Chapter Three: Stashing Your Cash

You might already have a bank account you maintain well. If so, that’s great! There are many people who get far into adulthood and never really figure out how to manage their bank accounts, so you’re already ahead of the game.

Why don’t some people maintain their bank accounts well? A lot of people were never taught how to effectively manage a bank account, and other people get scared because there are numbers involved. Don’t worry; not only will you learn everything you need to know about maintaining a bank account in this chapter, but you will also learn that the numbers involved in money are nothing to be afraid of. There is nothing you will ever do with your bank accounts that can’t be done with simple math using a calculator.

Bank accounts aren’t complicated at all. In fact, once you learn everything you need to know, you might wonder what all the fuss is about.

Did You Know?

“[When searching for a bank], start with your parents’ credit union. They often offer the best deals and are more accommodating to their members than larger commercial banks.”

Christopher Lawson, private wealth advisor

Different Types of Bank Accounts

Although there are many different types of accounts, the main focus of this section will be the two accounts you are most likely to encounter as a teenager: savings and checking accounts.

Savings accounts

Savings accounts are meant to be a place to keep money you don’t need right away. Some people use savings accounts as a way to save for a specific expense, like a car or a vacation, and some people use them as “rainy day” or emergency funds. People put money into saving in order to have funds available immediately should the need arise, whatever that need should be. Your parents might have a savings account and probably call it the “family savings” or something similar.

Many parents open savings accounts for their children when the kids are very young, sometimes right after a baby is born. In the past, if you received a check as a gift and your parent took you to the bank to deposit it, there is a good chance you already have a savings account. There is also a good chance at least one of your parents is listed on the account, so both you and your parents have access to the money in the account until you are old enough to have your own account. Ask your parents if there is already a savings account open in your name, and if so, ask them to show you how much money you have sitting in the account.

Savings accounts pay interest. This is the amount of money the bank pays you, based on how much money you have sitting in the account. Interest is an important personal finance concept you need to learn. You may have heard the term thrown around by your parents with regard to interest paid on credit cards or loans, but in this instance, it is interest paid by the financial institution, not to the financial institution. When it comes to savings accounts, interest is a good thing. You want to earn as much interest as possible when your money is sitting in a savings account. Banks pay their customers interest because they use the money you deposit to make loans, investments, and other transactions in order to make a profit. Basically, you are loaning the bank money to operate — and they are paying you for letting them use your money.

Here is how a savings account works. You deposit money into your savings account. After you deposit the money, the bank uses it for to perform daily functions and pays you a small amount of money each month —called interest — for letting them use your money. When you are ready to spend your money, you withdraw it from the bank, including any interest that has been paid to your account. The interest you are paid is not usually a lot of money, and the percentage you are paid depends on the current economic climate. When interest rates are low, you may only have a 1 percent interest rate on the money in your savings account, but when interest rates are high, you will be paid a larger percentage. Either way, after a while, the interest you earn can really add up. If you mention the term “compound interest” to someone who has even a small amount of financial knowledge, his or her eyes will probably light up. Here is why:

Compound interest is the term used to explain what happens when interest is added to your account, and you then earn interest on that interest. For example, suppose one month you earn $.05 on a savings account containing $300. You do not add any more money to the account in the next month, but the $.05 is added to your balance and so the next statement shows that your balance is $300.05, plus whatever interest you earn for that month. The amount of interest you earn will keep going up as your balance increases, even if you do not deposit any additional money into your account.

There are complicated formulas and equation for determining compound interest, but what you should be concerned with is that you are making a profit on the money you deposit, even though you aren’t actively doing anything with it. Why do banks offer interest payments on savings accounts? There are a couple of reasons, but it basically boils down to banks needing to grow their customer base (and the amount of money customers deposit) in order to perform the main functions of the bank. Banks use the money people deposit to lend money and to make investments. The more customers they have, the more money they will have access to. Think of interest payments as a way of the bank thanking you for letting them play with your money.

The more money you put into your savings account, the more interest you will earn. The longer your money sits in the savings account, the more compound interest can build up. If you don’t already have a savings account, talk to your parents about helping you open one. Keep these things in mind:

• Look for a fee-free savings account. Most banks offer special savings accounts for students that have no minimum balance requirement and don’t have many, if any, fees. You will learn more about the fees you may encounter at your bank later in this chapter. Make sure this is the type of account you open, because some bank tellers might try to steer you toward a different type of account that has fees.

• One of your parents will probably have to be on the account until you are 18. This means your parent will be able to take a look at your account any time and may even be able to withdraw money at any time, and you may need a parent’s signature to withdraw any money from the account. You should check with your bank to determine the different types of savings accounts they offer, and which is best for you. Most financial institutions have more than one type, so look for the simplest account designed specifically for minors or college students. There are plenty of advantages to these types of accounts designed specifically for minors. Often, they do not have the same fees and regulations that the savings accounts designed for adults may have. For example, a traditional savings account may have a minimum balance requirement, which means that the account holder must keep a certain amount of money in the account otherwise a monthly fee is charged. Savings accounts designed for minors usually don’t have this feature, and if they do, you need to find a different financial institution. You will learn about choosing a financial institution later in this chapter. You will also learn about making deposits and withdrawals once you do get an account.

