How to keep your money safe? Common types of bank accounts
Bank accounts offer a convenient and secure place to store cash and build savings. Savings and checking accounts are the most well-known types of bank accounts, but there are actually other options that financial institutions commonly offer. There are different types of bank accounts that can fit specific needs. Apart from Checking and Savings Accounts, they include Money Market Accounts (MMAs), Certificates of Deposit (CDs), Individual Retirement Agreements (IRA), and Brokerage Accounts.
If you’re opening a new account, it’s good to know how the different types of bank accounts work.
provide quick and convenient access to money for everyday expenses
A checking account is a liquid bank account that allows you to easily deposit and spend money. They are good for day-to-day expenses like paying bills, transactions, and cash withdrawals.
Once you open an account, you can deposit money into it using a direct deposit or a mobile check deposit. Also, you can have paychecks or government benefits that you receive deposited directly into your account without a paper check. If someone needs money urgently, you can easily send money with their checking account number to their accounts instantly.
When you want to spend money from your checking account, most banks allow you to write checks, or they issue a debit card that you can use to access the funds in your checking account when making purchases or withdrawing money from an ATM.
There is no limit on cash withdrawals, but there are certain requirements for amounts over $10,000. For larger withdrawals, you will need to prove your identity or provide information about the reason you’re withdrawing the funds, but that is a simple security measure.
Traditionally, checking accounts are not interest-bearing as savings accounts are, so the average interest rate on a checking account won’t earn you much. The major banks will likely offer around 0.01% APY (annual percentage yield).
In addition, a typical checking account may have a monthly maintenance fee between $15 and $25. However, many banks provide several ways to waive these fees.
help save money for a specific goal while earning interest
A savings account is a type of bank account where you can keep extra money you don’t plan on spending soon and earn interest on your deposit over time. It’s an ideal place to hold funds for specific purposes and goals in the long run. The average savings account annual percentage yield (APY) is 0.46%, but some banks and credit unions offer around 2% APY or higher.
When you need to use your money, you can withdraw it from a savings account, but many banks and credit unions limit the number of withdrawals or transactions you can make. Additional fees – usually around $5 to $10 – may apply for excessive withdrawals. In addition, there are usually minimum balance requirements for a savings account to avoid spending the funds. Most savings accounts do not allow writing checks or making purchases and ATM withdrawals using a debit card.
There are different types of savings accounts available from banks and credit unions, including traditional savings, high-yield savings accounts, money market accounts, certificates of deposit accounts, and specialty savings accounts. You can find more details about them below.
High-Yield Savings Accounts
offer a higher interest rate to grow your savings faster
A high-yield savings account (HYSA) is a growth account that offers a higher interest rate and long-term savings potential. The interest rate on an HYSA can be 10 times higher than that of a traditional savings account. High yield checking accounts may earn at least 4.00%, with the top offers exceeding 6.00% APY. Therefore, they’re a solid savings tool that you can use to make sure your money stays safe for medium-term goals like wedding expenses, vacation costs, emergencies, and other short-term goals.
Many traditional savings accounts require you to maintain a minimum balance to avoid fees. With an HYSA account, there are no minimum balance requirements. Another benefit is that there are no monthly fees, so you can keep more of your interest earnings.
One thing to note is that they may have limits on the number of transactions you can make each month. However, you can still access your money when you need it because the transaction limit is generally higher than with a traditional savings account.
Both checking and savings accounts are the Federal Deposit Insurance Corp. (FDIC) or the National Credit Union Administration (NCUA) insured. Having an FDIC/NCUA-insured account means your money is protected, even in the event of a bank failure. Savings accounts might be a little safer only in that there aren’t debit cards and checks linked to accounts to access the funds.
Money Market Accounts
accrue interest at competitive rates with limited access to funds
A money market account combines the features of savings and checking accounts. That is to say, you can earn interest on your balance, make withdrawals and purchases using a debit card, or write checks.
Money market accounts carry variable interest rates that can change at any time depending on market conditions, and they are generally higher than interest rates on savings accounts.
Although money market accounts may offer better rates than standard savings accounts, they have withdrawal caps up to 5–6 transactions per month, all savings accounts alike. Because of the limited access to funds, money market accounts might be a good fit for shorter-term savings goals.
Typically, money market accounts also have minimum balance requirements. So, if your account balance falls below the minimum balance, you’ll have to pay a fee.
Certificates of Deposit
one of the safest ways to grow the money you don’t need to access in the short term
A CD account is a time deposit, which means that when you open it, you agree to leave your money in the account for a set period of time. While your money is in the CD, it earns interest, but you generally cannot access it before it matures without incurring a penalty. Typically, a certificate of deposit matures between six months and five years.
A certificate of deposit is a type of savings account with a fixed interest rate and term, meaning the rate remains constant throughout the duration of the CD. With a fixed rate, you earn a predictable return on your balance. There are also some CD types, like bump-up CDs, that allow you to increase your interest once during the term.
CD accounts at banks are the Federal Deposit Insurance Corp. (FDIC) insured for up to $250,000 per depositor in the event of a bank failure. All federal credit unions and most state-chartered credit unions provide similar protection via the National Credit Union Administration (NCUA).
Bank accounts provide convenience, security, and safety for your money. There are different options to suit your needs, depending on whether you want to keep your money for a long or short period of time. When opening an account, compare the interest rates, terms, and fees of different bank products to make an informed decision.
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