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Different types of bank account serve different purpose. You need to choose an account type that will provide you with the best tools to save and spend according to your financial goals. Organizing your money doesn’t have to be tricky. Knowing the different types of bank accounts can help you stay on the right path.
You can minimize bank fees, maximize the returns you receive from your bank and manage your money better by choosing the most suitable type of bank account.
According to the FDIC, nearly 95% of Americans have a bank account or credit union account. With this, it means that you need to know the type of bank account you own. There are different types of bank accounts; sometimes, it is hard to know which one is good for you and your household.
Keeping your money at home is not a safe thing to do nowadays. Instead, it is recommended that you put your money in the bank or credit union. So, the question is: what are the types of bank accounts you could use or keep your money?
Let’s discuss the different types of bank account to decide which one is suitable for you. Some of these banks even allow you to open multiple accounts.
Here are some of the types of bank accounts offered by almost every bank and credit union.
|Types of Bank Accounts||Description|
|Checking account||A deposit account that allows withdrawal and deposits. They are liquid.|
|Savings Account||A deposit account that earns interest. It is commonly called an interest-bearing account.|
|Certificate of deposits (CDS)||A savings account that holds a fixed amount of money for a fixed period.|
|Market Money Account||It is an interest-bearing account just at saving account, but it requires a higher minimum balance to open.|
|Brokerage accounts||It is an investment account that allows you to buy and sell various investments, such as stocks, bonds, mutual funds, and ETFs.|
|Retirement Account||Allows you to save money for retirement in a tax-advantaged way.|
If you want an account to use for everyday expenses, you should consider getting a checking account. It is one of the most popular types among the types of bank accounts. The most important and helpful feature of a checking account is that you obtain a linked debit card to withdraw money from ATMs and for purchases. You can also write checks with this account. You can pay your bills and deposit checks, and cash with this account type. Checking accounts of most banks now come with online bill pay services.
Most checking accounts do not provide any interest. However, if you choose an interest-bearing checking account, then you can earn an extra income.
Also, a checking account is helpful if you wish to store some cash for a short period. You should pick this account if you want to manage your monthly cash flow.
Furthermore, a checking account is for people who require a bank account to make payments, deposit paychecks, or cash. People who enjoy using a debit card and only need a small balance in their bank account can choose this bank account.
Checking accounts do not offer any interest and charge any fees. They have a few regulations that the account holder must follow. They have minimum balance requirements and charge maintenance fees monthly. You can look for checking accounts that waive off monthly payments or do not charge any maintenance fees.
Make sure your salary is deposited automatically into your account. Ask your boss to deposit your paycheck directly. If they do not provide direct deposits, use mobile deposits instead of going to a bank to deposit a check.
It is wiser to use credit cards when using checking accounts. Debit card purchases take the money directly out of your bank account. If there is a fraud using your credit card, you will be liable to pay a less amount than if there is a fraud on your debit card.
You should report any fraudulent charges right away. If you report to your bank about a debit card fraud within two days of the scam, you are only liable for 50$ or less. If you do not report fraud for 60 days, you will be required to pay the whole amount.
Tips- Balance your account each month. You can manage your money, observe any errors or fraud early, and avoid a few fees if you regularly evaluate the outflow and inflow of cash into your account.
Most people use a savings account to accrue savings for future use. If you chose this account, you earn interest on the money in your account. A savings account lets you collect money without any effort.
The first bank account of most people is a savings account. Parents open this account for their kids to teach them about the habit of saving. Teenagers open this account to deposit their earnings or save money for higher education.
More so, you can learn about banks and banking by opening your first savings account. It is a great choice to store cash and achieve your financial goals. If you were looking to create an emergency fund that you would be less likely to use often, choose a savings account.
Furthermore, it is an excellent account type for teenagers and children as their first bank account. It can be used to store cash or earn interest on savings. If you do not want your child to be tempted to spend their money, you can have them add it to their savings account.
Their interest rate is lower when compared to CDs and money market accounts. You will not receive a debit card with a savings account. Many banks have withdrawal limits on a savings account, often six per month.
Tips- You can opt for online-only savings account if credit unions and local banks are too expensive for you. Online savings accounts often charge very nominal fees and have high-interest rates.
If you want to grow your savings account, you must store a large or a lump sum amount of cash in it. You can also set up automatic deposits monthly into your account.
Lastly, most saving accounts also offer and an option to transfer a certain amount from your current account whenever there is a purchase.
