What Is Personal Finance?

Personal finance is a term that covers managing your money and saving and investing. It
encompasses budgeting, banking, insurance, mortgages, investments, retirement planning, and
tax and estate planning. It often refers to the entire industry that provides financial services to
individuals and households and advises them about financial and investment opportunities.

Personal Finance is a means of managing your finance effectively.

Personal finance is the financial management which an individual or a family unit performs
to budget, save, and spend monetary resources over time, taking into account various financial
risks and future life events. When planning personal finances, the individual would consider the
suitability to his or her needs of a range of banking products (checking, savings accounts, credit
cards and consumer loans) or investment private equity, (stock market, bonds, mutual funds) and
insurance (life insurance, health insurance, disability insurance) products or participation and
monitoring of and- or employer-sponsored retirement plans, social security benefits, and income
tax management.
A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods
and services based on the cardholder's promise to the card issuer to pay them for the amounts plus the other agreed
charges. The card issuer (usually a bank) creates a revolving account and grants a line of credit to the cardholder,
from which the cardholder can borrow money for payment to a merchant or as a cash advance.

A savings account is a deposit account held at a retail bank that pays interest but cannot be used directly
as money in the narrow sense of a medium of exchange (for example, by writing a cheque). These accounts let
customers set aside a portion of their liquid assets while earning a monetary return.

A transaction account, also called a checking account, chequing account, current account, demand deposit
account, or share draft account at credit unions, is a deposit account held at a bank or other financial institution. It
is available to the account owner "on demand" and is available for frequent and immediate access by the account
owner or to others as the account owner may direct. Access may be in a variety of ways, such as cash withdrawals,
use of debit cards, cheques (checks) and electronic transfer. In economic terms, the funds held in a transaction
account are regarded as liquid funds. In accounting terms they are considered as cash.

In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other
individuals, organizations etc. The recipient (i.e. the borrower) incurs a debt, and is usually liable to pay interest on
that debt until it is repaid, and also to repay the principal amount borrowed.

A stock market, equity market or share market is the aggregation of buyers and sellers (a loose network of
economic transactions, not a physical facility or discrete entity) of stocks (also called shares), which represent
ownership claims on businesses; these may include securities listed on a public stock exchange, as well as stock that
is only traded privately. Examples of the latter include shares of private companies which are sold
to investors through equity crowdfunding platforms. Stock exchanges list shares of common equity as well as other
security types, e.g. corporate bonds and convertible bonds.

Equity crowdfunding is the online offering of private company securities to a group of people for investment and therefore it is a
part of the capital markets. Because equity crowdfunding involves investment into a commercial enterprise, it is often subject to
securities and financial regulation. Equity crowdfunding is also referred to as crowd-investing, investment crowdfunding,
or crowd equity.

In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. The most common types of
bonds include municipal bonds and corporate bonds. The bond is a debt security, under which the issuer owes the
holders a debt and (depending on the terms of the bond) is obliged to pay them interest (the coupon) or to repay the
principal at a later date, termed the maturity date. Interest is usually payable at fixed intervals (semiannual, annual,
sometimes monthly). Very often the bond is negotiable, that is, the ownership of the instrument can be transferred in
the secondary market. This means that once the transfer agents at the bank medallion stamp the bond, it is highly
liquid on the secondary market.
A mutual fund is a professionally managed investment fund that pools money from many investors to
purchase securities. These investors may be retail or institutional in nature. Mutual funds have advantages and
disadvantages compared to direct investing in individual securities. The primary advantages of mutual funds are that
they provide economies of scale, a higher level of diversification, they provide liquidity, and they are managed by
professional investors. On the negative side, investors in a mutual fund must pay various fees and expenses.

Life insurance (or life assurance, especially in the Commonwealth of Nations) is a contract between an insurance
policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money
(the benefit) in exchange for a premium, upon the death of an insured person (often the policy holder). Depending on
the contract, other events such as terminal illness or critical illness can also trigger payment. The policy holder
typically pays a premium, either regularly or as one lump sum. Other expenses, such as funeral expenses, can also
be included in the benefits.

