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How Student Banking Works

Student Banking: Savings Accounts

For everyday bill-paying, textbook-buying, late-night-diner-visiting purposes, checking accounts are your best bet because they're convenient. But what if you want your money to do more -- like say make money? That's where a savings account comes in handy. The savings account is really the simplest form of bank account. You give the bank your money, they use it to do bank stuff like making loans to other people, and pay you interest for the privilege of using your money. Occasionally, you take out some money to live on, but for the most part, you leave it to earn interest and wait for a rainy day or sizeable investment like the down payment on a home. In a perfect world, that's all you would need. Really, right now you might be wondering why have a checking account? Why not have just a savings account? Well, it's a little more complicated than that.

It turns out there are limits on how many transactions you can make on a savings account. This isn't really the bank's fault -- there are actual federal regulations limiting you to six transactions per month on a savings account. Visiting a bank or ATM doesn't count toward the six-transaction limit, but if you do go over the limit, the bank will hit you with a fee or even change your account to a different kind that doesn't fall under the Federal Reserve Board rule [source: GPO Access].

OK, so savings accounts are a safe place to put your money, and the money actually grows as the bank pays you interest. As a trade off for that return, though, banks require a minimum amount of money in the account, and sometimes limit the number of transactions beyond what the federal regulations require. Bank of America, for example, is currently offering a student savings account with a $300 minimum balance and three transactions a month before they start charging you.

There are other savings options besides a savings account. You can also buy a Certificate of Deposit, which pays higher interest, but comes with the agreement not to touch your money for a certain amount of time (generally speaking, the longer the term, the better the interest rate, and the higher the return on your investment). Money market accounts are similar to savings accounts, but have higher minimum balances and pay correspondingly higher interest.

Most people know that money has a way of going out, sometimes just as fast as -- or faster than -- it comes in. So what do you do if you're strapped for cash, but have books to buy?