Cash money! This is literally just the $20 bill in your wallet, the pile of money buried in the backyard, or, you know...money in a regular checkings or savings account.
This is obviously an important part of everyone's assets, it's where your paychecks can be deposited, it's where you pay bills from and it's where you can keep money you might need to use in the short term, because it should be protected from sudden changes in value.
You can keep money in your wallet or under your matress, but this may not be the best way to store it for the following reasons:
You can take your cash or checks to a bank, and deposit them there instead.
In a bank account, your money is more safe than just storing cash in your home, because the bank is responsible now for the security of your funds. However, how do we know that the bank will keep it safe? In the US, this is guaranteed by the government agency, the Federal Deposit Insurance Corporation (FDIC). Up to $250,000 in a single bank institution is insured by FDIC. So, even if the bank were to fail and not be able to pay you, the US government would step in to make sure you can access your money.
A checking account is your standard bank account. From these accounts, generally, you can write checks, withdraw from an ATM, and make as many transactions as you like.
In exchange for this flexibility, you'll receive a lower interest rate than savings accounts. Here are some examples:
A savings account is similar to a checking account, but you are limited to six withdrawals per month (usually). However, you'll earn a bit more in interest in this type of account!
Here are some examples:
Recently, with the introduction of mostly or fully online banks that don't need to maintain physical branches, banks have begun competing for business in this category, driving up interest rates for a different category of savings accounts, online only high yield savings accounts.
Many of these banks offer to refund all ATM fees if you ever need cash, and allow you to do all of your banking electronically. There are usually no fees or minimum deposits.
With little downside, you can get an interest rate many, many times higher than you'd get in any of the above accounts. There is hardly any reason to miss out on making way more money in interest by using a high yield savings account!
Here are some examples:
It can be helpful to see some examples to think about how much you might earn over time with these different types of bank accounts.
Below, choose an amount to save and the number of years to keep it in the bank, and we'll show you how much you would have after each year. This assumes the interest is compounded monthly.
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Years