Health insurance is an insurance that covers the whole or a part of the risk of a person incurring medical expenses,
spreading the risk over a large number of persons. By estimating the overall risk of health care and health
system expenses over the risk pool, an insurer can develop a routine finance structure, such as a monthly premium
or payroll tax, to provide the money to pay for the health care benefits specified in the insurance agreement. The
benefit is administered by a central organization such as a government agency, private business, or not-for-
profit entity.

Disability Insurance, often called DI or disability income insurance, or income protection, is a form
of insurance that insures the beneficiary's earned income against the risk that a disability creates a barrier for a
worker to complete the core functions of their work. For example, the worker may suffer from an inability to maintain
composure in the case of psychological disorders or an injury, illness or condition that causes physical impairment or
incapacity to work. It encompasses paid sick leave, short-term disability benefits (STD), and long-term disability
benefits (LTD).

Personal financial planning process

The key component of personal finance is financial planning, which is a dynamic process that requires regular
monitoring and re-evaluation. In general, it involves five steps:

1. Assessment: A person's financial situation is assessed by compiling simplified versions of financial

statements including balance sheets and income statements. A personal balance sheet lists the values of
personal assets (e.g., car, house, clothes, stocks, bank account), along with personal liabilities (e.g., credit
card debt, bank loan, mortgage). A personal income statement lists personal income and expenses.
2. Goal setting: Having multiple goals is common, including a mix of short- and long-term goals. For example,
a long-term goal would be to "retire at age 65 with a personal net worth of $1,000,000," while a short-term
goal would be to "save up for a new computer in the next month." Setting financial goals helps to direct
financial planning. Goal setting is done with an objective to meet specific financial requirements.
3. Plan creation: The financial plan details how to accomplish the goals. It could include, for example,
reducing unnecessary expenses, increasing the employment income, or investing in the stock market.
4. Execution: Execution of a financial plan often requires discipline and perseverance. Many people obtain
assistance from professionals such as accountants, financial planners, investment advisers, and lawyers.
5. Monitoring and reassessment: As time passes, the financial plan is monitored for possible adjustments or
reassessments.
Typical goals that most adults and young adults have are paying off credit card/student loan/housing/car loan debt,
investing for retirement, investing for college costs for children, paying medical expenses.
 Aspects of Personal Finance
All the financial activities carried out on a personal level fall under the bracket of personal finance. For successful
personal financial planning, you have to take into account your current income, chalk out short and long-term
budgeting goals and needs, and devise a plan to match the desired financial security. This depends on a number of
factors like income, expenditure, standard of living, lifestyle, goals and requirements.

The following products ought to be taken into account while dealing with personal finance:

 Credit cards
 Insurance policies
 Loans and mortgages
 Banking and savings account
 Mutual funds, bonds, equity

The main aspects of personal finance are:

 An assessment of the cash-flow desired

 Taking up an insurance policy
 Calculating and dealing with taxes
 Investments and savings of all sorts
 Planning for your retirement

Benefits of Personal Finance Planning

Plan your personal finance wisely for the sake of securing your future. Good financial planning will help you lead a
hassle-free life today and stock up some amount for personal use in the future. Try involving your family in personal
finance planning at the earliest in order to reap its benefits in the long run.

Some of the benefits arising from sound personal finance planning are listed below:

Evaluates your financial condition

Personal finance planning gives you an insight into your financial condition. This is achieved by budgeting and
taking into account all the investments, income, expenses and savings in all your accounts and schemes. Budgeting
forms the basis of financial planning as it helps in evaluating your financial situation, which, in turn, helps in
assessing your financial health.

Gives profits from investment plans

A number of investment plans exist in the market today, and these are catered to an individual's needs and
requirements. Depending on the money you have to spare in your current phase of life, you can choose an
investment scheme that offers the best return. Choose from mutual funds, equity shares, public provident fund,
bonds, unit linked insurance plans and real estate investments amongst many others. These are long-term
investments and will give you good returns in the future.
Keeps you focused on your money goals

To be financially sound means to be aware of your financial goals. For this, you have to build your wealth gradually
over time. At the same time, you need to keep a check on the financial path you have laid out for yourself. Keeping
some money aside every month is a good practice and must evolve as a habit. Work on your personal finances to
create a good profile and strong financial portfolio. Don’t ever let debt get out of hand.