Checking accounts

You may not need a checking account right now, but once you have a steady income and recurring bills to pay, you will definitely want to open an account like this. A checking account allows you easier access to your money because you can write checks from the account, and you may even have a check card issued to you.

Checks are basically paper promises of money. You write a check from your account and give the check to a person or store, who then turns around and demands the money from your bank. This money is debited from your account. Check cards look like credit cards and feature a Visa or MasterCard logo, but they aren’t actually credit cards. Instead, you use the card to make a purchase, and the money is immediately withdrawn from your checking account. These cards are also commonly called debit cards. The next chapter will cover check cards in more detail.

Do you need a checking account? If you have money going in and out of your account often, such as when you get a weekly paycheck, and you have recurring bills to pay, this is a good account to have. This is especially true if you need an easy way to pay bills or to access your money, as savings accounts often feature restrictions on how often you can withdraw money. Just like the savings account, you should be able to find a checking account that is specifically designed for teens. You will probably be required to have one of your parents listed on the account with you until you are over 18 years of age, but check with your bank to find out what options you have.

You don’t need a checking account if you just need somewhere to put money you get once in a while, such as birthdays and holidays. A checking account is a good idea if you have a job and a steady income, but if you just need an account for the occasional checks you get from family for birthdays and other special occasions, stick to a savings account for now.

Here is a quick glance at some of the differences and similarities between checking and savings accounts.

Checking Account	Savings Account
Easy access to cash with checks and debit cards.	Access to cash through an ATM is sometimes offered.
Interest may be paid, but is usually low.	Higher interest is earned with savings accounts.
This account can be used to pay bills online or over the phone.	There may be restrictions regarding electronic payments from this account.

Case Study: Budgeting an Allowance

Jasmine Richardson — High School Student

My personal finance is based around the money my parents give me. As a sophomore, I am learning how to set budgets and build my own savings. On average, my parents give me about $15 a week for lunch. I have to manage how much money I spend each day. Sometimes that requires shifting a few dollars from lunch to other things.

For example, Otis Spunkmeyer cookies are sold for a dollar every Tuesday and Thursday for the schools’ special needs program. I have to decide whether I want to buy a cookie or save my money for lunch. Lunch costs $1.75, so if I only have $2 in my pocket, I will not buy a cookie. This helps me prepare for budgeting my finances when I get a job or go off to college. Also, I am learning how to build my savings. I have certain plans for the future, such as attending a major university, that require a substantial amount of money.

Building my savings account now will help relieve my parents of some of the financial burdens they will face as I enter college. Also, my friend and I are planning to have a combined birthday party when we turn 18. Because graduation day is close to that, we were considering starting a savings account specifically for the party. This will help me learn how to create and control my savings in the future. It is safe to say I have learned from personal experience how to set budgets and build savings. At such a young age, I still have a lot of learning left to do.

Other types of accounts

Most of the accounts offered at financial institutions are a form of a savings or checking account. Here is a brief list of some of the other accounts commonly offered by banks, and the instances when you might have a reason, as a teenager or college student, to open one of these accounts:

• Money market accounts: This is a savings account that pays a higher interest rate than a regular savings account. A money market account may also allow account holders to access the funds in the account using a checkbook issued from the account. There is usually a higher minimum balance required to open a money market account (generally $500-$1,000) and more restrictions regarding how many withdrawals you can make before fees are charged.

When would a money market account be a good idea for a teenager or college student? If you have a substantial amount of money (a few thousand dollars, for instance) you want to put into an account to earn interest, and you don’t plan on taking the money out any time soon, a money market account may be a good idea. For example, suppose your grandfather sends everyone in the family $3,000 each as a gift, but you aren’t quite sure what you want to do with your $3,000 yet. You can put it into a money market account to earn interest while you figure out how you would like to spend the money. Talk to a bank representative to find out about the minimum opening deposit and other possible restrictions.

• Certificates of deposits (CDs): A certificate of deposit is a savings account that pays high interest, but you aren’t allowed to withdraw your money for a certain period of time. Most banks offer a variety of timelines for CDs. For example, you can open a 6-month CD, which requires you to keep the money in the account for 6 months and to not take any of the money out. In return, the bank gives you a high interest rate, which means you make money out of the arrangement. The longer you keep the money in the CD, the more money you will make.

When would a CD be a good idea for a teenager or college student? If you have a large sum of money you want to put away for a certain amount of time — such as if a relative gives you $1,000 for a down payment on a car you want to buy next year — then a CD can be a great place to put the money. Not only will you earn a lot of interest on the money, but you also won’t be tempted to spend it because you won’t be allowed access to the funds until the specified period of time is up.

• Mutual fund accounts: Mutual funds are a form of investing that can involve a lot less risk than investing in individual stocks. Many banks offer mutual fund accounts where investment money is pooled by a group of people instead of one person alone. This is a type of savings account that can earn a lot of interest — but you can also lose all the money you deposit if the funds don’t do well. You will learn more about mutual funds and investing in Chapter 11.

