What Are the Different Types of Bank Accounts to Consider?

A bank account is a bank account no matter where you go, right?

Not really.

Just as there are different types of banks with different benefits, there are many different types of accounts you can open. Having a bank account or credit union account is an important part of managing your finances, so it’s important to be aware of your options.

Before opening a bank account, other factors to consider are minimum balance requirements, fees, interest, and the ease of banking with a particular bank.

Most importantly, you need to decide the type of bank account you want. But you can only do that if you know the types available.

What are the Four Main Types of Bank Accounts?

Most banks offer four account types, although some major banks may offer six.

The four main types of bank accounts you can expect to find at your local bank or credit union are:

1. Checking accounts
2. Savings accounts
3. Money Market Accounts
4. Certificates of Deposit (CDs)

Large banks, conglomerates, and affiliates often offer two additional account types:

1. Individual retirement accounts (IRAs)
2. Brokerage accounts

Although most people tend to associate these types of accounts with investment and general brokerages, many banks offer them to their customers.

Let’s break down why you might want one type of account over another.

Checking Accounts

For many people, a free checking account is considered a “home base.” This type of account provides unlimited access to your money in exchange for little or no interest, although there are “premium” checking accounts that offer interest if you maintain a high balance. A convenient account for people to deposit checks, pay bills, and get to where they need money quickly.

A checking account comes with a debit card, which works like cash and a credit card. When you go to the grocery store or gas station, you can swipe a debit card like a credit card, but instead of accumulating a balance, the money is deducted from your checking account. Remember that some transactions can take a few business days to process, so it’s very important to track your debit card spending or you could accidentally double spend!

Two important features to consider when looking for a checking account are (1) the ability to direct deposits and (2) online banking through the bank’s app or website. Although these features are becoming more and more standard, there are still small local banks that do not offer them.

When shopping around for a checking account, ask about their fees. Remember, big banks and credit unions make their money by charging fees, so it’s important to be aware of these fees in advance. Common fees include overdraft fees, “bounced” (returned) check payments, and monthly maintenance fees.

Savings Accounts

A savings account is exactly what it sounds like: an account where you can keep your money! This is a great place to stash money that you don’t need right away, but can access quickly just in case. Unlike investing in the stock market, you don’t have to worry about a market downturn if you ever need money. While you won’t get rich by putting your money in a savings account, it’s a great place to build an emergency fund.

I recommend it myself CIT Bank Savings Builderas they offer interest rates of 0.40% category. Given that the current savings account interest rate is 0.06%, it is a great advantage for my family to save with CIT Bank.

This begs the question: why did you open a savings account in the first place? Why not just keep everything in your checking account until you need it?

Because opening a savings account adds another layer of accountability. If money is held in your checking account, you may accidentally spend it. In addition, by having your money in a separate account, you reduce the temptation to make frequent purchases that can quickly deplete your balance.

Since checking accounts are not intended for everyday use, there are often limits on how much you can withdraw each month. This limit is 6 monthly withdrawals, although you may want to check with your bank and ask about any fees or penalties if you need to withdraw your savings more than 6 times a month.

Money Market Accounts

Money market accounts, also known as MMAs, combine key features from both checking and savings accounts. When you create an MMA, you can receive checks and a debit card. However, a limit of six withdrawals applies to this account as well.

The main advantage of MMA is that it offers very high interest rates. To qualify and maintain these rates, a large initial deposit is required. The deposit is usually between $2,500 and $25,000. Most banks require you to maintain a high daily balance requirement.

Certificates of Deposit (CDs)

A certificate of deposit (CD) is a type of savings account that keeps your money locked up in the bank until the maturity date. CDs can be as short as a few months and as long as a few years. To keep your money invested, you enjoy a high interest rate. However, the rate of return is about 1%, which is much lower than the rate of inflation and the return you would make in other currencies. Generally, the longer the term of the CD, the higher the interest rate will be.

If you need to withdraw early before the maturity date, you can do so. However, this comes with a huge penalty.

For people who want to keep their money in the bank rather than invest it, a CD may make sense. But if you need to withdraw your funds early or don’t like the idea of ​​your money being “tied up,” then a traditional savings account is probably a better option.

Individual Retirement Accounts (IRAs)

IRAs provide tax-deductible or tax-deferred ways for people to save and invest for retirement.

It is important to note, however, that you cannot buy and trade stocks directly through a bank. Many banks have a trading arm or partnership with another business that will allow you to do this. For example, Bank of America allows you to trade online through Merrill Edge, its discount brokerage. Similarly, JP Morgan Chase has gone Chase You Invest Trade and Ally offers investment opportunities with Ally Invest.

Some brokerage firms previously known only for investments, such as Charles Schwabb, are beginning to offer checking and savings accounts to their investors. The lines between banking and investing are distinct, but they are beginning to blur.

It’s a complex area with many different features, so if you have any questions, don’t be afraid to ask the team at your local bank!

Sales Accounts

If you want to invest in the stock market or mutual funds, but don’t want to do it directly in retirement, a brokerage account is for you! You can withdraw your investment at any time, while IRAs have age distribution requirements.

You own the money and investments in your brokerage account. Online brokerage accounts allow you to manage your investments directly. If you are new to investing or would like to have an experienced professional do it for you, you can choose a managed broker account instead. Robo-investors, which are automated investment systems that avoid the need for a human investment manager, are also growing in popularity.

What is the Difference Between a Bank and a Credit Union?

Now that we’ve covered the different types of financial accounts available, it’s time to discuss the differences between credit unions and banks. Although both institutions generally provide similar financial products and services, the way these institutions are structured differs greatly.

Key differences include: