Deposit Accounts

When it comes to managing money, a bank should act as a trusted friend or family member.

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Everything You Should Know About Personal Banking & Deposit Accounts

The expectation is that a bank will listen to your concerns and understand how they impact your planning for long-term goals. Being certain that you are more than just an account number is one of the first steps toward finding the right bank for you.

This is especially true for younger generations; they prefer genuine, highly personalized relationships in business and finance. Millennial banking trends (as well as Generation Z’s banking preferences) are proof that, as a product, each Millennial and Gen Z’s bank account should come with individual attention to unique circumstances.

Therefore, the best banks for Millennials and Gen Zers are the ones that offer personalized banking relationships. Young adults desire the ability to perform routine transactions digitally — wherever they are. However, dedicated service still matters when it comes to more complex banking functions or sophisticated financial planning.

Trusting banks

The Younger Generation’s Relationship With Money

Financial well-being is a prominent concern for young people, but it can also be a source of stress. Some banking statistics about Millennials, for instance, reveal that just over 40% confess to ongoing anxiety about money, and many admit that money-related stress extends to many different facets of their lives — from relationships to leisure time. That’s why it’s crucial that their bank is there to guide them when they need to make critical financial decisions.
That financial anxiety occupies an interesting space between a desire for independence and a need for guidance. Most young adults have basic knowledge of how banking transactions work. However, as Millennials become settled in their careers and Gen Zers enter the workforce, they find that they need to understand more about complex financial products such as home loans, retirement plans, and even small business lending.

Seek advice

These young adults want advice to be available to them — but only when they reach out directly. In a recent survey, only about a third of Millennials said they would seek advice from a bank. Instead, these young people prefer to consult with friends and family. Additionally, it is vastly important that they feel understood as individuals; pre-packaged answers based on trends and demographics prompt them to take business elsewhere.

Instead, these young people prefer to consult with friends and family. Additionally, it is vastly important that they feel understood as individuals; pre-packaged answers based on trends and demographics prompt them to take business elsewhere.

What is the Best Bank to Use for Young Adults?

Offering young people the best bank account means understanding the unique way in which they use financial institutions.

The best checking accounts for young adults scarcely rely on checks at all, and if you grew up in a frictionless digital world, you can likely understand why. In American Bank of Missouri’s experience, we find that nearly all our younger clients have direct deposit capabilities and a debit card. Most Millennials and Gen Zers are frequent debit card users, so checking accounts should accommodate that tendency.

The younger generation prefers to move away from paper statements, so the most forward-thinking banks allow all transactions to be handled online or via mobile applications. Clients should be able to use a card valet app on their phones to manage their debit cards and restrict them as tightly as they wish. In short, high-tech solutions that support seamless financial management are key.

Millennial and Gen Z spending habits are influenced not only by social awareness, but also fear of missing out. Today’s young people are more than willing to spend extra money on a trendy dining experience, for example. However, this is tempered by their desire to “vote with their money” for products and experiences from socially responsible local businesses. In addition, the financial anxiety mentioned earlier also affects their spending habits, meaning the Millennial and Gen Z bank account balance is highly nuanced.

These factors create a need for individualized attention. The best banks do not have a generic process in place or scripts to use with clients. Rather, all business should be conducted through active listening in one-on-one interactions. Every client is different and deserves a personalized approach — including mobile- and online-only users.

How Banking Needs Shift Over Time

As you grow older, you’ll likely become involved in a greater variety of investments and financial endeavors. Your banking needs hopefully diversify and change as you take on business ownership, real estate, stocks, and other assets. You might find yourself conducting a brokerage account comparison and eventually shopping for different types of retirement accounts.

Banking needs hopefully diversify

It follows that your banking user experience will begin to combine and balance different financial products and operations as you age. Although you’ll likely keep a checking account with the same bank as your fiscal portfolio diversifies, your instincts might tell you to look for better rates with other financial institutions.

The reasoning behind shopping around is sound. However, diversifying with a single financial institution can be used to your advantage. We will explore this more below. First, however, let’s have a look at the different types of deposit accounts available to you at any bank.

What Kind of Accounts are Out There?

What Are the Advantages of a Savings Account?

Your first banking experience was likely a savings account that your parents opened for you as a child. The purpose of savings accounts is no mystery; they exist to accumulate wealth. One of the primary advantages of a savings account, then, is that it is the most basic and easiest to understand of different bank accounts.

