When people decide to open a bank account they may not really know that there are different types available. Learn about the four types of bank accounts and understand which one suits you the most. Think about it and open your bank account!
If you are thinking about opening a bank account you should learn that they offer different types of accounts. Each one has different fees, benefits and conditions, so you should learn about the options available before you pay a visit to the bank. Take a look at this short-guide and learn more about checking, savings, money market and certificate of deposit accounts!
1. Checking accounts
This type of account is the most common one. They facilitate access to your funds, the use of checks and debit cards. The first thing you should learn about checking accounts is that they usually don't pay significant interest. Regular accounts are only meant to fund your checks and debit card expenses, while interest-bearing checking accounts do offer interest on your funds.
If you are interested in opening interest-bearing checking accounts, you should know that there are two types: Regular (minimal interest rate) or High-interest (pay a higher interest rate, but may involve more fees). Regarding deposits, you can easily add cash and checks to your checking account. You can do it without any restrictions and make the deposit either at an ATM or in person at the bank.
By the end of the month, you will receive a monthly statement which details every check you wrote, the funds withdraw or deposited, the debit card transactions and any other changes registered in your account. You should always check the statement carefully and compare them to your own records, as sometimes errors occur.
2. Savings accounts
Also one of the most popular accounts, this type allows you to save money while storing it in a safe place, plus offering basic interest on your funds.
There are mainly two types of savings account:
- Passbook accounts: They offer you a bank book where all your deposit transactions are recorded. In this case, you are only allowed to add or withdraw money at the bank during business hours.
- Statement accounts: This type is the most common one. The bank issues an ATM card that allows you to withdraw money at any time. Sometimes, this card also works like a debit card, which means it could be used to pay bills and make purchases. This account provides monthly or quarterly statements.
Although savings accounts offer higher interest rates than checking accounts, they may vary. You should check with your bank which are the requirements for this account and check how they calculate interest rates.
3. Money Market Accounts (MMAs)
Money Market Accounts work similar to savings accounts, as they are interest-bearing deposit accounts. They imply higher interest rates, but also require higher balances. In this case, your money will be invested by the bank but risk-free, as the interest won't be affected by these investments.
There are mainly two types of MMAs:
- Basic MMAs: It requires a minimum deposit and pays interest based on your balance.
- Tiered MMA: It offers higher interest rates for higher balances.
4. Certificates of Deposit (CD)
Also known as Certificate of Time Deposits, these types of accounts are risk-free investments. In this case, you will deposit a certain amount of money for a specific period of time, which can be between 30 days to five years.
Once this period ends, your CD "matures." Then, you can either withdraw your money or keep it for another equal period. Bear in mind that if you don't tell the bank you want to withdraw the money, they will automatically roll it over. Another point to highlight about CDs is that they offer higher interest rates than other types of accounts.
There are mainly three types of Certificates of Deposit:
- Liquid: They can be withdrawn anytime you want to with no penalty charges.
- Bump up: They allow you to keep an existing CD but, if your bank has a better offer, they will move it to one with a higher rate. This is not an automatic process, you will have to present a request before the bank.
- Brokered: CDs found by a broker or advisor.
TIPS TO DECIDE WHICH BANK ACCOUNT TO OPEN
If you are looking to open a bank account, then you should first know that banks offer different types of accounts. You just need to find the one that's for you! Take into account the following tips to check what you should know to open the bank account that suits you better:
1. Basic checking account
These type of accounts is one with which you can make both deposits and withdrawals on a regular basis and don't usually have transaction restrictions. You can also want to open a savings account with a checking account with almost no interest. With a checking account, you will also be able to write checks out of the account to pay services, like tour phone bill.
2. Money Market Savings account
This type of account is similar to the previous one as it allows you to write checks out of the account. Nevertheless, Money Market Savings accounts will apply transaction limits, so you will have a limited amount of checks per month. The benefit of a Money Market Savings account is that you will earn higher interest rates than with the checking account.
3. Regular Savings account
This option suits everyone! As in the checking account, you can also make deposits and withdrawals without transaction restrictions. With Savings accounts you can also earn a regular interest rate, which does not vary.
4. Certificate of Deposit (CD)
In this case, you can earn a higher interest rate than in other accounts. However, in a Certificate of Deposit, you will need to commit to having it for a determined period of time - anywhere from a month to 10 years. The more you commit to it, the higher the interest rate you will receive.
Bear in mind that if you withdraw before your term you will be penalized, and therefore earn less money.