Organizes your spending and savings

A huge chunk of the income earned every month actually goes away in a jiffy, in the form of taxes, monthly
expenses, lifestyle, maintenance costs etc. It is imperative to put some thought into your monthly budget and keep
some money aside. This money can be invested or saved efficiently through proper personal finance planning. A
number of tools and apps are available today to jot down your earnings versus expenditure. Download them on your
phone and keep a tab of every penny spent on the go.

Makes you aware what is going on with your money

Being aware of your financial situation gets half the work done. The other half happens when you act upon it. In
order to sustain for life, you need to take your current life and retirement into account too. Develop easy-to-follow
money-saving habits that are bound to go a long way. Use your credit cards responsibly, pay off your loans and
debts on time and maintain a clean credit score. Additionally, keep a tab on your investments; close funds that are
not profit-yielding and continue with those that offer promising returns.

Gives you control over your money

When you have your finances sorted, there is no stress, chances of financial crisis are minimal and you are ready for
unforeseen events that require immediate money as well. Good personal financial planning helps you keep an eye on
your financial goals and the other on funnelling your savings towards your retirement. When you have sufficient
control over your own money, you are able to plan better, reap the benefits of your money-making tactics and lead a
peaceful life.

Helps in building a better future

Your future lies in your hands and you are the only one who can make or break it. Therefore, take care of the health
of your future by designing it right. Personal finance tools help you track investments, monitor expenses and slowly
pave a path to a strong future. At the end of the day, there are two things linked directly to a sound personal finance
planning - security and peace. Both of them go hand in hand provided you do it right.

Enables you to produce extra money

An investment done right is an investment for life. Therefore, you must invest wisely. Instead of confining yourself
to a specific policy or plan, you must scatter your investments across different portals and insurance providers.
Investment diversification is the key to success! Strengthen your portfolio to the best extent possible and secure your
future with exponential returns. Take finance planning seriously and reap immense benefits of the compounding
interest that you made possible.
 Saving Schemes
Saving Schemes are launched by the Government of India or public sector financial institutions or Banks. They vary
in their interest rates, investment horizons and tax treatments. A saving schemes financially prepares us for
unforeseen personal and medical emergencies. It helps you meet your personal aspirations and that of your family’s
like - additional educational course to supplement your existing qualifications, child’s higher education and marriage,
etc. For some, income from saving schemes also serves as an additional source of income. What’s more? It instils a
disciplined habit for regular savings.

The advantage of saving schemes is that they are government backed, thereby, offering complete safety and security
of your invested capital. Further, they are low on risk, but at the same time, provide good returns. The interest rates
on saving schemes are usually revised every 3-6 months.

Types of saving schemes in India can be broadly categorised into 2 types based on their popularity, financial security
and returns:

 National Savings Certificate (NSC)

 National Savings Scheme (NSS)

Types of Saving Schemes in India

National Savings Certificate (NSC)
The National Savings Certificate is a scheme offered by the Government of India for fixed income investment that can
be opened with any post office. It involves a savings bond that proves to be tax-efficient for the investor. It is best
suited mainly for small to mid-income investors with a low risk appetite. This is similar to other fixed income
investments like PPF (Public Provident Fund) and Post Office Fixed Deposits.

However, being a safe and low-risk investment also implies that it does not ensure high returns, especially when the
capital market is volatile. You can purchase an NSC in your name or hold a joint account with another adult or buy it
for a minor. However, the government makes this scheme available only to individuals of Indian nationality.
Therefore, HUFs (Hindu Undivided Families) and NRIs (Non-Resident Indians) are not eligible to invest in NSCs.

Salient features and benefits of NSC Savings Scheme:

 They are of two types based on their maturity periods of 5 years and 10 years.
 NSCs do not have any maximum limits of purchase. However, investments of only up to INR 1.5 lakhs
attracts tax benefits under Section 80C of the Income Tax Act, 1961.
 The current rate of interest applicable on NSCs is 7.6% per annum. This interest rate is added to the
investment and then compounded annually and serves as a stable source of regular income.
 You can start with an investment as small as INR 100 and increase the amount as per your convenience.
 Acceptable as collateral by banks and financial institutions as well as security for secured loans.
 Acts as financial security and support for the nominee on the unforeseen demise of the investor.
 The entire maturity value is payable to the investor when the investment completes its maturity tenure.
However, since TDS on NSC pay-outs are applicable, NSC is not completely tax-free.
  Investors are not eligible for premature withdrawal unless under exceptional circumstances like sudden
death of the investor or legal order from the court.