Savings accounts are also simple to open, and funds are readily available to you at any time. Depending on a variety of factors, a portion of your account balance is insured by the federal government. You will also earn interest on your savings.

Because it isn’t designed for everyday expenses, a savings account is excellent for things such as emergency funds and vacations. Paying bills, buying groceries, and other regular expenditures are better handled with a checking account.

What Are the Advantages of a Checking Account?

Checking accounts, also known as transactional accounts, allow quick access to funds. You can make payments from a checking account by writing a traditional paper check, using a debit card, or initiating an automatic transfer. This ease and versatility of unlimited access to funds is the primary advantage of a checking account.

Payments are known as debits, and credits to a checking account are deposits. Because these accounts are for everyday spending, checking account balances fluctuate, and money deposited into a checking account generally does not remain in the long term.

Though the federal law known as Regulation D dictates that you can’t make payments directly from a savings account, spending money from your checking account is usually only limited by your account balance, so the best account option for regular spending is checking.

What Is a Money Market Account?

Not to be confused with a money market mutual fund, a money market account (MMA) is an interest-bearing option. These accounts are sometimes referred to as money market deposit accounts (MMDA), and they have a few unique features.

In most cases, MMAs pay more interest than a savings account. However, funds can be accessed with a check or debit card. That flexibility comes with some restrictions that make these accounts different than an ordinary checking account.

The primary attraction to MMAs is the higher interest rate, which fluctuates with inflation. If you maintain a high balance in a money market account, a sudden jump in the interest rate can deliver a substantial return. Money market accounts can offer higher interest because unlike savings accounts, they’re allowed to invest in government securities, commercial paper, and certificates of deposit (CD).

Should I Invest in a CD?

A CD account is a unique agreement between you and your bank. When you deposit money for a specific term duration, the bank will pay a fixed interest rate that’s higher than those paid by savings accounts. You receive the money you deposited plus any accrued interest when the CD has matured or the term is complete.

These accounts typically come with substantial early withdrawal penalties, so it’s best to have emergency savings readily available in another account before investing in a CD. The minimum required balances and term lengths of CDs vary, and the interest you’ll earn depends on how much money you have in the account. A longer term and a larger deposit will earn a higher interest rate.

CDs earn compound interest just like a savings account. This means that earned interest will be added to the account’s principal balance and future interest will be earned as a percentage of that new balance. For that reason, it’s important to mind the difference between the interest rate and annual percentage yield (APY). The interest rate is fixed, and the APY is the amount you earn from compound interest in one year.

What Is a Brokerage Account?

Though we do not offer Brokerage Accounts at American Bank of Missouri, you might have become curious after hearing people discuss how successful theirs have been. Should you open a brokerage account, then? Hopefully, the following information will help you decide.

Brokerage accounts are taxable investment accounts that are often opened with a stock investment firm. Once you have made deposits, your balance can be used to purchase different kinds of investment securities. The brokerage firm executes your buying and selling orders in exchange for a fee or commission.

You can purchase many types of investments using a brokerage account. There are common stocks, preferred stocks, bonds, real estate investment trusts (REITs), mutual funds, and many others. Investment in these markets can come with substantial risk, meaning it’s best to conduct extensive research and seek expert guidance before investing. The best brokerage accounts are created with help from skilled guidance.

What Are the Advantages of an Individual Retirement Account?

An individual retirement account (IRA) is a way to save money for retirement with added tax advantages. Those advantages often come in the form of tax-free growth through interest or tax deferral. There are two primary types of IRAs, and both offer their own specific advantages.

A Traditional IRA involves deposited money that you might be able to deduct on tax returns. Earnings can potentially enjoy tax-deferred growth until withdrawal after retirement. Retirees often fall into a lower tax bracket after retirement, so tax deferral points to being taxed at an appropriate lower rate.

On the other hand, Roth IRA accounts grow the money you have already paid taxes on. For that reason, your investment can potentially grow tax-free and allow tax-free withdrawals after retirement when you fulfill certain conditions.

Although they are not a type of IRA, rollover IRAs are also worth discussing. They consist of money “rolled over” from another retirement plan, such as an employer-sponsored 401(k) or 403(b). This rollover transaction can also happen on both a Traditional or Roth IRA. Saving for retirement is critical to your financial well-being, and it’s best to start as soon as possible so you can benefit from the advantages of a retirement account sooner than later.

