Episode 16: Opening a Bank Account

GRANT: Hey Dad! Is it time for us to open those bank accounts?

MAK: Yeah, Dad, we’ve got a lot of savings to do.

DAD: Sure thing kids, but first let’s talk a little about what a bank account is and why you need one.

GRANT: But Daaad, we already know we need a bank account. Why do we have to talk about it?

DAD: You know you want one, but do you know why you need it?

GRANT: Ummm, because it will help me save money?

DAD: Well I suppose, if you use it right, but a bank is really set up to keep your money safe, give you access to your money, build credit and help when you need to borrow money, among other things.

MAK: So, it’s not only for savings?

DAD: No. A great bank offers services that you want and need. I clearly want a place where I can earn a good interest rate on my savings, plus I also want it to be close to me with excellent service. 

GRANT: So, what do you need?

DAD: I need to take out loans for the family and my business among other things. I need a bank to be a partner, and not charge a lot of fees, but also, a good bank can help you keep track of your spending each month.

MAK: Wait, isn’t that what our budget is for?

DAD: You’re right Mak. That is what your budget is for, but keeping track of how much money you have in the bank as well as where it comes from and goes to is an important addition to your budget.

GRANT: So, a bank will let you know how your money moves around.

DAD: Yep, when you deposit money in the bank you’re storing your hard earned dough to use later. When you pull the money out of the bank it’s called a withdrawal.

GRANT: So how does this help our budget?

DAD: I’m almost there G-man. Your bank keeps track of every deposit and withdrawal each month. Monthly, they’ll send you a bank statement that lists each of your transactions.

GRANT: What’s an ATTRACTION? Isn’t that a ride at an amusement park?

DAD: Not an A-TrAction, but a Trans-Action. That’s a fancy word for each ACTION that you took with the bank: a deposit or a withdrawal.

MAK: Oh, I see now. So the bank statement helps us track how much money we put in or take out of the bank. Where it came from and went to.

DAD: Exactly Mak. Your statement will also show you how much money you had at the beginning of the month, how much is left over at the end, and any interest earned in that time period.

GRANT: Wait, did you say interest? How does the bank keep track of what I’m interested in? Does it know what video games I like?

DAD: Not that kind of interest. Interest is the money a bank pays you for storing your money with them

GRANT: You mean we get PAID to have a bank account?! I gotsta get PAID, Baby!

DAD: Yes, you do get paid for the amount of money you keep at the bank. 

MAK: How does giving money to us earn them more money?

DAD: Great question. One of the biggest bank functions is loaning money. A business takes a loan to expand their business, which could be adding more people, buying new computers, etc.

GRANT: So, they borrow money to pay back later. So, how does this explain the bank giving away money to MEEEE!!

DAD: The bank charges for lending out money. If they charge $7 a year for borrowing $100, that’s 7%. If they pay you $2 for every $100, they earn $5, which is the difference between the two.

MAK: So, a bank is a business, and one of the“products” that they “sell” is a loan.

DAD: Exactly. So, they want as many people to deposit money so they can make loans. We took out loans to buy our car and our house. When I bought my last company, I also took out a loan.

GRANT: That’s kind of weird, but I think I get it. The more deposits, the more loans they make. So they share some of the interests with us!!

DAD: Exactly. But, you never see all that money being moved around. You just get your statement showing YOUR activities. 

MAK: That’s great and all Dad, but I really just want to set up my bank account.

GRANT: Yeah Dad, when do we get to do that?

DAD: I’ll get there, right after this last thing. It’ll be quick! I promise! And, it’s important. Plus, you get to make the final decision.

MAK/GRANT: Okaaay…

DAD: Before we can open an account, you’ll have to decide the best place for storing your money.

GRANT: Didn’t we already decide that?

MAK: Yeah, we’re putting it in the BANK, aren’t we?

DAD: Well, that’s just the thing. There are thousands of banks and other places where you can put your money. They’ll all keep your money safe, but there are some big differences.

GRANT: Is this what you were talking about earlier? There are other things to think about, as each bank isn’t the same?

DAD: Yep. The services they provide, locations, loans, interest they pay and more. Even the tech available, for instance, for your smartphone and online are important to different people.

GRANT: Ooo I like the sound of that fancy tech stuff!! Can that tech work with our Apple Watch?

DAD: Yep, some bank’s tech lets you track and pay through your AppleWatch attached to your bank. 

MAK: Awesome!! But, since we don’t have a lot of money to save, I don’t want to lose any of our hard earned green to fees. So, I want to think about that too!

GRANT: I agree. I want something close, and since we’re starting out, I think having someone who takes care of us is important too.

MAK: Agreed. Having easy access to my money, good customer support, and the additional tech for our watches work for me.

DAD: Alright kids, well I think I know exactly where we need to go. And, I know just the person.

SYB: Welcome to Stock Yards Bank, my name is Denelle. Oh, Ben, I didn’t see you there. Welcome back. This must be Makenna and Grant. What can I do for you today?

GRANT: Take our money! We need you to keep it safe.

DAD: Slow down there G. We’ll have to set up your accounts first. Denelle, Makenna and Grant want to open their own bank accounts, could you walk them through the process.

MAK: Yeah, what Dad said. Process our money!!

SYB: Certainly, I’d be happy to help. Starting early can help you build credit, manage your money better, and more. Are you two looking to open a checking or savings account?

GRANT: Ummm, we definitely want a BANK account. But, I don’t know the difference between the two? Can you explain it?

