Here Are The Different Types of Banking Accounts You Can Have
Saving money is incredibly important. While some have the philosophy to stash their money under their mattress, putting money in the bank is a more practical (and likely more lucrative) alternative.
There are many types of checking accounts that a person can have with their bank, and each one has its own advantages and disadvantages. As you’re trying to decide which account is best for your needs, here is an assessment of what each type of account offers. Here’s a list of the different types of banking accounts most banks offer, as well as what makes them unique from one another.
Checking accounts can be offered by a bank to new members, low-income earners, or people who just need some extra cash on their hands and don’t want to subscribe for any other services such as savings accounts or credit cards. A basic checking account is the most common type. A basic checking account is the most common type. They are great for everyday banking needs, such as withdrawing cash from the ATM, transferring funds, or depositing checks. You can certainly write checks from these accounts if you like as well. They also usually come with a free ATM card, and have no monthly service fees.
The main advantages of checking accounts are their convenience and how easy they are to use. They also have round-the-clock customer support if any issues arise. The disadvantages to these is that sometimes there are fees the bank adds on, as well as a minimum balance that needs to be kept monthly.
Always make sure to keep your account balanced, review your account for suspicious activity, and utilize the direct deposit feature.
Savings accounts are intended for people trying to plan for the future. When trying to set up a longterm relationship with a particular bank, these types of accounts are particularly helpful. Many parents set up these accounts for their children when they are younger. This type of account also has lower monthly fees, but usually does not come with a debit card.
This type of bank account is helpful for people who are more forgetful or have a habit of overspending. It is also a good type of account to have for emergency funds since they have limits on withdrawals usually.
The advantages for savings accounts are the ability to help younger people learn to manager their finances and save longterm. Unfortunately, the interest rates are pretty terrible, and don’t seem to be getting any better any time soon. Additionally, the minimum deposit initially can be pretty high.
Certificates of Deposit (CDs)
A certificate of deposit (CD) is an account that can be opened for a specific period of time (from a few months to many years), and can be the perfect solution for someone who wants to store money long-term. They are low-risk investments that come with higher interest rates than savings accounts, though the interest rate has decreased significantly over the last decade. The advantage to a CD is that it locks in an interest rate when you deposit the money, so the rates are locked in and the returns are guaranteed. However, withdrawal before the CD term ends may result in penalties such as withdrawal fees.
Money Market Accounts (MMAs)
A money market account (MMA) is considered low-risk because it’s insured by the FDIC up to $250,000. Money market accounts differ from checking and savings account in that they usually offer higher interest rates, but have withdrawal limits. They also often have a minimum deposit and balance to maintain.
Retirement accounts have a major advantage over the other account types and that is the tax benefit they offer. A Roth individual retirement account (Roth IRA) is very popular because when you decide to withdraw the funds, the money is tax-free, including all the compound interest that was earned. Setting up an IRA in your 20s and making annual contributions can pay huge dividends by the time you decide to retire.
These types of accounts grow much faster than these aforementioned accounts and can give some solace to those looking to keep a nest egg stashed away. IRAs do carry large penalties for withdrawing the funds before a certain age, and not all the funds in the account are FDIC insured, unlike the other types of accounts.
As you can see, there are many different types of accounts, and you will need to ascertain which is the best for your current stage of life.