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 better.
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 guide and learn more about checking, savings, money market and certificate of deposit 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.
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.
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.
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.