Know your Jargon!
Interest Rate - The percentage at which the money in your account grows OR the cost you pay from borrowing money.
Deposit = Enter
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Mary, a high-schooler who got her first job at a retail store recently, was excited to receive her first paycheck. After she came home from her first day, her parents asked her if she was ready to open a bank account and if she wanted to open a specific type of account. She was unsure because there were so many different types of accounts to choose from.
Checking Account
Almost every morning before heading to school, Mary spends 10 minutes getting a iced matcha latte. She finds it very irritating when she has to ask her parents for money and especially since she has a job, she wants a more convenient way to pay for her daily expenses.
With a checking account, she could:
Deposit her paycheck directly into the account.
Pay with ease for her daily expenses
Track her spending through online banking
Regular Savings Account
Mary also dreams of buying her own car someday. She knows it’s going to take some time to save up enough money, and she doesn’t want feel tempted and spend all her money.
With a savings account, she could:
Earn interest on her balance.
Keep her money safe and separate from her daily spending
Automate her savings by setting up regular transfers from her checking account, so she’s consistently saving without having to think about it.
Other Types of Savings Accounts
Money Market Account
With a money market account, she could:
Earn a higher interest rate compared to a standard savings account, helping her money grow faster.
Maintain flexibility with limited check-writing or debit card access, allowing her to access her funds if needed.
Benefit from a higher minimum balance requirement, which could be a good fit as she saves more money over time.
Certificate of Deposit (CD)
Mary knows she’ll need money for college or other big expenses in the future, but she’s not planning to use that money anytime soon. She’s interested in ways to maximize her savings without the risk of spending it too soon.
With a Certificate of Deposit (CD), she could:
Lock in a higher interest rate by agreeing to keep her money in the account for a fixed period, such as six months or a year.
Avoid the temptation to spend, since withdrawing the money before the term ends would result in a penalty.
Grow her savings securely, knowing exactly how much interest she’ll earn by the end of the CD term.
After thinking about some of the different options she has, Mary decided to open a checking account and a regular savings account. She would be able to cover her daily expenses more conveniently while also being able to set aside money for her future goals, like buying a car.
As her savings grow, Mary plans to explore other options depending on her goals at that point, particularly between a money market account and a CD. By taking these steps, Mary is making smart financial choices for today and a strong foundation for her financial future.
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