Finance 101: Banking Basics

Checking Accounts

For those new to finance, opening a checking account is a great first step. A checking account enables you to deposit money into an account that can be accessed by writing a check, using your debit card, or withdrawing money from your bank’s automated teller machine (ATM).

The biggest advantage to having a checking account is that it keeps your money safe while allowing you to access it when needed. Unlike cash, if your debit card becomes lost or stolen your bank can put a stop on your account, prohibiting unauthorized users to access your money.

Tips for using a checking account:

• Keep a running balance of your account to avoid overdrawing your account. Most banks charge an overdraft fee for purchases that are made with insufficient funds.
• Consider overdraft protection if your bank offers it to you.
• Familiarize yourself with your account’s minimum balance requirements.

Savings Accounts

A savings account is less accessible than a checking account, as the Federal Reserve limits the number of free transfers or withdrawals you can make from a savings account.

According to Investopedia, “A regular savings account is easy to set up and maintain. You can usually link this type of savings account directly to your checking account at the same bank and quickly and easily move money between the two accounts. Having these two accounts linked can sometimes help you avoid overdraft charges and/or under-the-minimum-balance fees from your checking account.”

Having a savings account can help you set aside money for emergencies and help you save for large purchases, all while earning interest.

Credit

Building and maintaining good credit will provide several advantages to you, including:

• Lower financing rates
• More negotiating power
• Attractive mortgage and refinancing rates
• Higher credit card limits and rewards

While getting a credit card is a great first step to building your credit, maxing out your credit card, failing to pay your credit card bill on time and only paying your card’s minimum balance each month will end up hurting your credit.

Debt

Many people consider debt to be the dirty word of finance. But most people have at least a little debt, whether it is in the form of a mortgage, car note, credit card balance or student loan. When thinking about debt, is important to remember that not all debt is bad debt.

“Good debt helps you generate income and increase your net worth,” according to Investopedia. Some examples of good debt include:

• Small business ownership
• Technical or college education
• Real estate
• Short-term investing

Bad debt, on the other hand, does nothing to generate extra income or increase your net worth. Examples of bad debt include car loans, credit card balances that are not regularly paid off, and any debt with a high interest rate.

Sometimes you need bad debt temporarily to help bridge a tough financial period, but you should try hard to move away from this type of debt as often as possible.

Get Financial Guidance at First Bank

If you have additional banking questions, First Bank is available in North Carolina and South Carolina to answer questions and help ensure you make educated decisions regarding your finances. Whether you are interested in opening a checking account, savings account or credit card, we will help get you set up on the right foot.

Contact us or find your local First Bank today!

Sources:

Investopedia: http://www.investopedia.com/university/banking/banking7.asp

Investopedia: http://www.investopedia.com/articles/pf/12/good-debt-bad-debt.asp