When would a mutual fund account be a good idea for a teenager or college student? If you already have another savings account in place, and you are ready to try your hands at investing, this can be a great way to start. You shouldn’t put money in a mutual fund account that you can’t afford to lose, though, so this isn’t the best place to put money you have earmarked for something else in the future. Talk to a representative at your bank about the fees that may be involved with this type of account before you sign up.

Financial institutions offer plenty of other accounts that are credit products, such as credit cards and loans. We’ll save this topic for Chapter 5.

Putting Money into Your Savings or Checking Account

Banks try to make depositing money as easy as possible. You can visit the bank and make your deposit with a customer service representative, often referred to as a teller. The teller will tally up the total amount of your deposit, including cash, checks, and money orders, and give you a receipt. Insist on a receipt. Not only does it prove you actually made the deposit, but it will help you to remember how much you put into your account when you record the deposit in your savings account register, software program, or any other method you use to keep track of the money in your account. You can also add money to your accounting by making your deposit with an automatic teller machine (ATM). We will discuss using ATMs later in this chapter.

Did You Know?

Interest rates constantly change according to what is going on in the financial world. Even if you open a savings account with a certain interest rate, it can drop lower or climb higher at any time.

Depositing money by mail

If you don’t want to, or can’t, physically go to the bank (for example, military dependents living overseas) to make the deposit, you have a few other choices. It is possible to mail checks or money orders — but not cash — into the bank, but be sure you do a few things first:

1. Completely fill out your deposit slip. Deposit slips vary from one bank to another, but filling them out is usually as easy as following the printed instructions. Your bank will give you deposit slips with your name and account information printed on them when you open the account, either in a separate book or in the back of your checkbook. If you don’t have either of these, you can use one of the blank deposit slips provided at the bank. If you know you will be unable to visit your bank for an extended period of time, pick up a few blank deposit slips when you can. If you don’t have access to any of these forms, and you need to make a deposit immediately, you can create your own deposit slip worded like this:

Please place this deposit total of (amount) into my account (account number).

Itemize the deposits if there is more than one check or money order. For example, if you send two checks, detail them on the letter like this:

Check #2241: $25, Check #101: $110, Total Deposit: $135

Date the form, make sure it can be read, sign the bottom, and double-check to make sure all the information is correct before you drop the deposit in the mail.

You now need to endorse the check. Your signature on the check allows the bank access to the funds from the deposit in order to place them into your account. If you do not sign the checks, the bank may not accept the deposit. Write your account number directly beneath your signature. This helps the teller who receives your deposit to credit the deposit to the correct account, especially if your checks get separated from your deposit slip for one reason or another. Flip your check over and sign it. Most checks have a line indicating to “endorse here.” On the opposite side of the check, you will see a notice that warns you this area is for financial institution use only — do not sign in this area. This is the spot where the bank stamps the check for recordkeeping when it has been accepted and deposited.

Sign the back of the checks or money orders with the same name you used to open your account. If your legal first name is Zachary, and this is how you opened the account, — but all your friends know you are Zach — you should still sign the checks with Zachary.

2. You can also choose to write “For Deposit Only” on the back of the checks instead of using your signature. You cannot sign the back of the checks or money orders using “For Deposit Only” if you are taking them into the bank and want to get cash back from the deposit instead of depositing the full amount.

3. Place the deposit slip and the checks and/or money orders into an envelope. If your bank supplies you with envelopes, use this envelope. Chances are, though, you will have to supply your own envelope. There are a few very important details to keep in mind when selecting an envelope to make a deposit to any bank account:

– Make sure you have the address right. Some financial institutions have more than one address and may have a specific address for deposits. In fact, if your account is with a large financial institution, you may not be allowed to just mail your deposit to your local branch. You may instead have to send it to a large processing center at a different address; otherwise, there might be a delay in getting the funds into your account. It’s not fun to have money delayed when you are waiting for it, but if you don’t send the deposit to the correct address, it may not show up in your account as soon as you would like.

– Make sure your return address is on the envelope. If you forget a stamp or don’t put the correct address for the bank on the envelope, the post office won’t know whom to send the envelope back to. Imagine your deposit sitting somewhere in a bin at the post office because they can’t figure out where to send it to. You will probably lose your deposit if this happens.

– Choose an envelope that isn’t see-through. Like it or not, sometimes mail gets stolen. Using a see-through envelope puts your money at risk for being stolen. For someone looking to steal bank deposits, it will be obvious there are checks or money orders contained within. Instead, use an envelope that is specifically designed for mail like this. These envelopes have markings on the inside of the envelope that makes it virtually impossible to know what it inside without actually opening the envelope. You will learn more about protecting your money from identity theft and fraud in Chapter 9.

These may seem like a lot of instructions, but once you have been through the process once or twice, it becomes really simple. The point is to make sure you include all the information necessary for the bank to deposit your money into your account without a delay, while also making sure your deposit doesn’t get lost on the way to the bank.

