There are so many different types of bank accounts that it can be difficult to understand all the options that are offered to you. Luckily, once you have a good understanding of these accounts, then you can make the right decision and open the ones that best suit your needs.
A majority of credit unions and banking institutions offer these types of accounts:
– Checking Account
– Savings Account
– Certificates of Deposit (CDs)
– Money Market Account
Understanding a Checking Account
This is the type of account that is used for your daily life. You will receive a debit card that is linked to this account that allows you to spend money or withdrawal money. You will also be able to write checks, deposit many forms of money, and pay bills. You can even link these accounts to services and have them get taken out automatically. The best use of this account is for cash to be available for short-term uses (unlike a savings account) and is a key part to having proper money management for your budget. One of the disadvantages to this type of account is the fact that money in it will not gain any interest and you run the risk of falling into fees if your account goes into the negatives. You can best utilize this account when you keep proper track of what’s going on.
Understanding a Savings Account
These accounts are best used when you want to put money aside for long-term goals, unlike a checking account. These deposits collect interest and allow you to get more money over time. Unfortunately, interest rates for banks are typically low and are at about .1% according to Bank Rate. This is a great account option for all ages because children can see patterns of savings, teenagers can better manage money, and adults can put aside money for big purchases. There are really no downsides to having a savings account except for the fact that they have low interest rates compared to other account options like a money market account. You also need to be wary of moving money around from your savings account because you will likely reach a limit that is set by your banking institution.
Understanding Certificates of Deposit
This is very similar to a savings account because it holds money for a set amount of time whether four months or four years. This is a great account because it allows your money to earn more than other accounts on this list only if you commit to keeping your money for the full term. If not, then you risk getting an early withdrawal penalty because the account hasn’t reached the maturity date, which is the only drawback associated with this type of account. That is why this is a great savings account for a planned and set goal.
Understanding Money Market Accounts
This type of account is the “best of both worlds” in a sense. That is because it has both checking and savings features. You have the ability for some restricted check-writing ability, and you are also able to collect interest on the money in your account. The interest that you collect on the money in your account is more compared to if you have just a normal savings account. This means that this account is good for both long-term and short-term needs. This account is especially useful when you have a lot in the bank because the interest rate will really come into play. However, these accounts also have some drawbacks like the fact that they have higher minimum balances and you need to be aware of fees associated with the account. Similar to savings accounts, you also need to be aware of how many times you can take money out of the account.