Applicable Accounts for Teens
Written by: Jaden S.
Hey friends! I’m Jaden, and if you’re anything like me, you’ve heard a lot about finance-related topics, but don’t know much about them. Of course I have basic knowledge on the stock market, budgeting, and rudimentary accounts like checking, savings, and 401k’s. However, my knowledge is lacking, and as I prepare to move into the “real world,” I think it’s necessary to step up my game.
Recently, I was sitting at the dinner table with my mom and brother, listening in cluelessly as they talked about types of accounts that I’ve never heard of. There’s a whole world of accounts out there with different purposes/uses, and I didn’t know anything about them! Maybe you’re in the same boat as I am. If so, this blog post is the perfect place for you! I’ll be diving a little deeper into a few applicable accounts for people our age that you might not know a lot about.
To start off, I’m going to assume that you know what a checking account and what a savings account is. However, if you need a quick refresher, refer to the contrast chart below.
Obviously having these two types of accounts is -- in my eyes -- a must. However, as most of us start to move onto bigger and better things, I recommend opening a long-term savings account. Long-term savings accounts allow you to save up for bigger purchases. Whether that’s college expenses, a new car, a house, or retirement, a long-term savings account is perfect! According to the balance.com, “long-term savings accounts are designed to hold money that you don't expect to need to spend in the near future.” They’re diverse in the sense that they can pay for one-time expenses, but can also be used to help manage the cost of living day-to-day in retirement.
What sets this type of account apart from just a “normal” savings account is its interest rate(s). Long-term savings allow you to take advantage of compounding interest over time. Basically, the longer you save and let your interest compound, the more your money can grow! I definitely recommend taking a look at these accounts, but make sure to compare and contrast the monthly account fees, withdrawal limits or penalties, and other rules you have to follow before committing to a specific one.
A CD, or a Certificate of Deposit, is similar to a long-term savings account in the sense that it has a fixed interest rate that’s higher than the typical savings, but it differs from both long-term and a regular savings because it has a fixed duration/date of withdrawal, known as the maturity date.
“There are a range of CD term lengths, or “maturity dates,” and if you withdraw your funds before that date, you’ll get hit with penalty fees. CDs come in short-term (less than 12 months), mid-range (1–3 years) and long-term (4–5 years) ranges. With a CD, you’re basically loaning your money to the bank and they’re “rewarding” you with a little bit of earned interest. The longer you loan them your money, the higher your interest rate will be'' (daveramsy.com). However, a CD doesn’t have the same liquidity as other accounts, and you might be fined for taking your money out before the maturity date is up (early withdrawal penalty). A CD would be a perfect account for housing your college savings...it allows you to keep your paws off and earn interest but access the money when you need it!
The next type of account I recommend is a money market account. A money market account is like a cross between a checking account and a savings account; it typically comes with checks or a debit card, and allows a limited number of transactions each month. Traditionally, money market accounts also offer higher interest rates than regular savings accounts. However, I would only recommend using this type of account for emergencies. Money market accounts also typically have a higher minimum balance/deposit, so be mindful of that before opening one.
As we all begin to lay a solid financial foundation for ourselves, I really do believe that opening a money market account is a good idea. Like I said before, this makes a great emergency fund because of the fact that it has heightened interest rates and can be easily accessible in times of need (by debit cards or checks). Watch the quick video below to learn more about why emergency funds are important, especially at our age where questionable -- most times, dangerous -- activities are common.
Finally, I recommend opening some sort of retirement fund (or multiple funds). We always hear the words 401k and IRA, but do you really know the difference?
A 401k is an employee-sponsored retirement account. You’re able to “dedicate a percentage of (your) pre-tax salary to a retirement account. These funds are invested in a range of vehicles like stocks, bonds, mutual funds, and cash.” The best part about this type of account is that the money invested is tax-free (in most cases) and can come with matching contributions made by the employer. I feel like it’s obvious, but you do need a job to open this type of account, and most part-time employees won’t be eligible. Keep this in mind for when you get your first “real” job though!
