Checking account, savings account, fixed-term deposit: How private money management works
A checking account is the basic tool for managing your money, but if you rely on it alone, you’ll end up giving money away. Here’s what you need to know about private money management.
For quick readers:
- The checking account is the basic way to manage your money. Depending on how much money you have available, various other types of accounts are useful.
- Checking accounts are used for cashless payment transactions such as transfers, direct debits, standing orders and the like. You can also use a checking account to access cash.
- You can also overdraw a checking account: This means that you can spend more money than you have in the account. However, the interest rates are very high.
- To open a current account you need an identity card or a valid passport.
- As a rule, there is no interest on credit balances in current accounts. When it comes to borrowing or investing money, there are better alternatives.
- The classic savings account is the savings book. Advantage: You get interest on your money. Disadvantages: The interest rates are low, and you can often only withdraw a maximum of 2,000 euros per month.
- The call money account offers you the same advantages as a savings account, but is much more flexible. You can withdraw as much money as you want at any time. And the interest rate is often higher than with a savings account.
- A time deposit account has the advantage that the interest rates are usually even higher than with a call account. Disadvantage: With a time deposit, you have to invest your money for a fixed period of time, and you can’t withdraw it at any time.
- A credit account with a credit line works like an overdraft facility in a checking account, but is much cheaper.
Important: You should compare the offers of different banks. The conditions and prices differ greatly. MLP can also help you with this.
The right account for the right purpose
As a student you have to manage your money well. A checking account is the basis for your monthly income and expenses. Depending on how much money you have at your disposal, other types of accounts can also be useful for you. This article gives you a brief overview of the different types and how they work.
The checking account
“Giro” in Italian means circle or circulation. This is no coincidence. After all, checking accounts are designed to conveniently handle daily incoming and outgoing payments – known as money in circulation. A checking account is the basic equipment for you when it comes to money. Checking accounts are used to handle cashless payment transactions such as transfers, direct debits, standing orders and the like. A checking account also gives you access to cash: When you open a checking account at a bank, you receive an account card (the so-called EC card), which you can use not only to make cashless payments, but also to withdraw money from ATMs. Almost every bank offers a current account, the costs are manageable, many online banks even take no fees at all for account management.
Borrow money from your own checking account
You can also overdraw a checking account: That means you can spend more money than you have in the account. How much you can overdraw, you regulate with your bank by agreeing with them a so-called Dispo, the Dispositionsrahmen. However, this is only intended to ensure that you have money available even if the account slips into the red at short notice. This can happen at the turn of the month: Current expenses are debited, and at the same time, for example, the BAföG or the money from the student job has not yet been transferred. You can bridge such overlaps with an overdraft facility. In the long term, however, you should not use the overdraft facility to borrow money. The overdraft interest rates are much too high for that.
What you need to open a checking account
To open a checking account, you need a valid ID card or passport. If you open a checking account at an online bank without branches, you identify yourself using the so-called Post-Ident procedure: You go to a post office with your bank’s registration documents and show the postal employee your ID. The banks explain the details of the registration process on their websites.
As already mentioned, checking accounts are used to manage daily payment transactions. However, this does not mean that they are equally suitable for all money-related purposes. If you spend more money than you have in your checking account, it will be expensive. This is because overdraft interest rates are usually very high. At the same time, a checking account is not suitable as a savings account. This is because there is usually no interest on credit balances in checking accounts. When it comes to borrowing or investing money, there are better options.