Depositing money by ATM

You can also make deposits using an ATM if your bank has issued you an ATM card (which includes check cards, debit cards, and ATM cards that can only be used at ATMs). This is a quick and easy way to make a deposit as long as you follow the directions on the ATM screen. You will need to have an ATM card, and you must know the Personal Identification Number (PIN) for the card in order to make a deposit.

Safety First!

Your PIN might be assigned to you by your bank when you open your account, or you may be able to choose a PIN yourself. Either way, never share your PIN with your friends, and don’t write your PIN on your ATM card. Memorize the number instead. If someone else learns your PIN, your account can easily get hacked into, and your money may get stolen.

Use an ATM belonging to your financial institution when trying to make a deposit. You will know which institution the ATM belongs to by looking at the signs on the ATM. For example, if you have an account with Bank of America, do not attempt to make a deposit at a Wells Fargo ATM. Making a deposit into your savings or checking account using an ATM is usually as easy as following the prompts on the screen, but the process usually follows the same format each time.

1. Insert your card into the ATM. There will typically be an image of an ATM card showing you the proper format for inserting the card. The screen will then ask you for your PIN, which you will enter using the keypad. The keypad may appear as a touch screen on the actual screen of the ATM. Make sure no one is standing nearby trying to get a peek at your PIN number. If you notice anyone nearby who seems like he or she may have criminal intentions, cancel the transaction, retrieve your card, and walk away. It’s better to be safe than sorry. You should also pay attention to your surroundings. Don’t use an ATM that isn’t well-lit or that seems deserted. Take extra precautions when using an ATM at night. A good rule of thumb is to avoid ATMs in locations where you feel uncomfortable.

2. After you input your PIN, the ATM screen will ask you what you want to do next. Look at the menu on the screen to find the button that says “Make a Deposit” or something similar. At this point, you should already have your deposit form filled out, your checks signed, and all of these documents should be in an envelope. You will find the proper envelope in a drawer near or on the ATM, or you can get these envelopes inside the bank. Keep in mind: Some banks don’t require deposit slips or deposit envelopes for ATM deposits. With some banks, you can insert your check or cash directly into ATM without needing an envelope. Ask a bank representative for details on whether this is the case at your bank.

3. If you have more than one account — such as a savings and a checking account — the ATM screen will ask you to specify which account you want the money to go into. Hit the button for whichever account you wish to deposit your money into. The screen may ask you to verify your intentions at certain points, so if the information is correct, just hit the button to proceed.

4. The ATM screen will probably ask you at this point to input the amount of your deposit. Using the keypad, type in the exact amount of your deposit. If you are depositing more than one check or money order, input the total amount. Most ATMs accept the deposit amount in dollars and cents, so if your deposit totals one hundred dollars, input it with the decimals (100.00, not 100); otherwise, the ATM may only credit you for a dollar deposit because of the missing decimal. Don’t lie about the amount you are depositing. If you purposely enter an incorrect amount, you’ll wind up being charged large fees and the bank may close your account.

5. Once you have entered all your information, the ATM will ask you to insert the envelope. Most ATMs have a slot that opens up when you make an envelope deposit, so look for directions showing you how to correctly insert the envelope. The screen will then ask you if you want a receipt, to which you should reply “yes.” Keep the printed receipt until you know for sure the correct amount has been credited to your account.

Making an ATM deposit is actually a lot easier than it sounds. It’s as easy as following the prompts on the screen, and if you ever get confused or lost with the directions presented on the screen you can always hit the “back” button or cancel the transaction altogether and start again. Because the process for making an ATM deposit will vary from one bank to another, ask a bank representative to walk you through the process the first time to avoid mistakes.

Depositing money by other means

You can also make deposits into your account using direct deposit, which allows your employer to electronically deliver a paycheck into your account without issuing a paper check or handing you cash. Not all businesses offer direct deposit, so check with your employer to find out if they do.

Some banks allow you to make deposits in other ways. You may be able to scan a check and send the image to the bank via e-mail, and they will credit the amount to your account that way. They can do this because all the information they need is listed on the face of the check. Once you make the deposit, the check is no longer valid, and you should shred the original check because the money has been electronically withdrawn from and deposited into your account. Some financial institutions will even allow you to take a picture of the check with your cell phone, send them the image, and deposit it that way. As this technology advances, more banks will offer this type of deposit feature, but USAA (www.usaa.com) is one of the first financial institutions to offer this feature. Different financial institutions have different depositing rules, so check with your bank to find out the different options available for making deposits.

Case Study: Learning From Your Parents

Kate — High School Student

From the beginning, my parents taught me to save my money — and when I have to spend it, to spend it responsibly. With a few exceptions, I have stuck to this advice for most of my life, and it has been a benefit to me on numerous occasions.

Saving rather than spending most of my money is especially important for me because I don’t have a job; it’s not possible with my schoolwork, community service activities, and chores at home. As a result, I halve all of the money I receive as gifts for my birthday and Christmas. Half of this money goes into a savings account, and I take the other half as spending money. This system has actually worked great for me. I have built up a considerable sum in my savings account. Currently, this money is helping to pay my car insurance bill, and come next year, I will be putting most of it toward various college expenses. Though the Florida Bright Futures Scholarship Program will be paying for my tuition, there is still housing, food, a laptop, and books to pay for. In this way, saving my money has really been worth it.

