PUTTING MONEY IN THE BANK
- THE PROS AND CONS -

Are you thinking of opening a savings account for you or your child and keeping some money in the bank?

It's usually one of the first places a new investor will think of when wanting to save their money. It's a good thing to put your money in investments that are as safe as possible.

Keeping your money safe means that you or your child won't get hurt financially. The investment (your money) won't get lost, and you can count on being able to take out what was put in (plus more with interest).

The bank is usually insured, (ask if your bank is insured before depositing anything) meaning that you will always be able to get your money out when needed.

Of course, there is a price to pay for all this safety...

Putting money in the bank offers a very low return (or interest) on your money. But for a first investment, it's a good place to be.

As you become more willing to take on a bit more risk, you can diversify (put your money in different investments). We discuss this in the stock market and mutual fund section.


Note: Opening a savings account with your child will be a great opportunity as a parent to teach your child a few important things:

1) You can explain that most of the bank's money isn't physically kept at the local branch. It is reinvested, perhaps as loans to other customers for mortgages, new cars, etc.,

Explain that the bank is in the business of making money, so they will reinvest the money put in so the bank makes money as well. It's important that you reassure them that their money will always be available to them if they need it, though.

2) It's a good time to explain that when the child deposits money in the bank, he/she will be making money on their money, which is called interest. This is the bank's way of saying thank you.

This is a vitally important concept and the earlier your child understands how their money can make money, the earlier they can start creating wealth.

For a detailed explanation of the two different types of interest, please go to Simple Interest and Compound Interest.

3) They can learn what a statement account is - this is an account that provides a monthly report of any activity in your account. This is usually mailed to your house.

For example, it will show any money put in (or deposited), any money taken out (or withdrawn). It will show any interest that has been credited (or added) to the account and also if there were any fees charged against (or deducted from) the account.

4) They can learn what a passbook/bank book account is - this is where your child will be given a little booklet that every transaction is entered into. Whenever money is put in or taken out, that transaction will be posted in this little book. Kids love having their own bank book. It makes them feel very special.

A lot of bank accounts designed for kids have low minimums (which means your first deposit can be very low, sometimes as low as $1.00). Also, some banks pay higher interest rates to start you off and continue with the higher rate until the account reaches a certain balance.

Check around and see what offers different banks in your neighborhood have. Pick one that is insured, that pays a competitive interest rate and has minimal or no fees.