WHAT IS A BANK ACCOUNT?
A bank account is a financial account, which stores money on behalf of a customer. In general, the two most common types of bank accounts are transaction accounts and savings accounts. A transaction account (or checking account) allows the customer to freely and immediately access their money. This can be through cash withdrawals from an automated teller machine (ATM) or electronic funds transfer (EFT) through computers. As such, the transaction account is best suited for everyday use. In most cases, a customer will open a savings account alongside a transaction account. Unlike the transaction account, a savings account allows the customer to earn interest on the account balance. In return, banks often do not allow frequent and immediate access to this money. As such, accountholders should always maintain a good balance of money between their accounts so that they have enough money to use immediately while also earning some interest.
WHY SHOULD YOU HAVE A BANK ACCOUNT?
While it is certainly possible to store your money in physical cash, there are many reasons why you should have a bank account.
Security is an important reason why people store their money in bank accounts. Unfortunately, keeping physical cash at home is not safe since your home is exposed to the risk of burglary, natural disasters such as floods and accidents such as fires. It is similarly unwise to bury your money underground since moisture and air will likely decompose your money. When you deposit money into your bank account, the bank will store your money in their secured vaults. Also, if you need to transfer a large sum of money to a friend who also has a bank account, your bank can do it for you safely.
Convenience is another major benefit of having a bank account. When you have a bank account, you are able to access physical cash wherever there is a bank branch or ATM. Alternatively, you can also pay for goods and services electronically through a debit card, which is linked to your bank account. Having a debit card also allows you to shop online, which gives you greater access to a variety of products from around the world.
Earning interest is another important reason to have a bank account. You may notice that each year, the price of many goods and services rises gradually. For example, a bag of apples costs $1 today; however, next year, the same bag of apples might cost $1.02. This economic effect is referred to as inflation. As more money is required to purchase the same good or service due to inflation, the value of that same money falls. Having a savings account that earns interest protects you from inflation and the declining value of money.
Finally, having a bank account allows you to better manage your saving and spending habits. Interest is also a source of income and encourages people to save regularly, which is a great habit to develop from an early age. Regular bank statements also display when and where money was spent, which can help people with planning and budgeting for the future. Clever management of saving and spending can ultimately help people reach their financial goals such as purchasing a house or car.
While there are many benefits to having a bank account, it is just as important to protect your bank account from thieves. When purchasing goods and services online, ensure that the computer is protected by anti-virus software. If your debit card is ever lost or stolen, you should notify your bank immediately so that they can disable the card and send you a replacement.