I have also reaped the benefits of managing my spending money well. Whenever my parents pay me for doing a chore — cleaning the house, etc. — I put half of the money in my wallet and half into a jar. Obviously, I spend the money in my wallet quickly, but I save the money in the jar for big expenditures like concert tickets and new electronics. I have had a lot of success doing this; it prevents me from spending all of my money immediately, as well as having to borrow money from my parents.

Saving money is definitely one of those habits you need to get into as a teenager. I feel that since I have thus far managed my finances well, I am prepared for the various monetary difficulties that I am bound to face in college and beyond.

Where Should You Put Your Money?

Now that you know the accounts offered at financial institutions, you might be wondering where exactly you should put your money. You may have friends who simply stuff their money into a jar and hide the jar in their bedroom, and you may have friends who have more than one bank account. How do you know which option is best for you?

If you do not have a bank account right now, don’t panic. You do not have to run out and open a savings account and a checking account, and feverishly research the best mutual fund account. This is something you can take one step at a time and not feel rushed.

The account best suited for you has a lot to do with your money situation at this point. Which of the following scenarios sounds like you?

1. You don’t have a steady income, like a job or an allowance. If this is the case, open a simple student savings account that does not have a minimum balance or minimum monthly deposit requirement. Use the account to put some money away whenever you have the opportunity.

2. You get large chunks of money as gifts or from doing work once in a while, such as babysitting or mowing lawns, but you don’t have a recurring income. A simple savings account is a good idea for you, unless the chunks of money you get are very substantial and you plan on putting most or all of the money away. If this is the case, look at a money market account. If you plan on withdrawing money from the account a lot, consider a simple savings account or a checking account, but be sure to get a student checking account so you won’t get fees for not having direct deposit.

3. You have a job and get paid on a regular basis. A savings account may be sufficient for you unless you need access to your money regularly, in which case a checking account may be the best place to put your money. As with the scenario above, make sure the checking account won’t charge a fee for a low balance, or if you do not have direct deposit from your employer.

It is a great idea to have a savings account, even if you do not have a lot of money to put into it right now. A savings account allows you start learning about putting money aside, and additionally, you won’t have to scramble to open a bank account when you do land a job and your employer wants to set you up on direct deposit.

Another advantage to opening a savings account at an early age is that it gives you a history with the bank. In the future, when you want to get a loan (for a car or a house), your bank may be more willing to lend you money because of your long history as an account holder in good standing. Besides, maybe just having a savings account will prompt you to want to start putting money into the account.

If you already have a bank account, but aren’t sure how much money is in it or how the account works, it is time to get this all figured out. It may be that the account you have isn’t the best account for you; your account may have high monthly fees that are erasing your balance. It is completely legal for a bank to fee your account every month as long as you were notified of the fees at one time. For example, suppose you opened an account and did not read the paperwork the bank representative gave to you. Within that paperwork, it may have stated if you don’t have at least $200 in your bank account at all times, you will receive a $10 fee each month. Before you know it, your entire balance is down to zero because of the fees, and then the bank starts charging you additional fees because of your negative balance.

Sounds deceitful, doesn’t it? Always keep in mind: Financial institutions need to make money, and these fees are one of the ways they do it. This is why it is important to know what is going on with your account, especially if you have had it for a long time and never really took the time to read all the paperwork the representative gave you when you first opened the account. If you do not have access to the original paperwork, check with the bank’s Web site. Sometimes, this information will be featured online. Otherwise, contact a representative at your financial institution to have the terms of your bank account fully explained to you. If there is something you do not understand, ask more questions. Remember: Your bank works for you.

Case Study: What Happens Next?

Meaghan — High School Student

I am definitely the type of teenager who will be in for a rude awakening when I go to college and have to deal with my own finances. I have only ever had one real job – a summer job at my father’s medical office. I have never filled out a job application, filed taxes, managed a bank account, or written a check. I realize that soon my parents will have to teach me all of these things, and I really wish I had been exposed to it earlier.

My parents have always been the money-makers and the ones to deal with money in my house. Neither of my sisters have managed their own finances, either; although they are younger and have more time to learn. I still have an allowance at home that my parents give me weekly, and I guess I could say I have learned to manage that because they do not just dish out more when I run out. I know to save for upcoming holidays and birthdays, and I try not to blow the money I do get in one weekend. But I admit, it is easier said than done. Often, I find myself asking for more money and wonder what will happen next year.

Develop your plan

There is a rule in personal finance called “the 10 percent rule.” This is a rule many people follow, dictating how much money they put away into a savings account intended for nothing more than emergencies. This is a fund that is not for a specific purchase; instead, it is money that you put away “just in case.” But just in case what? If you are an adult out on your own, this money is there in case you lose your job and do not have an income, yet still have to pay all your bills until you can find another job. Adults might also use this money if an unexpected expense comes up, such as the car breaking down and needing costly repairs, or medical bills from an illness or injury.

