Bank accounts allow you to save and easily keep track of your money. Some will even earn you more money, in the form of interest.
If you’re interested in opening an account, however, you’ll have to decide among several different kinds. There are a variety of bank accounts at your disposal. Each one has its own unique purpose, so it’s important to familiarize yourself with all of them. This way you can figure out which accounts are ideal for your particular lifestyle and goals. Most banks offer:
- Checking accounts
- Savings accounts
- Money market accounts
- Certificates of deposit (CDs)
Here’s a brief overview of four of the most common types of bank accounts.
|Account Type||Why you may want it|
|Checking||You want to be able to access your money at any time and are OK with earning minimal to no interest.|
|Savings||You don’t need access to your money often and would like to leave it in a secure account that earns some interest.|
|Money market||You want a mix between a checking and savings account and only need occasional access to your money every month.|
|Certificate of deposit||You want to invest your money for a specified amount of time to earn a fixed rate.|
With a checking account, you can easily access your money on a daily basis. Checking accounts are the most accessible type of bank account, allowing you to deposit and withdraw money as often as you want. Therefore, a checking account is a great place to keep the cash you’ll use for everyday spending. While checking accounts don’t traditionally earn any interest, there are some interest-bearing checking accounts available. All checking accounts are usually tied to a debit card, which you can use to make purchases or withdraw cash from ATMs.
Some checking accounts charge fees for maintenance, ATM withdrawals and minimum balance violations. Comparing options can help you find a checking account with the lowest fees and best terms for your situation.
- Most people. It’s an accessible account that lets you deposit your paychecks or make payments.
- People who want to earn interest on their money.
- Those who are likely to spend more money than they have in their account and pay overdraft fees as a consequence.
A savings account serves as a place for you to park money you don’t want to spend right away. Savings accounts can give you the chance to earn interest on the funds you deposit. They can help you build up an emergency fund or save for a down payment on a house, car, or any other financial goal you may have. Unlike checking accounts, savings accounts impose restrictions on how many withdrawals or transfers you can make each month.
Savings accounts differ in interest rates, method of compounding interest, service fees and minimum opening deposits. Search for the best savings account that’s right for you.
- Emergency funds.
- Those who wish to save for a goal, like a down payment on a house or a car.
- Anyone who wants to resist the temptation to spend some of the money they earn.
- People who want to be able to access their money as often as they’d like.
Money market accounts
At its core, a money market account (or MMA) is a combination of a checking and savings account. You can land a higher interest rate on a money market account than a savings account but a money market account tends to require a higher minimum balance. Some money market accounts may require $5,000 or $10,000 to open an account. However, you can also find money market accounts that have a lower minimum requirement. Some money market accounts come with checks or debit cards but the number of withdrawals from the account is usually limited per month just like a savings account.
- People who wish to keep a high balance in their account and earn interest on it.
- People who want to be able to access their money as much as they want.
- Those who can’t meet the minimum balance requirements.
Certificates of deposit (CDs) allow you to invest your money for a certain period of time at a fixed interest rate with minimal risk. Terms range from a few months to a few years. While you could earn more in interest than you would with the other bank accounts, you’ll have to commit to keeping your money in the CD for its entire term. If you don’t, you’ll be on the hook for an expensive early withdrawal penalty fee.
- People who don’t need their money right away.
- Those who want to earn more interest in exchange for locking up their funds for a while.
- People who believe they’ll need to withdraw their funds early and pay the early withdrawal penalty.
- Those who don’t like the idea of having their money “tied up.”
When choosing the type of bank account that’s right for you, remember that you can open more than one to meet your various needs. Choose one or a mix of them that can steer you toward financial success.
Featured image by Andrew Caballero-Reynolds of Getty Images.