An IRA is an account that allows you to save for retirement with tax-free growth, which is key! There’s two main types of IRA’s: traditional and Roth. In a traditional IRA, you make contributions with money you’re able to deduct on your tax return. The best part is that the money in the account is tax-free until taken out in retirement. A Roth IRA allows you to make contributions with money you've already paid taxes on (money that’s after-tax). Again, your money can potentially grow tax-free, but unlike a traditional IRA, a Roth IRA can have tax-free withdrawals in retirement. Both of these are great options for retirement. However, just like a 401k, both traditional and Roth IRA’s are probably accounts you won’t open until after college.
The accounts I mentioned above are mostly variations of savings accounts, but they’re all unique and useful in their own way. After reading this, I hope you understand the importance of saving! Even just $5 a day can add up (check out the chart below). Most of us are dreaming about college degrees, big houses, fancy cars…the only way to get there is by making wise decisions now!
Works Cited
“9 Charts Showing Why You Should Invest Today.” U.S. News & World Report, U.S. News & World Report, money.usnews.com/investing/investing-101/articles/2018-07-23/9-charts-showing-why-you-should-invest-today.
bank_admin. “What Is an Emergency Fund?: Discover.” Discover Bank - Banking Topics Blog, Discover Bank, 1 Feb. 2021, www.discover.com/online-banking/banking-topics/emergency-fund/.
Better Money Habits. “What Is a CD (Certificate of Deposit) Account and How Do They Work?” Better Money Habits, Bank of America, 30 Oct. 2020, bettermoneyhabits.bankofamerica.com/en/personal-banking/what-is-a-cd-investment#:~:text=A%20certificate%20of%20deposit%20(CD,in%20a%20relatively%20safe%20way.&text=However%2C%20CDs%20generally%20allow%20your,would%20in%20a%20savings%20account.
Better Money Habits. “What's the Difference Between Checking and Savings Accounts.” Better Money Habits, Bank of America, 30 Oct. 2020, bettermoneyhabits.bankofamerica.com/en/personal-banking/the-difference-between-checking-and-savings-account.
Lake, Rebecca. “How to Choose the Right Long-Term Savings Account.” The Balance, 26 Jan. 2021, www.thebalance.com/what-is-a-long-term-savings-account-4584817.
Prinzel, Yolander. “401(k) Vs. IRA: What's the Difference?” Investopedia, Investopedia, 15 Dec. 2020, www.investopedia.com/ask/answers/12/401k.asp.
Rakoczy, Christy. “These Are the Only 5 Financial Accounts You Really Need.” Mic, Mic, 31 Mar. 2017, www.mic.com/articles/172353/save-more-money-and-simplify-with-the-only-bank-accounts-you-really-need-and-the-best-types-of-financial-accounts-to-save-for-retirement-and-get-richer.
Ramsey Solutions. “4 Most Common Types of Bank Accounts.” Daveramsey.com, Ramsey Solutions, 24 Aug. 2020, www.daveramsey.com/blog/types-of-bank-accounts.
Swinney, Andrew. “A Beginner's Guide to Understanding 401ks.” Accounts with Big Rewards and Small Town Service, www.kasasa.com/blog/401k-guide/#whatis.
Ashley Anderson - I really enjoyed how personal your blog was. It wasn't boring to read and you made it super engaging which I loved! Not to mention, the video on emergency funds you provided helped give a lot more insight to your blog post. I find it really inspiring that, in your post, you mentioned that saving even $5 a day can add up. After doing further research on this myself, I actually found some interesting statistics from the Paul Merriman website. It states that, "$1 a day saved from the day a child is born until he/she is 18, can grow into about $4 million by the time she's ready to retire at 66." I found these statistics to be so crazy and it just goes to show that saving a little day by day can make you fortunes in the end. Overall, your blog post was very insightful and I enjoyed learning more about why saving can be so important.