$ave $mart Tip

For young adults living on their own, a sufficient “emergency fund” should have 3-6 months’ worth of expenses. That means you should be able to live comfortably for 3-6 months from the money in your emergency fund without any income coming in at all.

This rule says you should always put 10 percent of what you earn into your savings account. It doesn’t matter if you make $100 a month or $1,000 a month; as a teenager, you can start building up an impressive amount of money, and by the time you need the money as an adult, you won’t have to worry about having to come up with this money once an emergency happens. Don’t forget about the concept of compound interest. You may not feel like you are putting away very much money when you only put away 10 percent, but you are setting the stage for interest to accrue, or build up. Before you know it, you will have quite a bit of money stashed away.

You should decide whether you want to open up a savings account that is specific to your 10 percent savings. Some people find that if they keep this money separate from their other money, they are much less likely to spend it. If you put all your money into a checking account with the intention of not touching 10 percent of what you deposit, you will probably soon find that, despite your efforts, all the money gets spent. Keeping the 10 percent separate is a good idea because you won’t be tempted to “borrow” from it for unnecessary expenses.

For this reason, you probably need two bank accounts at this point: a “10 percent” savings account and another account, whether it’s a checking account or another savings account you access frequently. The savings account should be located in a financial institution where it is easy to make deposits. In other words, if your aunt from out of state is nice enough to open a savings account for you, but the account is located at a bank near her instead of near you, this may not be the best place to put your 10 percent. This would be true unless you can use direct deposit to deposit the 10 percent each time you get paid, or if the bank makes it easy to make deposits with features such as cell phone photo deposits. If it is difficult to make deposits to the bank, this isn’t the account that you should use for your emergency fund.

What should the other account be? It depends on your needs and how much money you are dealing with. If you already have a job and a recurring income, a checking account is a good idea. You will have access to your money easily through checks and a debit card. If, on the other hand, you do not have a recurring income — or you don’t really need to access your money all that often —a savings account is sufficient. When you hit adulthood, you should absolutely have a checking and a savings account, as well as an additional account for your emergency fund. Why not go ahead and set up these accounts now, since you know you will need them down the road?

Once you have an emergency fund account, a regular savings account, and a checking account, you need to develop your plan for where the money will go. If you are saving for something in particular, like a car or a road trip you want to take with your friends in the near future, you may want to put more money into your regular savings account to get ready for this expense. Otherwise, consider setting up a plan that is something like this:

• Deposit 10 percent of your income into the emergency fund.

• Deposit another 10 percent to 40 percent of your income into the regular savings account.

• Deposit the rest of your income into the checking account.

Have you heard the saying “pay yourself first”? This phrase means you should always make sure you put money into your savings account before you buy anything unnecessary or spend any money. If you can get into the habit of always paying yourself first, you will develop a really great financial habit that will certainly serve you well when you hit adulthood and have a bunch of bills to pay. Of course, you don’t want to avoid paying your bills in order to put money into a savings account, but the goal is to have enough money to save while also paying your bills.

Case Study: Saving for College

Shantrell — High School Student

When entering into college for the first time, you may have a lot of things to think about, such as boys, parties, and how exciting it’s going to be to live on your own without your parents. But the thing that never really crosses your mind until the last minute is, “How am I going to pay for college?” With college coming up, people sometimes take the easier way out by finding scholarships, by writing essays, getting the necessary paper work, and the hard part — trying to find the time to fill them out. But what if this plan doesn’t work out? You always need a backup. There’s also the plan of saving your money for things that will benefit your education. Yeah, that’s right — your own money. I’ve been saving my money for college for two years now, and I’ve had some huge results.

My plan, since the time when I got my first job at the age of 16, was to save my money for college and to have at least $1,000 in the bank by the end of the year. And it worked! My mom started my savings account when she first found out I got the job. She set it up with her job so that every two weeks, they would take $15 out of her check to put into my account to get me started. When I received my first paycheck, I took my first $50 out, and from then, on my account flourished. With every check, I began to take out a little bit more at a time until I learned how to handle paying my car insurance, cell phone bill, and other expenses. I even put my whole check in there, too, on some occasions.

I continually keep myself on a budget, consisting of buying things I needed — not wanted. I still treat myself once in awhile, but I only buy things on sale and things I know I can use or wear now and in college. Instead of buying that one pair of shoes to go with that one outfit, or buying that cute shirt that I know I would only wear once, I buy things that will last. Another step I took was clipping coupons — something I never thought I would do.

Furthermore, I looked into asking for money instead of certain gifts for Christmas, birthdays, and special occasions. Any extra cash I got, even if it’s only $5, eventually adds up. The change that just sits in the ashtray in the car all day, ready to be used at some fast food restaurant, could be rolled up and put in a bank to earn interest.

When thinking about college, money is a huge issue. Or it could not be — it just depends on how you set your priorities to make sure you have a bright future.

Picking a bank

Even though all financial institutions are commonly referred to as “banks,” they do not all fall into this category. A bank is a financial institution that is for-profit, meaning they operate with the sole intention of making money and turning a profit. On the other hand, a credit union is a financial institution that gives every account holder a small portion of ownership into the credit union. This doesn’t mean you get to have a desk at the credit union or order employees around, but instead, you get to vote whenever big decisions are made, such as who will run the credit union. Which one should you choose? They both have pros and cons.

