The fundamental difference between credit cards and debit cards is that when you use a credit card, the credit card company is lending you money. If you go to the store and buy orange juice with your credit card, you can thank the credit card company for that juice. Alternatively, if you used your debit card to buy that same orange juice, the store received a direct transfer of money from your checking account.

With the credit card, not a penny was taken from your bank account. It was simply added to a running monthly tab. At the end of the month, the credit card company will tell you how much you borrowed from them. At this point, you pay the credit card company what you owe them. Credit card companies will let you delay all or part of that month’s payment, but it will cost you more. I’ll go into paying credit card bills at a later point. I will assume you always have the money to pay your bill off in full (and you have not spent beyond your means).

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Before I understood credit cards, I was afraid of them. My parents told me to avoid them at all costs. The media told me that credit card companies were evil. Even the government took action recently by enacting the Credit CARD Act of 2009.

I’m here to tell you that the credit card is a misunderstood tool.

It’s true. If you’re reckless with credit or don’t know what you’re doing, you could do some permanent damage.

On the other hand, if you understand credit cards and use them wisely, you can reap lots of benefits. Knowledge and familiarity is the key difference.

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I want to make sure this blog is comprehensive and covers most, if not all, aspects of personal finance, so I started with bank accounts. I’ve been itching to start this part of the blog since I started putting together this website, and at this point I think I’ve touched upon enough of the basics of both checking and savings accounts to get into the juicy stuff. I may revisit the topic at a later time.

So without further ado, let’s talk credit cards!

My idea for starting this blog originated after I started telling friends about the new credit card I had signed up for. There was a clear lack of knowledge of credit cards and credit scores.

I have many points to cover, and I think I’ll spread them out over many posts. That’s why I wanted to make this post a preview of the many points to come over the next couple weeks.

The topics will include:

• Credit cards on college campuses
• The idea of float
• Picking a credit card
• Rewards vs. cash back credit cards
• Lesser known benefits of using a credit card
• How to pay your credit card bill
• What is a credit score?
• How credit cards affect your credit
• And more
  I am excited to share and discuss these topics in the coming weeks, so please check the blog regularly and leave questions, comments, and/or suggestions.

Last post, I told you I hold my primary savings account with Ally.

Ally is an internet bank (just like Schwab).

Prior to Ally, I held a savings account at Bank of America. In the many years I held the account, I looked at the balance and thought, “Why isn’t my money growing?” I went to Bank of America’s website and saw that I was being given an interest rate of 0.05%. That is less than one-tenth of a percent. That is tiny.

I did some searching on the internet and was surprised to see that other banks were offering around 2% (back in 2010). That’s 40 times greater!

Here’s how I went about picking Ally.

The Search

In my search for my primary savings account, my two main concerns were a high interest rate and convenience. I started my search at bankrate.com. Here are the results sorted by APY (the interest rate).

Link

Let’s examine some of the top banks offering the highest interest rates.

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Now that we have a better understanding of checking accounts, let’s explore the savings account.

Why do I need one?

A savings account is useful because it stores money you want to put away for the future. Sure, you could save money in your checking account, but with a savings account you earn a higher interest rate.

If you currently do not have a savings account, I urge you to open an account and deposit money on a regular basis. This is arguably more important than the interest you might be missing out on. Without any savings, you could be caught off guard by any surprise expenses such as large medical bills or unemployment. It’s best to have some sort of emergency fund and be forward-looking with your money. You need to care for both yourself and your future self.

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Here’s a look at some of the other bank accounts I considered before choosing Schwab as my primary checking account.

In my search, Bankrate.com was a handy resource. It has up-to-date information on banks’ interest rates.

Here are the results of banks in Manhattan, NY sorted by APY (the interest rate you receive).

Link

If you’re interested in brick & mortar banks, you can see the attributes of accounts at Bank of America, HSBC, Chase, Citibank, and Wells Fargo.

I was not thrilled with those banks had to offer, so I looked into internet banks such as ING Direct and Charles Schwab Bank.

My list of internet banks included Ally, ING Direct, Schwab, and USAA.

I was looking for a respectable interest rate, no monthly fees, no balance requirements, and convenience.

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Let me show you what kind of bank account you’re using now, and then let me show you what you are missing.

Standard Bank Account

First, let’s look at a standard Bank of America (BofA) myAccess Checking Account.

• $12 monthly fee (unless you setup a monthly direct deposit or maintain a daily balance of $1,500)
• No minimum balance to open
• Earns no interest
• 18,000+ ATM
• Non-BofA ATM’s in the U.S. $2 fee (not including other fees from the ATM)
• Non-BofA ATM’s outside U.S. $5 fee (not including other fees from the ATM)
• $30 to order more checks
  These features are pretty standard, and I could probably make them work for me. The occasional ATM fee was annoying. I was particularly irked when I ran out of checks and was forced to order a couple hundred new ones (for $30) when I rarely even used personal checks.

What put me over the edge was the bank’s decision to charge debit card users $5 a month. That was when I went looking for alternatives. I didn’t appreciate my bank trying to pull a fast one on me and then switching months later only after consumers protested.

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Before telling you about the checking account I use and why I use it, I wanted to make you aware of your student bank accounts.

Did you know your student checking/savings account is converted to a regular checking/savings account after graduation? Did you even know that your bank accounts were special student accounts?

It’s likely you’re enrolled in a bank account targeted for students. These accounts typically have small/no balance requirements, small/no fees, and are forgiving on mistakes like overdrafts.

These are like teaser bank accounts. They are great for the 4 years you use them while in school, but after some time (in Bank of America’s case 5 years after the account opening date) your account is automatically converted to a regular account.

Why does it matter?

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