ReplyDeleteI really liked how you made the blog post engaging and made it one on one. Overall I enjoyed learning the difference between Roth IRA and IRA.
ReplyDeleteI thought your article was very organized and well structured. I loved your choice of vocabulary and your bolding of words which helped for an easy understanding. The video and images within your article were very relevant and helped for an even better understanding. I was very informed by your article and before reading had no idea what a money market or CD was. Now that I have a better understanding of other saving/checking accounts I'm interested in learning more. Overall, I thought your article was amazing and it was fun to read and learn!
ReplyDeleteCheyenne Kaatz - I really liked how not only was the reader learning more about the different types of accounts, but you picked a topic that you wanted to know more about to prepare to move into the real world. Your blog was very informational and gave me some insight about some accounts that I didn’t even know existed. Your charts and video were very helpful, and your final thought of understanding the importance of saving — when you said even five dollars can add up — and it make me take a step back and think about my personal life.
ReplyDeleteI really enjoyed reading this! Your use of bold text, graphics, sources, personal connection, charts and videos really aided in the understanding of your points, and made it easy to digest for a large audience. Honestly, I think most of us--including me--are in the same boat as far as financial literacy goes, so it was helpful for the long run to hear what kind of accounts you could make and how to utilize them to your advantage. I only have a checking account, so the account that stuck out the most to me was the money market account. I'd like to know: now that you've delved deeper into this topic yourself, what account will you most likely use, or rather what do you find the most useful out of all the terms you've stated? It is necessary to "step up [your] game" to move into the "real world", and this blog definitely helped me gain some traction.
ReplyDeleteSasha, thanks for reading! To answer your question, I'll use all of these types of accounts, but the one I'm most "excited" to use is a long-term savings! I'm going to use that to buy a house when I'm older. Personally, I'm a big fan of that type of account, but all of the ones I mentioned are great! Good luck!
DeleteThis was super insightful for me to read; I also hear tons about 401k and IRS accounts (among others) but never have truly known what they meant or what they're used for. This is super helpful for me as I gear up for life after high school! I really appreciated the chart near the beginning that refreshed our memory on the differences between a savings and checking account. Finally, I found this blog post really engaging and in a tone that felt informative and relatable, not condescending or too wordy.
ReplyDeleteThis was a very well written blog post and the personability of it only made it better. I really enjoyed this blog post, as many people- myself included- only know a marginal amount about many of these different types of accounts/ programs, and even having a more rudimentary understanding of them after your blog post is better than being knowledgeable. I think that it is super important for people our age to start learning about these things now, as we are about to go into the real world, so seeing not only yourself commenting about these topics but hearing that your family talks about them is really important. I think you wrote this in a really well organized manner and the content was quick and easily understood, definitely nice to help us all “step up our game”.
ReplyDeleteYour article was very informative. I like how you used images that related to what you were discussing. I really enjoy seeing people encouraging others to save there money. It seems like an obvious thing to do but so many people spend carelessly. In conclusion, your article was very helpful and I plan to use the information given when I enter the real world.
ReplyDeleteReading this blog really taught me something I never knew. Not only learning something new but being able to utilize this to help me in my future makes this blog awesome. I really liked how you used a video and picture to help you get your point across.
ReplyDeleteJaden!! Fantastic article! I loved your personal voice, the bolded words that grabbed my attention, and the charts that provided visual examples of everything you talked about. I have had a savings account for a long time because my parents started one for me when I was younger to hold all of my birthday money and small lemonade stand earnings. Going into the real world of college debt and rent and other scary financial situations, this article is super helpful because I don’t have any idea where I should be holding my money. I didn’t even know what an IRA account was, and I didn’t realize what a great option having a 401k could be. My boss has brought it up to me before but I never really considered doing it because I thought it was for older people. Your article inspired me to think about how I should be saving my money now to prepare for retirement and the rest of my future. Incredible work pal :)
ReplyDeleteKirsten! Thanks so much! I'm glad you enjoyed my article. And you should get on that 401k as soon as possible!!!!
