Bank accounts come in a variety of shapes and sizes to meet different types of demands. It’s a good idea to put money into the proper account type for your financial goals so that you have access to the right spending and saving tools. This helps you to maximize your bank’s return, save fees, and manage your money more easily. Whatever way you look at it: saving money is incredibly important, for you and your future.
There are many types of checking accounts that you can consider – each one with its advantages and disadvantages. In this article we help you discover which account might be best for your needs and the different types of banking accounts most banks offer.
Retirement Accounts
For many savers among us, retirement accounts are the top priority. Saving now will ensure that you have enough money to enjoy a comfortable standard of living. Traditional retirement accounts give an immediate benefit by making contributions on a pre-tax basis. The traditional individual retirement account (IRA) allows individuals to direct pretax income. Upon retirement, withdrawals are taxed at the IRA owner’s current income tax rate. These type of accounts grow much faster than these aforementioned accounts.
Checking Accounts
A basic checking account is the most common type bank account. In general, these accounts are easy to use, and have round-the-clock customer support. It provides a small set of features and is suitable for everyday banking such as: Withdraw funds from an ATM, viewing an managing your account online, access and transfer money, debit card etc. Usually, basic checking account don’t bear interest, so not earning money on you balance is something you should keep in mind.
Certificates of Deposits (CDs)
This is a type of saving account with a fixed interest rate that is usually higher than a regular savings account. If you have a CD, you agree to leave a certain amount of money on deposit at the bank for a period of time. The bank will then agree to pay a predetermined interest rate. It is considered on of the safest investments available, since they are legally required to pay the exact amount of interest and principle they agreed upon. Even if these bank or credit union go bankrupt, it is still very likely that you will be repaid.
Recurring Deposit Account
A recurring deposit account (or RD account) is a form of account wherein the account holder needs to deposit a fixed amount of money every month until it reaches the maturity date. Interest rates can vary depending upon the bank you choose. A disadvantage of this account is that withdrawals cannot be made, and if you do so a sum of the amount is deducted as penalty.
Savings Account
As the it already says in the name, saving accounts can be opened with the aim to save money. The bank pays you interest for opening this type of account with them, the rate of interest varies each year and for each bank. There is no minimum balance and is accessible for almost everyone. Unlike a recurring deposit account, you can withdraw money form a savings account without having to pay a penalty.
Money Market Account
These accounts are similar to saving accounts, a difference between those two options is that you are required to maintain a certain amount of money in your account. Another difference is that money market accounts will provide interest, but this can fluctuate based on financial markets. In general, these accounts pay higher interest rates, but they also require more money to get started.
If you have to choose between these bank accounts, we recommend you to do a lot of research. The most important thing to keep in mind is to choose an account that fits where you are financially now, and what you want to accomplish in the future. If you struggle with budgeting, it is wise to use budgeting tools or to seek help from a professional. On top of that, make sure to review your bank account features and costs regularly and always keep in mind that you can switch to another bank if you find a better option somewhere else.