National Savings Scheme (NSS)

National Savings Scheme (NSS), backed by the Government of India, offers the entire sum assured after the
completion of its maturity tenure. The applicable rate of interest is compounded annually. It also gives you the
flexibility to extend the term as per your investment objectives. It is also tax deductible under Section 80 C of the
Income Tax Act, 1961.

Salient features and benefits of NSS Savings Scheme:

 Offers fixed assured returns after it completes the maturity term. However, they are not market-linked like
some other government schemes.
 The rates on small saving schemes are revised and updated every quarter every quarter. This implies that
you will be eligible for higher interest rates.
 NSS schemes like PPF, Sukanya Samriddhi Yojana, NSC etc., attract tax exemptions of up to INR 1.5 lakhs
under Section 80C of Income Tax Act, 1961. Besides, interest on Sukanya Samriddhi Yojana and PPF and
Sukanya Samriddhi Yojana is also tax-free.
 Investors are not eligible for premature withdrawal unless under exceptional circumstances like sudden
death of the investor.

Public Provident Fund (PPF)

This scheme was introduced by the National Savings Institute, under the Finance Ministry of India, in 1968. It is an
effective savings instrument, specifically for tax savings.

Salient features and benefits of PPF Savings Scheme:

 Attracts an interest rate of 7.6% per year, which is then compounded annually.
 Applicable on a minimum annual investment of INR 500 and a maximum of INR 1,50,000.
 Payable in lump sum or through a maximum of 12 deposits in one financial year.
 Maturity period varies from a minimum tenure of 15 years and can be extended up to a maximum of 5 more
years, as per the discretion of the investor.
 Offers further flexibility as it can be moved from one post office or bank to another.
 Not applicable on joint accounts.
 Investors are eligible for tax deductions under Sec. 80C of the IT Act, 1961. Besides, accumulated interest is
completely tax-free.
 The accumulated savings is accepted by banks and financial institutions as security and collateral during
loan application from the third financial year.

Post Office Savings Scheme

Being one of the most secure and reliable saving schemes, it is the most suitable for investors who have a low-risk
appetite. Besides assuring investors of high returns, the process is streamlined, quick and hassle-free. It is
accompanied by the inherent features of high-end investment and saving schemes in India.
The following are the products of Post Office Savings Scheme-

 Post Office Savings Account

 5 Years Post Office Recurring Deposit Account
 Post Office Time Deposit Account
 Post Office Monthly Income Account Scheme
 Senior Citizens Saving Scheme
 15 Years Public Provident Fund Account
 National Savings Certificates (NSC)- 5 Years NSC (VIII Issue) and 10 Years NSC (IX Issue)
 Kisan Vikas Patra (KVP)
 Sukanya Samriddhi Account

Senior Citizens’ Savings Scheme (SCSS)

Senior Citizens Savings Scheme was especially planned keeping in mind the unique needs of senior citizens in India,
that is, individuals of at least 60 years of age. However, individuals between 55 years and 60 years who have retired
or have opted for Voluntary Retirement Scheme (VRS) are also eligible to apply for Senior Citizens Savings Scheme,
but only when the savings scheme account has been issued within one month of the receipt of their retirement
benefits.

Salient features and benefits of Senior Citizens’ Savings Scheme:

 The applicable rate of interest for Senior Citizens Savings Scheme is 8.3% quarterly, payable on any one of
these days in a financial year - 31st March, 30th June, 30th Sept and 31st. December.
 The tenure of the saving schemes is 5 years.
 Investors are eligible for making a maximum of one deposit into the saving schemes and in multiples of INR
1,000.
 The maximum amount cannot be more than INR 15 lakhs.
 The account is transferrable from one bank or post office to another.
 The savings scheme account can be closed before the completion of its full tenure, provided the investor
pays 1.5% of the deposit amount in the first year and 1.0% of the amount in the second year.
 The tenure can be further extended to a maximum of 3 years after the minimum maturity term of 5 years, as
per the discretion of the investor. If the investor wants to withdraw the amount after the completion of 1 year
of this extended term, the savings scheme account can be closed prematurely without any deductions.
 The accumulated interest attracts TDS, deducted at source, if the interest exceeds INR 10,000 annually.
 The accounts of this savings scheme enable investors to avail tax deductions under Section 80C of Income
Tax Act, 1961.