A bank may be able to offer lower interest rates than certain credit unions simply because the bank is larger and has more assets. Some banks also have more locations and more ATMs, which may be more convenient for you. Although it varies from one bank to another, banks have notoriously higher fees than most credit unions, and banks generally do not offer the same customer service levels some credit unions do.

Credit unions are usually more focused on the needs of their account holders (who are usually called “members” instead of “customers”) and, therefore, may offer better customer service. Because credit unions are more member-centered, you may have an easier time getting a fee reversed or getting a representative to sit down and explain something about your account to you. Credit unions do not accept everyone, however, and you must qualify to become a member based on the membership requirements of the credit union. For example, while some credit unions allow people to join who live in specific areas, others are for groups of employees. For example, people who work for Coca-Cola can join the Coca-Cola Company Family Federal Credit Union®, but people who do not work for this company cannot join unless they have a family member who is a member.

Which financial institution is best for you? Your first consideration should be the convenience of the bank or credit union. You don’t have to be concerned so much with the physical location as long as the financial institution offers banking over the phone or over the Internet (often referred to as online banking). You also want to choose a bank or credit union that offers ATMs so you do not have to pay the fees associated with using a different ATM. While it is all right to use another bank’s ATM once in a while, know that the other bank will charge you a fee for doing so.

Look for a bank or credit union offering accounts specifically for teenagers. You will save a lot of money by doing so. Opening a regular account will probably cause you to pay a lot of fees overtime, especially if you do not have direct deposit from an employer and do not keep a minimum balance in your account. Because most financial institutions offer teen accounts, you may want to start with the bank or credit union your parents use. If they aren’t happy with their financial institution and are always complaining about bad customer service or heavy fees, don’t start with the one they use. Instead, ask your friends about where they put their money and if they are happy with their banking experiences.

You can also look around online. There are some banks that are only online and don’t have local branches for customers to walk into. Because their operating costs are so much lower, they can afford to pay more interest for savings accounts. You can use a free online comparison tool (like www.bankrate.com) to find out which financial institutions have the highest marks in customer satisfaction and the best interest rates. Don’t just plop your money into the financial institution closest to your house or school. Make this decision after doing a little research first.

Here are some features you should look for in a financial institution:

• Choose a bank that doesn’t charge a lot of fees.

• Choose a bank that offers an account for your needs, such as a student account with no minimum daily balance.

• Choose a bank that offers the features you want, such as online access to your accounts or balance notifications via text message.

• Choose a bank that is close to your house and school.

• Choose a bank that has plenty of ATMs available.

Online Banking

When you set out to find the best financial institution, don’t forget to look for a bank with online banking features. Even if you do not use the Internet very much right now, once you start managing your money, you will find that online banking is an incredibly valuable tool. With online banking, you look at your account transactions, see if your deposits have been credited to your account, transfer money from one account to another, pay bills, and even apply for credit products. Why bother standing in line to talk to a representative when you can accomplish what you need to do using the bank’s Web site?

Make sure the financial institution does not charge extra for the use of their online banking features. Some banks and credit unions offer online banking services that can be synchronized with computer budgeting software, which can make managing your money even easier. In fact, if you can do the majority of your banking online, and can manage your spending using a money management software program — such as Microsoft® Money, Quicken, or Moneydance — you will simplify your finances by leaps and bounds.

Fees

You have read a lot about fees, so you might be wondering exactly what fees are charged by financial institutions. You should try to find a bank that does not charge a lot of fees on student accounts. Many people could avoid many of these fees if they used a different bank or opened a different account.

Case Study: Bank Fees

Sandy — Parent

My 16-year-old-son Luke had $100 in his checking account attached to a debit card. In one day, he used his card for a $45 purchase at the mall and a $10 purchase at the movies, leaving him a balance in his checking account of $45. On the way home, he stopped at the gas station, swiped his card at the pump, and put in $25 worth of gas. This should have left him with $20 in his account, but the gas station’s machines are pre-set to authorize a hold of $50 when customers pay at the pump. This put his account temporarily into the negative, so when the earlier charges of $45 and $10 posted to his account, he received overdraft fees for both at $29 each.

This is legal and listed in the fine print of the disclosure the bank sent when he received his debit card. It makes more sense to me to make one ATM withdrawal for everything you are going to spend so you don’t have issues like these.

It’s completely possible to maintain a bank account that is completely fee-less. Find an account that is specifically for teenagers or students that does not charge recurring fees, and make sure to never do anything that might prompt a fee, such as overdrawing your account (writing a check to someone or using your debit card for more money than what you have in your account) or making too many withdrawals on a savings account. These actions will usually cost you money in the form of fees deducted from your bank account balance.

Know what fees your financial institution charges, and avoid fees as much as you can. Do you really want all your money to go to your bank? Instead, keep it in your account.

