Entry-level Banking Guide
Welcome to a beginner’s guide to banking. If you are looking to get a better understanding of basic banking for beginners, or just starting out on your financial journey, you are in the right place. Banking is the foundation of personal finance, and it is important to understand it with confidence. This page provides you with a basic understanding of four crucial pieces to a healthy personal financial plan. Once you are familiar, we recommend that you navigate to other pages on this website for deeper insights.
Checking and Savings Accounts
The first step of the beginner’s guide to banking is opening checking and savings accounts. A checking account stores the majority of your spending money. This account is used for day to day purchases and a great start for banking with 16 year olds. You can access the money in this account by making cash withdrawals at a branch or using a debit card. You can fund this account with cash or check deposits. Once you are comfortable with the amount in your checking account, you can start a savings account. It is recommended that every adult has a savings account that can cover you for 3-6 months with no income. Savings accounts are a place to store money for a rainy day. They are not as easily accessible as a checking account. However, you can make transfers from your savings account to your checking account if needed. Savings accounts typically pay interest. Hence, the balance in your account will increase by a specific percentage each month, even if you do not make any additional deposits. To find what are good banks to open an account with, you can check different interest rates on websites such as Nerdwallet. There are also different types of savings such as money market accounts and CD’s. (insert internal links to money market page and CD page)
Credit Score
Your credit score is essentially a ranking given to you by a reporting from places such as Transunion or Experian. A good credit score allows you to take out loans with better interest rates and apply for credit cards with better benefits. Eligibility for a credit card begins at 18. Therefore, many parents help their children open this account when they start banking for seniors. In order to have a good credit score you must have a credit history. You collect this by obtaining a credit card, using it, and paying it off on time. Credit cards allow you to borrow a set amount of money each month. It is important to pay it off before the end of the month so that there is no interest. However, the longer each month you wait to pay it, interest will accrue meaning that the balance will grow. To have good credit you also must make good on your loan payments.
Credit Score Ranges
- 800 to 850: Excellent – Borrowers within this range are deemed low-risk. This makes it easier for them to secure loans compared to those with lower scores.
- 740 to 799: Very good – Those falling into this category have a track record of positive credit behavior, increasing their chances of approval for additional credit.
- 670 to 739: Good – Lenders generally regard individuals with credit scores of 670 and above as acceptable or low-risk borrowers.
- 580 to 669: Fair – People in this group are often labeled as “subprime” borrowers. They are considered higher-risk by lenders and may struggle to qualify for new credit.
- 300 to 579: Poor – Individuals within this range frequently face challenges in obtaining new credit. If you find yourself in the poor category, it’s likely that you’ll need to take steps to improve your credit scores before securing any new credit.
Loans
A loan is an arrangement where one party borrows money from another. In this case, we will assume that you are the borrower and a bank is the lender. You will pay back this money over time with interest. This means that you will pay the lender back more money than what you borrowed. Paying back a loan quickly reduces the amount of interest you’ll need to pay. People use loans for various purposes, including buying cars, boats, managing personal finances, and acquiring homes. There are multiple different types of home loans, such as FHA loans and VA loans. Loans are a valuable resource but can cause intense levels of debt. That is why it is important that you comprehend the terms and repayment schedules of your loans.
Investing
To learn to invest is where finances get more complicated. However, trained professionals can help you. Investment companies such as Fidelity and Edward Jones can help match you with an advisor. Financial advisors help find an investment strategy that meets your goals while staying within your risk tolerance and financial capability. These strategies can include stocks, bonds, real estate, or businesses. The typical goals of investing are to generate and preserve capital. In today’s economy, to begin investing is often a vital piece of a healthy financial plan.
Next Steps In Banking For Beginners
While some banks might offer different interest rates or incentives, there is no best bank for beginners. It depends on your situation and preferences. Banking is crucial, and although there are many different ways to go about it, we are here to help. Just by being on this page, you are taking the first step to learn more about finances. After reading a beginner’s guide to banking, you can find many other helpful resources on our website. Learn about Home Equity Lines of Credit HELOC, Refinancing, How to Start Investing, and How to Prepare for Buying a Home.