SYB: Grant, a checking account gives you the option to write checks or use a debit card to make purchases, assuming you have enough money in the account to cover it. Our technology can work on your Apple Watch I see on your wrists.

GRANT: Really, that’s super cool!

MAK: Yeah! And, I love my new watch band, so I’ll have this with me everywhere.

SYB: You do have to be careful though. If you make a purchase and don’t have enough money in the account, you’ll be charged overdraft fees.

MAK: I don’t like fees at all. We work way too hard walking dogs and picking up poop to give you money for that.

SYB: I completely understand. We wouldn’t let you do that, but you can get a notification, when you’re close to running out of money. You can do that with your tech too. Sweet huh?

GRANT: Just like honey!

SYB: Now, a savings account is used to set aside money for the future. You’ll have to either come into the bank in person, or get a bank card to use at the ATM to withdraw money.

MAK: ATM, I thought that meant “At the Moment” when I Snapchat.

SYB: Oh, sorry. It’s an Automatic Teller Machine. That big box thing outside can give you money from your account without speaking to anyone.

GRANT: That sounds cool. All I have to do is come by and punch in a code or something, and out my money pops.

SYB: Exactly, I can show you how to do that.

MAK: Got it. So a checking account keeps your spending money safe, while a savings account keeps your savings safe!

SYB: Exactly! And, if you have any questions, I work with your dad and a couple of your uncles. So, if you need anything, you can always reach out to me.

GRANT: I like that customer service. Do you get this at every bank?

SYB: Well, not exactly. We’re a bank that likes to partner with our customers to help them with their business as well as their personal needs. 

MAK: So you could help us expand our dog walking business?

SYB: Absolutely, we have lots of ways to do that.

MAK: Very cool. Now, I’m starting to understand what dad was talking about. Banks are different.

GRANT: Yeah, but we have to get our account open.  I’m pretty sure we need a savings account. But, it makes sense to have a checking account too, but I might be tempted to use all of my money.

MAK: Yeah, we’re trying to save our money, not spend it. I think we will need a checking account. No better time than the present!!

GRANT: So is there a certain amount we have to put in our savings account?

SYB: The minimum deposit to open a savings account is $10, but some accounts do also have a monthly minimum balance requirement.

MAK: What’s that mean?

SYB: So, if there’s a $100 minimum balance requirement, you have to leave at least $100 in the account at all times. If it drops below $100 there could be fees again.

GRANT: I don’t like the sound of that. Nope, not one bit.

MAK: Yeah, I don’t want my money disappearing just because I don’t have enough in the bank.

SYB: Here’s the great part. You two don’t have to worry about that for now. We have savings accounts for kids that have no minimum balance or monthly fees.

GRANT: I like the sound of that much better. I like you Mrs. Denelle. You’re easy to work with!!

MAK: What about interest?

GRANT: Yeah, Dad was just telling us all about that. How much money will we make on our accounts?

SYB: Well, that depends on how much money you save, but our highest interest rate for kids savings accounts is 1.5%.

GRANT: Only 1.5%? But that’s hardly anything at all!

SYB: I know that doesn’t sound like much, but it’s actually quite a bit higher than the national average of 0.9%. It may not earn you as much as other things, but it is still nice to see it build up in the long run.

MAK: Well we’re saving our money anyways, so even a little bit of earning is still more than we already had.

GRANT: Yep, it’s better than a poke in the eye!

DAD: Right you are. Now, do you remember how much you decided to put away each week?

MAK: Umm, at least 10% right? I think you said that is the magic number, right?

DAD: Bingo, you’ll both need to save at least $2.50 per week, but you can always do more. This week, you’ll both have to save at least $10 if you want to open your savings accounts.

GRANT: I guess that means I won’t be going to the movies this week.

MAK: That’s ok Grant. We’ll both go together next week. It’s not like the theater is going anywhere.

GRANT: Yeah, you’re right. Besides, this just means my savings will grow even faster!

DAD: That’s the spirit kids! You’ll be saving lots of money in no time.

Ben’s 2 cents:

The earlier you can start an account for your kids, the better because it opens up conversations about money. And, that’s half the battle. As you choose a bank, how much value do you place on having it close by? Is customer service a big deal to you? Do you want an actual location? Some banks are all online. Fees may be lower, but access may be limited, and you may not be able to do everything you need.

Credit Unions tend to offer better rates, but not always. And, services can be limited. Each institution is different. And, when managing your cash needs, you may not need to hold significant amounts of cash at a bank, so rates may not be a huge deal. You need to look at your needs, and everyone’s is different. 

A kid’s account can be significantly different at each place, depending on how motivated a bank is. Some offer crazy offers, where they’ll match savings over several years up to $1,500, have no minimums and low, or no fees. 

Since everything is going digital, do you want the bank to have significant technology? For many, that’s important. The ease of following your bank balance, sending money, downloading information about your spending habits, and more. 

For some, it’s important to have access to an ATM, without fees, in a large network. Every person is different. I’m always against high fees, as that can really drag down your balances. Whatever the most important aspects, analyze the reasons for your choice and make sure it makes sense. I’ll say it once if I’ve said it a hundred times. Do your homework, every bank is not right for every person.

Having a bank account does not build credit, but it does build a relationship with a bank, which opens you up to credit cards, loans and more. Those things do affect your credit rating. And, now credit ratings affect the cost of your insurance, interest rates, the ability to get a job, and much more. So, it’s VERY important. Thanks for being here, we keep adding to the fundamentals of money, and we’ll dive deeper into investing now that we’re saving. Until next week, where we…