Typically, people have a checking and savings account, but these aren’t the only types of accounts that banks and credit unions offer. These bank accounts are placed into five basic categories — savings accounts, basic checking accounts, interest-bearing checking accounts, money market deposit accounts, and certificates of deposit.
It’s important to know which kinds of accounts are offered before you decide to open an account on your own. The accounts are all FDIC-insured, meaning the government will cover up to $250,000 if anything happens to your money.
Savings account
Savings accounts are supposed to be a way to encourage you to save your money. The account is liquid, meaning that you’ll be able to access the funds whenever you need to. Usually, a savings account pays a higher interest rate than a checking account, but it’s not substantial enough to grow your money in a meaningful way. Some online banks, such as Ally Bank and Capital One 360, offer better interest rates than larger banks. Other banks may start charging fees if your balance falls below a certain amount or for excess activity.
Basic checking account
This type of bank account is a great place for you to park your money. Like the savings account, it’s also liquid — the money is usually used to pay bills and send money. This type of account doesn’t pay interest, and banks may charge monthly fees unless certain requirements are met such as having paperless statements, meeting a minimum balance, or having a minimum direct deposit. You can be limited in the number of checks you can write per month, and exceeding that amount may force you to pay a “per item” fee for every check that you write.
Interest-bearing checking accounts
This type of checking account offers more services than a basic checking account. It usually requires a minimum balance to open but will also charge you fees if you don’t keep a set minimum balance. Unlike a basic checking account, you will receive monthly interest, but even then, it is a very low-interest rate. Most brick-and-mortar banks offer low-interest rates and require a minimum balance before the fees are waived.
Money market deposit accounts
Money market deposit accounts offer higher interest rates than traditional savings accounts. This kind of account usually requires a higher minimum deposit on opening. These accounts can offer a higher interest rate because they require a minimum balance and restrict the number of withdrawals that can be made on the account. This account is for people who can maintain a high balance and will not move money out of the account frequently.
Certificates of deposit
Certificates of deposit hold your money for a set period. Since your money is held for a specific amount of time, the interest rate is higher than a savings account, but it will be held up to a period of three months to multiple years. Money tied up in a CD can be taken out at any time, but there is a high withdrawal fee if money is withdrawn before the deposit period ends.
Use the bank account that best suits you
When opening a bank account, you need to choose the right one carefully. There are set limits, fees, and interest payments that can apply to the different types of bank account. If you decide that you need an account just to hold your money, and need it to be liquid, you should probably just get a checking account. If you can afford a higher deposit and don’t need to move your money often, a money market account may be better for you.
How you use your money is a significant factor in determining what type of bank account you should get. Before you open a bank account, consider all of your options, and compare requirements between banks to determine which account type best fits your lifestyle and personal spending habits.
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