Zina Kumok, 26, has learned a thing or two about personal finance – the hard way. When she graduated from Indiana University in 2011 with a journalism degree, she was saddled with $28,000 worth of student-loan debt that she had to pay off on her own, and on the starting salary of a journalist, which was only about $28,000 a year. In December 2012, Kumok launched an online blog, “Debt Free After Three,” in which she regularly posts personal-finance reflections and anecdotes about her journey to pay off her sizable student-loan debt in only three years. She now writes regularly about personal finance for Knowledge@Wharton High School. Here, she takes us to the bank.
Whether you’re working as a babysitter for your neighbors or stocking clothes at the mall, finding a place to put your paycheck is important.
I remember opening my first savings account. I’d received a lot of birthday money, and I was so happy to see how much I had stashed away. My parents took me to their bank, only a few blocks from our house. I was so proud to get my deposit book and feel like I was contributing to my future.
I rarely made withdrawals from my account, but I made deposits a few times a year. It was always so gratifying and rewarding to see how much my fund had grown. The less attention I paid to it, the more it seemed to increase. Seeing my little nest egg grow inspired me to keep on saving — and in a more organized way than stashing money under my socks in the top drawer of my dresser.
If you’ve been stashing your cash in a piggybank, it’s time to upgrade. Getting a bank savings account is one of the first ways you can take control of your money, and a great early step on the road to financial independence. Before you open an account at your nearest bank, read my tips below to help you make informed decisions.
Interest Rates Matter
If your goal is to have your money earn interest while it sits in your account (and quite honestly, that should be your goal), research what kinds of interest rates various banks offer. When you put your money in a bank, you’re giving that institution permission to use it. In exchange, the bank pays you interest on your money. Credit unions often have better rates and lower fees, so don’t forget to explore those, as well. Credit unions are similar to traditional banks, but have a few key differences. Most importantly, since credit unions operate as nonprofits, they can offer higher interest rates on savings accounts and CDs, and lower interest rates on loan products and credit cards. Need help understanding interest rates? Check out one of my previous KWHS columns.
One interest rate at 1.5% and another at 2.5% might seem similar, but it’s always important to get the highest rate possible when you are earning interest, not paying. With a small balance you might not see a big difference, but the favorable results of a higher interest rate will increase as your bank balance does.
Fees Add Up Quickly
Many banks now charge monthly maintenance fees on their accounts if you don’t have regular direct deposits or maintain a certain minimum balance. If you register for a teen or youth account, however, you can often avoid those fees.
When you open your account, you’ll be asked if you want to pay for any overdrafts. That means if your account only has a balance of $50 and you spend $60, the transaction will go through even though you don’t have the money. But beware, you’ll also be hit with a significant overdraft fee. And one more note on overdrafts. You may receive an ATM or debit card with your new account. Make sure you know your balance each time you plan to use your plastic. Remember, a debit card is quite different from a credit card; you can only spend what you have.
You should also be aware of what the fees are for taking cash out from a different bank’s ATM machine or for letting your balance get below a certain amount. Some banks also limit how often you can withdraw from your savings account. These are all good questions to ask before you open your account.
What You’ll Need to Open the Account
If you’re not 18 yet, you’ll need a parent to be a custodian on the account. They’ll have access to your account and be able to see your purchases. Sometimes, they’ll also have to be a customer at the bank for you to receive a fee-free account.
You’ll also need to know your Social Security number and have some form of identification to prove you are who you say you are. Many banks will allow you to open an account online; most even have apps and online access where you can deposit checks remotely and check your balance at any time.
Once I got to college, I’d already had an account for a few years. That money came in handy when I wanted to study abroad, go to concerts with my friends or pay for the security deposit on my first apartment. It helped me finance the beginnings of my adult life without having to turn to my parents. And it all started with that first bank account.
What are three benefits of opening your own bank account? Can you think of some that might not be mentioned in this article?
After reading the article, come up with a list of 10 important questions to bring with you on your first visit to the bank. Share your questions with a partner and discuss others that might help you better understand bank accounts.
Check out the link below for the article "Opening a Bank Account: Be the Boss of Your Own Money." What else did you learn about navigating the banking system?
The podcast linked below offers a Dutch high school student's view on financial awareness. He talks about the importance of bank account access for youth around the world. Research this topic. What advancements or strides have been made to create more access to bank accounts for high school students?