Latina Dinero Guide to Managing Bank Accounts

Where should you keep your money? And how much should you keep in different accounts? And do you need to keep cash at home? These are all very common questions I get as a financial educator, and I’m here to give you the answers. Latinxs in the U.S. are expected to be 25 percent of the population by 2030. We have a ton of economic and financial power, but so many of us aren’t using the best tools available to build wealth. In 2019, 12.2 percent of Latinxs were unbanked, meaning they did not have a single bank account and kept $0 in a bank and that’s a major problem. Living without a bank account can not only make wealth building hard, but can make your day to day spending hard. Unbanked people pay more in check cashing fees and lose out on the chance to earn interest, which is a double financial penalty. This needs to change and that happens by chipping away at the inherent distrust our community has of banks and the lack of financial literacy. One way to get started is to figure out how banks work and which one works best for your needs so read on to learn more.

Latinxs Struggle to Trust Banks

The reason many Latinxs unbanked is because of our distrust of banks in general. This is for a good reason — in many Latin American countries, there have been revolutions or social unrest that impacted the safety of money in banks. Many immigrants to the U.S. come from countries where keeping money at home was safer and smarter than keeping money in a bank.

The U.S. also has a long history of purposefully excluding communities of color from the financial system. Banks would routinely refuse to give people of color mortgages, preventing them from buying homes. Redlining was a system where banks would literally outline Black and Latino neighborhoods on maps in red ink, and if you came to the bank to try and get a mortgage in one of those neighborhoods, the bank would refuse you. It wasn’t until the Fair Housing Act of 1968 that federal laws began to prohibit discrimination in mortgage loans.

Wells Fargo, one of the biggest banks in the U.S., was recently fined for granting Latino and Black customers worse loans than white customers. So the suspicion makes sense. But banks are necessary tools when it comes to building generational wealth, and you need a good relationship with a bank if you want to buy a car or a house one day. Learning how to trust a bank is a money move that our community needs to make to build wealth.

U.S. Banks Have Built In Protection Systems

In the U.S., the risk of a bank losing or stealing your money is almost zero. There are many laws around how a bank can store or share your money. Most importantly we have a bank insurance system. FDIC insurance is an insurance policy for anyone using an American bank that states if you have $250,000 or less in cash at a bank and the bank goes under, the U.S. government itself will pay you back up to $250,000.

And we recently saw the U.S. government make this happen when Silicon Valley Bank collapsed. The bank did not have FDIC insurance, but the U.S. government still reimbursed account holders. So take a deep breath of relief. While the U.S. is not perfect, we do have a very strong banking system and your money is very safe in the bank here.

Which Bank Accounts You Need?

Everyone needs at least three bank accounts: a checking account, and two savings accounts. Your checking account is where your income should go. When you get paid, even if it’s in cash, you should put it in your checking account right away.

You can link bills to your checking account as well. For example, you can have your light bill be automatically deducted from your checking account. I usually recommend people use a credit card to pay most, if not all, of their bills, so that you can build your credit score and get rewards points, but if you have debt or can’t open a credit card, checking accounts are fine.

Savings Accounts, Explained

The other two accounts you need are both savings accounts. A savings account is a separate account from your checking, and you can have multiple. There are no fines or fees for having multiple savings accounts. Banks want you to have multiple accounts because it means you’re putting more money in them. The two savings accounts everyone needs, as a base line, are your emergency fund and your fun fund.

An emergency fund is cash you keep in a high yield savings account, that you can pull from as needed in cases like a car accident, a hospital bill, or after getting laid off. Keep four months of your bare minimum living expenses in this account. That gives you four months breathing room to deal with an emergency so you can focus on that instead of where you’re getting your dinero from to keep a roof over your head or for your groceries.

Your fun fund is for things you want to do! Like go see Bad Bunny in concert, or take a weekend trip to Miami. Part of how to keep saving money is make it fun so that you can enjoy your hard-earned cash every now and then. The fun fund can also be something you’re working toward like owning a home, getting a new car, or taking mami y papi on a trip someplace special.

How much you’ll keep in these accounts will fluctuate, depending on where you’re at and what you want your money to go to. Prioritizing the emergency fund is crucial since that will help you stay afloat no matter what happens but putting a little bit to the fun fund will keep you motivated to keep saving.

What is a HYSA and Are They Safe?

A High Yield Savings Account (HYSA) are safe options to accumulate money. These are savings accounts that offer high interest rates. Interest is money that the bank pays you for keeping your money in the bank. The more money you have in the bank, the more interest you will earn.

Let’s look at Wells Fargo. Right now they offer an interest rate of .01 percent so basically pennies to the dollar. Compare that to Wealthfront, which offers 5 percent interest. That means if you keep $1000 in Wells Fargo, after a year you’ll have made $10 in interest. At Wealthfront, that same $1000 would have made you $50. That’s an extra $40 for free! Now imagine if you had $40,000 saved and were getting 5%. You’d earn $2,000 a year for FREE. HYSAs are a powerful tool to reach financial independence.

You should keep any mid term and long term savings in an HYSA. Savings for things like travel, a house, a wedding, or a new car should be kept at an HYSA. Remember, you can have separate accounts for separate goals, which I recommend. This will help keep you organized. If you want to save $40,000 for a house and $10,000 for your wedding, you should have two different HYSA accounts for those goals.

Wait, Can I Have Multiple Bank Accounts?

Yes! You can have multiple accounts at one bank, AND you can have accounts at different banks. For example, you can have your checking account at Bank A, and then keep your two savings accounts at Bank B because B offers a better interest rate.

This is totally legal and very common. People use different banks for many different reasons; some banks are only available in certain states, some banks have higher interest rates, some banks align with their personal values. Don’t overwhelm yourself though. Start with the three accounts and keep it simple. As your financial life develops and you get more confident, you can open more accounts if you need them.

Latinx-Owned Banks and Credit Unions

Latino Community Credit Union (LCCU) was founded in 2000 in North Carolina. After a spree of robberies of Latinx immigrants, who often keep money in cash than in banks, LCCU was created in order to create a safe space for our community to store their money and build credit. Banesco USA, based in Florida, has a majority Latinx team and also have a location in San Juan, Puerto Rico.

Banks to Avoid

Try to avoid Chase Bank and Wells Fargo if you can. They both have histories of mistreating communities of color. Plus, they both are expensive to use: Wells Fargo charges you $5 a month just to open a savings account while Chase has a $12 monthly service fee.

Recap: Where to Store Your Cash

So, to review: if you struggle with trusting banks, remember that the U.S. government has an insurance policy with banks via FDIC insurance.

Open a checking account and put your paycheck there.

Open at least two HYSA accounts and nickname them “emergency fund” and “fun fund”.

From there, focus on building your savings up! Aim to keep at least four months of living expenses in your emergency fund to ensure you’re secure should something happen.

Remember that when it comes to money, a little can go a long way if you have the knowledge to have the system work to your advantage.

Kara Pérez is the founder of Bravely Go, a sustainability focused financial education platform