Kisan Vikas Patra (KVP)

Kisan Vikas Patra (KVP), launched in the year 1988, is one of the most preferred saving schemes from the Indian
Postal Department. Post its initial phenomenal success, this savings scheme was discontinued in 2011 as a result of
it being misused. It was re-introduced in 2014 after experiencing high demand.

Salient features and benefits of KVP Savings Scheme:

  What attracts the applicant to this savings scheme is that the principal amount doubles in 118months (9
years & 10 months) at an interest rate of 7.3%.
 This is available only in the multiples of INR 1,000, INR 5,000, INR 10,000 and INR 50,000, INR 1,000 being
the minimum purchase value. It does not have a maximum limit.
 It can be encashed prematurely after 2½ years from the issuance date.
 The account of this savings scheme can be transferred from one bank or post office to another, and from
one individual to another.

Sukanya Samriddhi Yojana (SSY)

Introduced by the Indian Ministry of Finance, the Sukanya Samriddhi Yojana (SSY) savings scheme was launched by
the honourable Prime Minister of India, Mr. Narendra Modi, to financially secure the future of the girl child and support
her future ambitions. Salient features and benefits of SSY Savings Scheme:

 Attracts an annual rate of interest of 8.1% on the principal amount, one of the highest in a saving schemes
of its kind.
 The account for this savings scheme can be opened at any post office or authorised bank in India.
 Deposits can be made in denominations of INR 100. However, the initial deposit applicable ranges from a
minimum of INR 1,000 to a maximum of INR 1,50,000 per year.
 The maturity term is 21 years from the issuance date and the account holder has to pay into the account for
a total term of 14 years.
 This savings scheme account can be transferred from one bank or post office to another bank or post office
anywhere within India.

Atal Pension Yojana

Named after the respected former Prime Minister of India, Shri Atal Bihari Vajpayee, this savings scheme is designed
to cater to the welfare of the weaker sections of the society. It is also applicable to individuals, especially those
working in the unorganised sectors, who require the financial support from a government-sponsored welfare program.
This serves as a robust pension plan for their post-retirement years. Applicants pay a very low premium and enjoy the
fruits of a robust and reliable pension plan.

Salient features of the Atal Pension Yojana Savings Scheme:

 A robust retirement plan that acts as a steady source of income for the weaker sections of the society and
people working in the unorganised sector, which does not offer a pension option.
 Indian citizens between the age groups of 18 years and 40 years are eligible to apply.
 Involves a very low premium amount, but it has to be paid for a minimum duration of 20 years. However, the
higher the premium amount, the higher will be the payable pension amount.
 It is mandatory for the applicant to hold an active savings bank account.
 The applicant cannot be a policyholder of any other statutory saving schemes.

Employee Provident Fund (EPF)

The Employee Provident Fund (EPF), introduced by the Employees' Provident Fund Organisation (EPFO), involves
the working Indian population to make a compulsory financial contribution into a Provident Fund (PF) account. This
enables them to plan their retirement fund in advance. Alternately, it also offers them the benefit of financial security
during unforeseen emergencies as well as planned financial objectives. EPF is one of the most popular and much-
favoured government-sponsored savings scheme of a vast majority of the Indian population working in the organised
sector.

Salient features and benefits of EPF Savings Scheme:

 In this savings scheme, the employer and employee contribute 12% of the employee’s monthly salary into
this provident fund account every month.
 The annual rate of interest on the funds accumulated in the EPF account throughout the year is decided by
the government and usually ranges between 8% and 12%.
 The interest is credited to the employee’s account on 1st April of every financial year.
 The EPFO office generates annual reports through the concerned employer that the employee is employed
with, to enable him/her to clear the bearings on the amount accumulated in the EPF account.

National Pension System (NPS)

The National Pension System is a savings scheme that focuses on serving as reliable and secure source of monthly
income after retirement. To avail this benefit, employees have to make a small premium payment towards NPS while
they are gainfully employed. The lump sum, accumulated throughout the tenure of the scheme, is broken down
through an annuity plan, and paid to the applicant every month post-retirement.