Certificates of Deposit (CDs)
A CD is like a savings account. It will store your money for a fixed period, like five years. It gives you the best interest rate; however, you must make sure to keep your money in CD until the term has ended. There is an early withdrawal penalty.
If you have a financial goal for a specific situation or time, you can opt for this type of bank account. If you wish to take a trip in 3 years, then a CD would be the best place to store your money and earn high interest.
It is the best account type if you do not need to use that money. You can earn more by keeping it in a fixed-term account. Also, you can choose a long or short-term period based on your requirements.
You are required to pay the penalty if you decide to remove your funds before they have matured. The fine is often very high; everything you may have earned via interest may be gone. Sometimes you may receive less money than what you deposited if you pull the money earlier.
Furthermore, you can set up a CD ladder that is multiple CDS and have varied maturity dates so that you do not have all your money stuck in one place. This way, you will have some savings available at different times.
You can choose a bank with a more flexible CD. They may have options to allow early withdrawal without penalties.
Tips: Most deposits above $250,000 are federally insured par bank and par depositor either through National Credit Union Share Insurance Fund (NCUSIF) insurance for credit unions or the Federal Deposit Insurance Corporation (FDIC) insurance for banks.
Take your investment into your hands by opening a brokerage account. You can use these accounts to trade in bonds, mutual funds, and stocks. It is not as stable as a savings account, but it can bring you much higher rewards.
There are two options for this account. You can get an account with a traditional advisor who will use his or her intelligence to recommend stocks to you. You can also get Rob advisor accounts that will guide decisions based on computer algorithms.
Furthermore, investment is risky, and things could go wrong. You could lose your money in the stock market, a stock could drop, or you could invest in stocks that may not increase in value.
Tips: Always find a brokerage account that has diverse investment options and minimum balance. Any put all your eggs in one basket.
Money Market Accounts
This account type combines all the features that are offered by checking account and saving account. A money market account offers a high-interest rate, much more than a checking account and saving account. It provides limited check-writing privileges. They are great for the long-term and short-term requirements.
This bank account is perfect for you if you have a high balance in your checking account. You can use the account to earn more interest and still be able to write a check. This is a suitable bank account type to store cash.
This bank account type is for people who have a high balance in their bank account and want to collect more interest on their money.
Money market accounts do have a higher minimum balance requirement. Some banks do not offer very high-interest rates. Banks often charge some fees on these accounts. Many banks have a limit on monthly withdrawals on these accounts, usually six per month.
Tips- This bank account type is suitable for storing emergency funds. If you wish to save for a big financial goal like buying real estate, then you should keep that money in this account type. Make sure you only use this money for realizing your financial plan and not for everyday expenses.
You can choose an online-only bank and cash management account, which have low-cost options. Traditional banks often are more expensive than online banks.
The account type to choose if you wish to set aside money for your retirement. Most banks offer individual Retirement Arrangements (IRAs). Some banks also offer 401(k) accounts and alternate retirement accounts for smaller businesses.
You get many tax benefits on retirement accounts. This account will help avoid paying income tax on the growth of your contributions for IRAs and 401(k) plans annually. You may not be required to pay taxes while depositing your money, but you will be required to pay some taxes when you withdraw. However, a Roth IRA allows you to pay taxes now, so you do not have to pay at the time of withdrawals.
Also, you can invest your retirement account balance in the stock market to obtain more returns and increase your retirement balance.
This type of bank account is for people who wish to save for their old age. The tax benefits make it easier to save money.
All the tax benefits that you receive with this account have conditions applied. It would help if you talked to your bank about the rules and eligibility for this account. Lastly, please read the agreement for the account properly before signing it. It would be best if you conversed with your CPA about taxes to be aware of your options. You can also contact your tax preparer.
You may be charged heavy penalties and taxes on an early withdrawal. If the stock market crashes or plummets, there is a risk of losing all your retirement money. Retirement account investments do not have federal insurance.
Tips: Always accept if your company offers a 401(k) and contribute enough before contributing to your retirement account with your bank.
Now that you are aware of all the types of bank accounts, you can organize your finances to earn maximum returns.
Always sit down with a financial advisor to understand the account type that is most suitable for you. It would be best to discuss a savings plan and which investments you can choose to minimize your losses and maximize your rewards.
Organizing your money shouldn’t be too tricky. Having the right to these accounts 7can help you stay on the right path.
Now that you know the different types of bank accounts, it time to get yourself at least one of the accounts.