Here is a list of some of the common fees a bank or credit union may charge. Keep in mind that every financial institution is different, and so are the amounts they will charge. If you don’t find what you’re looking for here, additional explanations can be found in the glossary at the end of the book.

Banking Fee	Description
Abandoned account	This fee may be charged if you have a bank account that has not been used for a certain period of time, usually approximately five years. The bank typically gives the money in the account to the government.
Account maintenance fee	This is a fee charged to your bank account regardless of the type of bank account, nor how much money is in the bank account.
Account closed early	This fee may be charged when the bank researches account discrepancies because there is a problem between the records you have for your bank account and the records that the bank has.
Account research/ reconciliation	This fee may be charged when the bank researches account discrepancies because there is a problem between the records you have for your bank account and the records that the bank has.
ATM	This fee may be charged when you withdraw money from an ATM that does not belong to your bank. This fee ranges anywhere from .50 to around $3. On top of that, you will also be charged a surcharge by the company that owns the ATM.
ATM/debit card replacement	Depending on the bank, you may get one free replacement card if you lose your ATM card. However, if you lose more than one, you will be charged with the cost of replacing the card.
Check printing	This fee may be charged for printing checks for your checking account.
Coin counting	This is generally a free service through most banks, but there is a chance you will be charged for coin counting, especially if you go to a bank to which you are not a member. Coin counting involves bringing in loose change to have the bank count and wrap coins in sleeves.
Counter checks	If you lose your checkbook or need additional checks, you may be charged for counter checks (or temporary checks) given to you by the bank until your new checks have arrived. These usually do not have your name and address imprinted on the top left corner, so you have to fill in your personal information. They are used as a temporary solution until you get your checks. Some merchants will not take counter checks.
Credit reference	This fee may be charged if you are applying for a loan and need the bank to be a credit reference for you.
Debit card	This fee may be charged for every purchase you make on your debit card. This varies depending on the bank.
Deposited item returned (DIR)	When you get a post-dated check, you can deposit it early. However, if that check bounces, you will not only be charged a NSF fee, but also another fee for depositing the check early.
Early-withdrawal fee for CDs	This fee may be charged if you have a Certificate of Deposit (CD) account, and you close it before the date you agreed on with the bank.
Inactive account	This fee may be charged if you do not use your bank account for approximately 90 days. This is usually a quarterly fee that comes into place when you have no withdrawals and no deposits.
Money order / cashier’s check	Money orders are often used instead of checks, but sometimes a cashier’s check will be used. The bank charges you a fee to print money orders or cashier’s checks. Cashier’s checks usually cost more than a money order.
Monthly service fee	Depending on your bank, this fee may be charged if your account balance goes below a certain amount.
Non-sufficient funds (NSF)	This fee may be charged if you write a check for money you do not have in your account. This is also called bouncing a check.
Notary fees	This fee may be charged when you have a document certified or if you need to have papers notarized by the bank. Certifying or notarizing is a process used when you need to prove that a document came from you.
Overdraft	This fee may be charged if you have overdraft available on your bank account and you overdraw on your account. Overdraft means you don’t have enough money in your account to cover a check or debit card purchase, but the bank still allows the transaction. This charge is usually much lower than the charge you are charged for a bounced check, so it is a better alternative in terms of fees.
Return of checks with statement	This fee may be charged if you want your checks sent back to you after they have been canceled.
Safe deposit box	Having a safe deposit box in the bank’s vault will cost you a monthly fee.
Stop payment	This fee may be charged if you give out a check and choose to stop payment on it before it is cashed.
Teller fee	There are certain accounts that require you to complete transactions using an automated system, such as online or over the phone. This fee may be charged when you visit the teller for these types of accounts.

If you do wind up being charged a fee you weren’t expecting, talk to a representative at your financial institution. Most banks will allow at least one fee refund, but you have to ask first. Suppose you have a checking account and you withdraw money from an ATM of a different bank, but you didn’t realize the ATM would charge you $2.50 in addition to the $2 your bank charges you for using the ATM. It is a good idea to call your bank, ask for an explanation of the fees, listen carefully to what is being said to you, and thank the representative for his or her time spent explaining everything to you. Before you hang up, assure the representative you will not make the same mistake again now that you understand how it works, and ask if there is any way you can have the fee reversed. As long as you are polite (and this isn’t the second or third time you have attempted this), you may be able to have the charge refunded to your account.

When a fee is “reversed,” it means that the bank takes the fee off your account. In the scenario above, the representative would go into your account on his or her computer and refund the $4.50 back to your account. Keep in mind that banks keep records of fee reversals, and many have quotas for how many times fees can be reversed per customer. Ask too many times for fees to be taken off your account and your request will be denied. Also keep in mind: Some financial institutions actually charge a fee for customers to speak to a representative over the phone. If this is the case with your bank, you would be better off walking into the local branch to solve this problem.

One more thing: If the representative says “no” to the fee reversal, and especially if the representative isn’t being very nice about it, ask to speak to a manager. You may be a teenager speaking to an adult, but this does not give the representative the right to be rude to you or to talk down to you. Remember: These people work for you. Treat them nicely and with respect, but don’t allow them to walk all over you.

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