Salient features and benefits of NPS Savings Scheme: _ Acts as a secure source of monthly income for retired
employees of state and central government organisations, employees of MNCs, and Indian citizens employed in the
unorganised sectors.

 For employees of the central or state government organisations, the applicable deduction from the
individual’s monthly income is 10% and an equal contribution from the government.
 For employees of MNCs or those from the unorganised sectors, NPS is similar to any other long-term saving
schemes that benefits applicants after the completion of the pre-determined tenure, as per the terms of the
scheme.

Voluntary Provident Fund (VPF)

As suggested by the name of this savings scheme, employed Indian citizens can opt for out of their individual
willingness.

Salient features and benefits of VPF Savings Scheme:

 The applicant willingly contributes up to 100% of their basic salary and dearness allowance towards their
respective Employee Provident Fund (EPF), as opposed to the usual 12%.
 As per the financial year 2013 – 14, applicants were eligible for an interest rate of 8.75% on the accumulated
funds.
 Any activity in an applicant’s VPF will have a direct impact on his/her EPF account too, and vice versa.

Deposit Scheme for Retiring Government Employees

This savings scheme, targeted at the retiring employees of the public sector, is particularly well-known for its hassle-
free application and documentation procedure.

Salient features and benefits of this savings scheme:

 The necessary documents required during the application process to be eligible for this saving schemes are
locally payable cheque, DD, etc., along with a certificate from the employer.

 The interest accrued is payable from the date of deposit to 30th June or 31st December of the same year,
and subsequently followed by half-yearly payments on 30th June or 31st December.

 Withdrawals cannot be made by applicants during the first year of the opening of the account. However, the
applicant will be eligible for withdrawals after the completion of one year.

Pradhan Mantri Jan Dhan Yojana

This savings scheme has been launched by the Government of India in 2014, especially for those Indian citizens who
do not have a bank account in India. This offers cost-effective solutions related to accessing financial services like
banking, remittance, insurance, pension, etc.

Salient features and benefits of Pradhan Mantri Jan Dhan Yojana Savings Scheme:

 Account holders are eligible for an accidental insurance cover of INR 1 lakh and a life cover of INR 30,000,
payable on the death of the beneficiary.
 Account holders are eligible for an overdraft facility of up to INR 5,000, applicable to not more than one
account per household.
 This savings scheme is tailor-made for Indian citizens below the poverty line, empowering them to make the
most of this saving schemes through reinvestments.
 Maintaining a minimum balance in the account is not mandatory.
 Account holders can avail interest on their deposits.
 Account holders can avail seamless access to insurance policies and pension.
 Beneficiaries of government schemes are eligible for Direct Benefit Transfer.
 Mobile banking facility further makes this saving schemes user-friendly.

Advantages of Saving Schemes in India

Let’s look at some of the primary benefits of savings schemes in India:

Robust savings schemes

The public and private sector banking schemes from the Government of India offer a robust and secure savings
instrument for individuals with varied financial objectives.

Hassle-free services
These saving schemes are customised to offer streamlined and seamless application and maintenance.

Extensive range of savings schemes

 The government offers a wide range of saving schemes to cater to the varied needs and financial goals of Indians
citizens across different sections of the society. For instance, Sukanya Samriddhi Yojana focuses on the financial
support for the girl child, while Pradhan Matri Jan Dhan Yojana is especially designed for citizens below the poverty
line.

Long-term financial strategies

The saving schemes are safe investment instruments that enable applicants to meet long-term financial goals like
child’s higher education, child’s marriage, retirement plan, etc.

A payment account is any account that you use to deposit funds or to spend money.

Common examples:

 A savings account
 A checking account
 A credit card
 A line of credit
A savings account is a basic type of bank account that allows you to deposit money, keep it safe,
and withdraw funds, all while earning interest. Savings accounts offered by most banks, credit
unions, and other financial institutions are FDIC insured and typically pay interest on your deposits.
Interest rates are relatively low, with the average account paying less than 1 percent annually as of
late 2018. Still, some savings accounts offer higher interest rates than others.