DeleteI thought your writing was very engaging and liked how you made it feel like you were talking one on one and not to a large audience.
ReplyDelete(Mia B) I am so grateful you wrote this blog post. I have heard the names of some of these accounts you described but after reading I have a better understanding of what they do and how they work. I’ll have to look into an IRA as soon as I am in a spot to start those types of plans. You also wrote it in a way that was easy to understand so thank you!
ReplyDeleteThis post was so helpful!! I feel like a lot of us don't know all of the possible accounts that we can have. I feel like it's important to understand all of our possibilities before deciding on which account to open and when the best time is to open said account.
ReplyDeleteI found this really helpful. As graduating from high school draws ever near, I've been getting anxious about the fact that I don't know much about really anything related to finances. I especially didn't know there were more options than just the typical checking and savings accounts. With accounts like the 401k, I wonder if you can only keeps those savings funds while employed at the same place. Or would it carry over to you next job? I think adding a video to your blog was a really unique idea as well, and overall I think you did really great!
ReplyDeleteHey Kaylie! To answer your question...no! Your 401k will follow you wherever you're employed, but employee benefits vary by company. For example, some companies might match your deposits up to a certain percentage/value. The amount of money they're willing to match will depend on where you work.
DeleteThis was a very good in depth post about many different kinds of accounts. Do you think it's ideal to have so many different accounts as you mentioned we should have many of the ones you listed?
ReplyDeleteHey Elise! Thanks for reading. Yes! I think it's a great idea to have at least one of every account I talked about. I'm not sure why you'd want/need more than one long-term savings account for example, but if you're saving for multiple "big purchases" like a house and car, maybe keeping that money separate would be a good idea!
DeleteWill Castillo: I really like how you made this incredibly personal to your audience, as we are all getting older and closer to being a legal adult, the age where all of this knowledge is important. The variety that you had in terms of accounts and how they can/should be used was very helpful. If you do not have a ton of money to split between all of these options, which should you prioritize for a young adult like us?
ReplyDeleteWill, thanks for commenting! To answer your question, I would prioritize either a long-term savings account or a CD. If you are paying for college yourself, I would open a CD as soon as possible! Set the maturity date for when you need to pay/when you graduate so you can pay those bills off right away! If you don't have to pay for a lot of things on your own, I would open a long-term savings to start saving for your first car/apartment/house/etc.
DeleteI love how your blog post is super informal and conversational. With this topic of different banking accounts, how much money you should be saving, an IRA, it’s awesome to read something like this where it’s easy to read and understandable. Most articles I’ve read before are hard to understand, they use diction and complex sayings to explain things. It’s super hard to comprehend and get a hold of what it means. With your post, there was infographics and a video that really helped explain a lot of topics you wrote about. Awesome job!
ReplyDeleteI really like the informal and conversation based tone you had throughout the piece. I think that this topic is very important and something that everyone should be aware of as they are growing up and starting to be more independent. I think that your take on this piece is very appropriate for kids our age since you used terms that kids our age would understand. Great job conveying your message. I definitely learned a lot!
ReplyDeleteI really enjoyed the visuals in your blog post. I thought they were very informing. This post definitely brought some new information onto me and I am looking forward to hearing more.
ReplyDeleteI really found a lot of your information helpful and was then further enhanced by so great visuals. I didn't realize how helpful more than just a checking and savings account could be, but I wounder how many people are willing to try and manage multiple accounts?
ReplyDeleteThis was a very helpful blog in my opinion, and also helpful. The flow of writing along with the visuals made it very easy to follow along. I will defiantly think about these different helpful accounts for when I am on my own in the world. Thanks for the insight.
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