Diversify your investments

Diversifying Under One Roof

After you have a solid understanding of the various types of deposit accounts, you can learn about diversifying. When it comes time to diversify your investments, your best strategy is to keep your various accounts with one bank. Once you tell us about your goals, we can talk about the products we have and show you how building your portfolio in one place affords more flexibility on the various interest rates we can offer.

Let’s say you have checking, savings, and money market accounts with American Bank of Missouri. When you ask us about obtaining a higher interest rate on savings to match what another bank is offering, we’re better able to help you than if you only had checking and savings accounts with us. Diversifying with one bank gives you an edge in the negotiation. However, people often take their business elsewhere rather than chatting with their tried-and-true bank.

Why Do People Switch Banks?

A poor banking user experience is only one reason for changing banks. Studies demonstrate that poor user experiences in mobile banking cause clients to seek better options elsewhere. According to research from Javelin Strategy & Research and Jumio, these subpar experiences cause 43% of Millennials to abandon their bank’s mobile services. And 31% of those who discontinued the use of those mobile applications ultimately changed banks altogether.

At the best banks, this kind of negative user experience doesn’t happen. Excellent financial institutions pride themselves on smooth mobile banking experiences and ensure experts are available to answer questions and coach clients through any potential issues.

Younger people note that their top reasons for switching banks include extensive fees for low balances, ATM withdrawals, and similar drawbacks. Furthermore, 16% of 25- to 34-year-olds look to open accounts with online-only banks, and larger national banks control 68% of that age group’s banking business.

Sometimes, people have very good reasons for changing banks; however, it’s best not to switch services over to a larger national bank. You simply won’t receive the level of personal attention a local bank could offer. These banks are invested not just in the community’s success, but also in your overall financial health.

What Are Interest Rates?

Today, people are much more aware of interest rates and earnings than they were a decade ago. There’s still some education needed in this area, but it’s not nearly as much as what was once necessary. For example, clients are very sensitive to interest rates. They often ask what a good interest rate is for a savings account or how to get a higher interest rate on savings. Before addressing that line of inquiry, let’s look at what interest rates are.

Banks pay interest because you supply them with money to fund other products and investments. The money in your savings account, for instance, is used for other clients’ loans, and the interest paid to you is a percentage of the money they earned with your funds. Essentially, your deposits function as loans to the bank.

The bank keeps business open by charging a higher interest rate for loans than it pays out to accounts. Additionally, interest rates and compounding frequency determine your earnings over time. So can you negotiate interest rates? No, as they are set at the discretion of your bank. However, your rates are affected by credit history and your account balance as well. This means you can work toward achieving better interest rates by taking care of your overall financial health.

People often ask us what a good interest rate is for a savings account. However, it’s best to ask how CDs work instead. Unfortunately, many people aren’t familiar with CDs; they will shop around for interest rates at different banks without understanding the differences in the various types of interest-earning accounts.

At American Bank of Missouri, we try to inform our clients that savings accounts are not always the best avenue for passive interest earnings. We’re passionate about educating clients about these areas, as it allows our partnership with them to flourish. After all, the best banking relationships are built on quality education and trust.

Why Bank Local?

Your personal banking portfolio is clearly an integral part of your life and helps to ensure a comfortable future. Having a robust personal relationship with your bank is not only a source of comfort and assurance, but also an intelligent financial decision.

So are local banks better than their national counterparts? The answer depends on what you want to see in your personal banking relationships. Smaller local banks like ours understand the regions they serve and the people who live in them. We’re more likely to understand the financial concerns our clients will voice before they walk in the door, and that context is key.

Personal banking relationship

Another significant difference is local banks’ flexibility to negotiate rates, terms, and fees with clients without having to get approval from the board. At American Bank of Missouri, we avoid lumping our clients together in a proverbial box; instead, our goal is to get to know each client and understand his or her financial goals. That’s how we’re able to tailor cutting-edge products and grow your personal banking portfolio based on individual needs and circumstances. 

We're here for you

Everything we do is based on what’s going on with you: the individual. In time, our tellers, customer service representatives, and branch managers will know you by name when you walk in the door. Come and have a conversation with us about your long-term goals. We’re confident that you’ll immediately notice the difference in how we work. We’ll help you map out the ideal financial plan, no matter what stage of life you’re in. Simply talk with our experts to get started.

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