Savings Account Benefits

It’s generally wise to have a savings account, and they’re mostly free—especially at online banks,
community banks, and credit unions. Keeping cash elsewhere that you don’t plan to spend in the
immediate future is unsafe, and using a savings account has a psychological benefit: It’s tempting to
spend money in hand. A savings account, however, can be a means of setting aside funds to reach
longer-term goals.

Safety

A savings account holds your money in a safe place: your bank or credit union.

Cash that’s outside of the bank can get stolen or damaged in a fire. But when the federal
government insures your savings, you avoid the risk of losing money if your bank or credit union
fails. Banks are covered by FDIC insurance, and credit unions are covered by NCUSIF insurance.
Savings accounts at credit unions often are called share accounts.
Savings accounts offer easy access to your cash. Once you’re ready to spend money, you can
withdraw cash or transfer funds to your checking account to pay by check, debit card, or an
electronic funds transfer. You can make cash withdrawals from your savings account at an ATM or
with your bank’s tellers.

Growth

Savings accounts pay interest on money in your account. As a result, your bank will make small
additions to your account, typically every month. The interest rate depends on economic conditions
and your bank’s desire to compete with other banks. Savings account rates are generally not very
high and may not even match inflation, but your risk of loss is virtually nonexistent when your funds
are federally insured. A little bit of interest is better than nothing, which typically is what you'll get
from a checking account.

What Is a Checking Account?

A checking account is a deposit account held at a financial institution that
allows withdrawals and deposits. Also called demand accounts or transactional accounts,
checking accounts are very liquid and can be accessed using checks, automated teller
machines, and electronic debits, among other methods. A checking account differs from other
bank accounts in that it often allows for numerous withdrawals and unlimited deposits,
whereas savings accounts sometimes limit both.

 A checking account is a deposit account with a bank or other financial firm that allows
the holder to make deposits and withdrawals.
 Checking accounts are very liquid, allowing for numerous deposits and withdrawals, as
opposed to less liquid savings or investment accounts.
 The tradeoff for increased liquidity is that checking accounts don't offer holders much in
the way of interest rates.
 Money can be deposited at banks and ATMs, through direct deposit, or other electronic
transfer; holders can withdraw funds via banks and ATMs, by writing checks, or using
electronic debit or credit cards paired with their accounts.
 It's important to keep track of checking account fees, which are assessed for overdrafts,
writing too many checks, and with some banks, keeping too low of a minimum balance.

A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods
and services based on the cardholder's promise to the card issuer to pay them for the amounts plus the other agreed
charges.[1] The card issuer (usually a bank) creates a revolving account and grants a line of credit to the cardholder,
from which the cardholder can borrow money for payment to a merchant or as a cash advance.
A credit card is different from a charge card, which requires the balance to be repaid in full each month. In contrast,
credit cards allow the consumers to build a continuing balance of debt, subject to interest being charged. A credit
card also differs from a cash card, which can be used like currency by the owner of the card. A credit card differs from
a charge card also in that a credit card typically involves a third-party entity that pays the seller and is reimbursed by
the buyer, whereas a charge card simply defers payment by the buyer until a later date.

What Is a Line of Credit (LOC)?

A line of credit (LOC) is an arrangement between a financial institution—usually a bank—and a
customer that establishes the maximum loan amount the customer can borrow. The borrower
can access funds from the line of credit at any time as long as they do not exceed the maximum
amount (or credit limit) set in the agreement and meet any other requirements such as making
timely minimum payments.

How Credit Lines Work

All LOCs consist of a set amount of money that can be borrowed as needed, paid back, and
borrowed again. The amount of interest, size of payments, and other rules are set by
the lender. Some lines of credit allow you to write checks (drafts) while others include a type of
credit or debit card. As noted above, a LOC can be secured (by collateral) or unsecured, with
unsecured LOCs typically subject to higher interest rates.

A line of credit has built-in flexibility, which is its main advantage. Borrowers can request a
certain amount, but they do not have to use it all. Rather, they can tailor their spending on the
LOC to their needs and owe interest only on the amount they draw, not on the entire credit line.
In addition, borrowers can adjust their repayment amounts as needed, based on their budget or
cash flow. They can repay, for example, the entire outstanding balance all at once or just make
the minimum monthly payments.