ShmoopTube

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We speak student!

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Personal Finance 101

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Bank Accounts

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a la Shmoop

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Let's bring it back to some practical advice.

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So you're saying put the money in the bank

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instead of putting it under your mattress.

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What are my options?

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Do I put it in a savings account?

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Do I put it in a checking account?

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Should I have both types of accounts or just one?

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When I'm 16 years old, what do I need?

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So it depends if this $100 was a one-off thing.

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If it was a one-time thing and you're not saving money regularly,

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it probably is better to put it under the mattress,

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because banks will charge you money for storing

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your money in their bank

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if there isn't a minimum amount.

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The reason is banks incur costs.

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It costs them money. They don't want an account that has a hundred dollars in it.

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They want an account that has a few thousand dollars and maybe they break even

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with just that amount of money.

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Because banks take the money that you deposit into them,

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loan it to other people

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at a marked-up interest rate,

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and they live on the spread, or difference,

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between what they have to give to you and what they collect from people they rent it to.

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So if it's a hundred dollars once,

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the mattress thing is better.

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If it's a hundred bucks a month every month and you can commit to it,

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most mutual fund and index fund places, which is probably where you oughta go,

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will give you very low fees

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and no entry fees most of the time.

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If you commit to, say,

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$2000 over the next two years,

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they'll give you very low commission, very low break points, and so on

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to enable young people to get invested.

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Now, obviously, it makes a lot of sense

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for the fund company to do that.

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Because if they can attract young people to start

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giving them money to manage and invest,

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over long periods of time, they make a fortune.

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[ woo! ]

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[ whoop ]

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Do I put my money in a savings account, checking account, or both?

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[ woo! ]

Full Transcript