In this day and age, pretty much everyone over the age of 18 should have some type of bank account. Bank accounts are essential if you want to get direct deposit from your job or if you want to pay for your everyday purchases with a debit card. However, with so many different types of accounts out there to choose from, it can be confusing to know which type is best for you. Here is a brief overview of the different types of accounts available and the basic features of each one.
Savings accounts provide an incentive for customers to save money. Savings accounts with banks and credit unions will usually come with an interest rate that is higher than a traditional checking account, but lower than CDs or money market accounts. Savings accounts will allow you to make deposits and withdrawals, but there is usually a cap on the amount that you can make in a monthly period. Some banks will even charge you a fee if the balance on your account falls below a specified minimum amount. You should not use your savings account to pay for your everyday expenses. This is what your checking account is for. Most banks will let you open a savings account for free, so customers can easily open both a savings and a checking account.
A checking account is the most basic type of bank account. You will usually get checks and a debit card for free when you open an account. You will use these items to pay for your everyday expenses. Most people will also set up direct deposit with their employer so that their pay check will automatically be credited to their account. Because you will have a lot of money going in and out of your account on a monthly basis, you will want to choose a bank or credit union that does not place any stipulations on this.
Money Market Accounts
A money market account is an interest-bearing account that invests your money in short-term debt including CDs, Treasury Bills and commercial paper. Money market accounts usually offer rates that are higher than other types of accounts, providing you with more money-making potential. However, these accounts usually require you to deposit a large amount of money initially to even open an account. Additionally, these accounts do not typically come with debit cards or checks and some banks will charge a service fee if your account balance falls below a specified minimum.
Certificate of Deposits (CDs)
CDs are also known as ‘time deposits’ because you have to agree to keep your initial deposit in the account for a specific amount of time. For this amount of time, typically lasting from three months to several years, the money will be virtually inaccessible. Because of the stringent terms of this type of account, the rewards are greater and you will be paid a much higher rate of interest. If you do end up taking take the money out for any reason, you will usually be charged a substantial early withdrawal fee. Therefore, do not open up this type of account if you expect that you will need the money before the maturity date.