The Basics of Bank Accounts

THE BASICS OF BANK ACCOUNTS For College Students- and Everyone! by http://TutoringZone.com WHY YOU SHOULD GIVE A DAMN? The Average American spends 90,000 hours at work in their lifetime This is an EXCHANGE - your time and skill for monetary compensation If you can manage your money: 5% better, you could work 4,500 hours, or 2.25 10% better, you could work 9,000 hours, or 4.5 year less! years less! Imagine - 5 fewer years of work for just 30 minutes of management per week! 30 30 30 30 30 30 MINUTES MINUTES MINUTES MINUTES MINUTES MINUTES MINUTES Think of every dollar earned or every dollar saved as free time in the future! The Main Account Types SAVINGS CHECKINGS V Backup transaction account This is your main transaction account and has no mini- mum balance V Usually limited to 6 or fewer transfers (transactions) per month V Allows unlimited transfers V Earns more interest than checking, but still negligible Income should go into this account V Ideally holds an emergency fund that contains 2 months worth of expenses ($4,000-$10,000) Most payments should come out of this account (to CC accounts, rent, etc) V Usually FDIC insured, meaning your money is safe V Keep a "bill buffer" equal to about one month's bills in this account (2-3k) to avoid overdrafting V Generally no or low minimum balance V Earns negligible interest, meaning excess money is NOT working for you. V Can have multiple accounts for organizational purposes e.g. "Home Repairs Fund" or "Replacement Car Fund" V Usually FDIC insured, meaning your money is safe. MONEY MARKET BROKERAGE Have a minimum balance to avoid fees ($1,000-$5,000) V NOT FDIC insured Generally pays about double what checking accounts do Allows you to invest funds into stocks and bonds V Bank Money Market accounts are FDIC insured, Mutual Fund Money Market accounts are NOT FDIC insured V Many traders allow you to purchase their funds com- mission-free V Most liquid investment account (meaning you have quick access) V In general you are accepting a higher rate of risk for a higher return on your money. V Invest in passive, low-cost ETFS for the best average return. CERTIFICATE OF DEPOSIT V Allows you to purchase a certificate that earns a specific rate of interest over a specific amount of time. Purchase a 12-month CD for $1000 at 1.20% APY (Annual Percentage Yield) and at the end of the year you get $1012 back. V Not recommended unless as a specific strategy for a portfolio V Large penalties for cancelling the CD to receive your funds early Overdrafting and overdraft protection Overdrafting is when you over-draw an account by attempting to withdraw or transfer more funds out than are available. This often happens acciden- tally- you forget you wrote a check, go to buy groceries, and the account ends up slightly negative. The first time it happens you can often call your bank and have the fee removed. If your bank allows this, they are now loaning you money on their terms, which is expensive for you! They can now charge you interest and fees. Ask your bank about over- draft protection which allows an account to be protected by another ac- count- or two! GET YOUR MONEY WORKING! General rates at this graphic's time of creation: 1.00% APY 1.50% APY 1.90% APY 1.20% APY 8.00% APY Interest Checking Stock Market Average Savings Money Market One-year CD This means if you left $1,000 in each of these accounts for one year you would earn: $10 $15 $19 $12 $80 Savings Account Money Market Interest Stock Market Checking One-year CÓ NOW YOU KNOW ABOUT THE BASIC ACCOUNT TYPES AND THEIR USES This infographic brought to you by TutoringZone and created by Hartzog Tech. TutoringZone provides Chapter and Exam Reviews for students at the University of Florida and Florida State University. We've spent 10 years succinctly explaining complicated topics and helping students succeed through their college experience. This series is designed to help students outside of class by saving them money and optimizing their income. For more helpful financial tips, especially for college students, check out our blog and subscribe to our newsletter. http://TutoringZone.com/learn TUTORING ZONE •.. •..