Learn About the 4 Basic Types of Bank Accounts

Learn About the 4 Basic Types of Bank Accounts

Managing, and making the most of, your money begins with a solid understanding of the tools available to support your efforts. Bank accounts are a great place to start. They can keep your money safe, provide you with easy access to your funds for making purchases and paying bills, and put your money to work for you by earning interest.

The four basic types of bank accounts are outlined below. Once you know the functions and features of each, you can decide which may fit into your money management toolbox.

An important note: Always work with a respected bank or credit union that has the full backing of the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA), respectively. Your funds across any of these four types of deposit accounts will be protected up to a total of $250,000.

Checking account: Easy access for everyday spending

A checking account is an account designed to serve as the hub of your financial activity. You deposit money in any of several ways and then those funds are available for your use, whether you’re making a purchase, paying bills, giving a gift — you name it.

You can make deposits at a bank location or ATM, or by mobile deposit. You can also electronically transfer funds from a linked account. If your employer offers direct deposit, then you can also have your paychecks direct deposited into your account. For easy access to your funds, your account is likely to come with a debit card, online and mobile banking capabilities, and checks. You can also add your checking account information to your digital wallet if you’d like.

Checking accounts can vary widely in the features, fees, rewards and capabilities they offer, so it’s important to compare your options and choose the best fit for your circumstances. You can find more detail about what to look for in a checking account here: Checking vs. Savings Accounts: Key Differences and Benefits.

Savings account: Earn interest as you save

Savings accounts were designed with the idea that money not needed for immediate expenses should work on behalf of its owner — namely, by earning interest. Stash money away to grow in an interest-bearing s savings account for emergencies, short-term goals like buying a car or taking a vacation, or long-term goals like traveling the world in retirement.

Unlike checking accounts, savings accounts don’t typically come with a debit card, because they aren’t intended for everyday spending. They may include an ATM card, however, so that you can make deposits, withdrawals and transfers (to internal and external linked accounts) at ATMs. If you have a checking and savings account at the same bank, you may be able to link your savings account to your debit card.

You can make deposits just as you can with a checking account — at a bank location or ATM, or by mobile deposit. You can also electronically transfer funds or set up direct deposits from your employer. You can withdraw funds at any time, although some accounts impose monthly limits on the number of withdrawals you can make, and some financial institutions charge fees if you don’t maintain a minimum balance. Of course, the longer you leave your savings untouched, the more interest you can earn, especially if you make regular savings deposits part of your financial wellness routine.

Learn more about how checking and savings account differ and what to consider as you shop for a savings account.

Certificate of deposit (CD): Higher interest, hands off

A certificate of deposit (CD) is a secure savings option for customers who want to grow their money at a higher interest rate than a standard savings account. With a CD, the account holder agrees to deposit a set amount of money for a specified period of time — anywhere from a few months to several years. In turn, the bank agrees to pay guaranteed interest on the deposit.

A CD may be a wise savings choice when you want to lock in a relatively high annual percentage yield, or APY (interest rate including compounding), particularly if interest rates are expected to fall in the near future; when you have a particular savings goal in mind that aligns with the CD term; or when you want a long-term savings strategy that provides a predictable return. When your CD matures at the end of its term, you typically have the option to renew it at the current APY offered by the financial institution, transfer the funds to another account or withdraw your money. If you do not act within the specified grace period (typically seven days), your CD will likely renew automatically for the same term length at the current APY.

As you compare CDs, consider whether you’re comfortable with any minimum deposit requirements and early withdrawal penalties, and pay close attention to the APY and term.

Money market account: Interest plus checking account features

A money market account blends savings and checking features for people who want to earn interest but also have easy access to their money. They may require higher minimum balances or charge maintenance fees for providing customers with the opportunity to earn higher interest rates than they might with a traditional savings account.

The funds in a money market account are accessible through the same tools checking account holders use: a debit card, online and mobile banking, a digital wallet and checks. This type of account may come with withdrawal limits, however; some banks allow a maximum of six electronic transfers or withdrawals a month. Depending on the account’s terms, exceeding the withdrawal limit may trigger fees or cause transactions to be rejected.

If you’re considering opening a money market account, first check into the minimum deposit and balance requirements, monthly fees, withdrawal limits and fees, APY, overdraft fees, security controls and other features.

Need more information about specific accounts and how they may help you reach your goals? Stop by your local Dollar Bank office or call us at 1-800-242-2265.
 

This article is for general information purposes only and is not intended to provide legal, tax, accounting or financial advice. Any reliance on the information herein is solely and exclusively at your own risk and you are urged to do your own independent research. To the extent information herein references an outside resource or Internet site, Dollar Bank is not responsible for information, products or services obtained from outside sources and Dollar Bank will not be liable for any damages that may result from your access to outside resources. As always, please consult your own counsel, accountant, or other advisor regarding your specific situation.