, catch mistakes, and avoid overdrafts. To balance your checkbook:
- Enter transactions including ATM withdrawals, debit card purchases, and check payments
- Compare your monthly bank statement to your entries
- Adjust your checkbook as necessary if you forgot to record a transaction
- Double-check your work to make sure it matches your bank statement after your adjustments
While taking note of your debits is important, you should also take note of your credits, or deposits. When you go to the bank, use a deposit slip to track your check and cash deposits. By using these slips, you have accurate hard copies of your transactions, which act as excellent records and proof of your deposits.
No matter how much you earn, it’s never too early to start a savings account. Even if you only contribute a few dollars a month, it begins your journey toward retirement or saving for a rainy day. These accounts aren’t meant to act as checking accounts. Instead, you’re supposed to use them to accrue interest over time.
To earn the most return, search for savings accounts that have higher interest rates. Some banks have rates as low as .01 percent, which isn’t doing much to earn you cash. If possible, find accounts that earn 1 percent or more. Online banks that shed the need for a brick-and-mortar location are your best bet, as they can pass the savings on to you.
Money Market Account
If you want the best of both worlds and have some capital to boot, opt for a money market account. These accounts usually require a higher balance, but they pay higher interest rates and allow you to write a certain number of checks per month. While a money market account is a savings account at heart, it gives you versatility if you have an unexpected expense.
By learning about different bank accounts, how they work, and how to manage your cash, you can become the financial guru you’ve always aspired to be.