Types of deposit accounts
Different types of bank accounts serve different needs. Depending on your goals, it’s wise to put money into the best account and use the right tools for spending and saving. Doing so allows you to maximize the return from your bank, minimize fees, and manage your money conveniently.
Most banks and credit unions offer the following types of accounts, which we’ll cover in detail below:
CURRENT ACCOUNT DEPOSIT
Current accounts are also known as demand accounts and these are just like a basic checking account. Consumers deposit money into the account and have an opportunity to withdraw it as required or on demand. The account holder will be able to withdraw the money using ATM cards, checks or over-the-counter withdrawal slips. Banks may charge monthly fees for current accounts in certain cases but instances of banks waiving the fees when account holders meet the stipulations laid down by the bank are also quite common.
Account holders benefit from the interest that is paid on their deposits by banks on savings accounts. Account holders are also made liable for certain fees if they do not maintain a minimum balance or a set number of deposits. Savings accounts are not linked to ATM cards are paper checks as with current accounts but account holders usually have no difficulties in accessing their funds.
Money Market Accounts
Most banks and financial institutions offer a type of interest-bearing account that allows you to write checks called a money market account. This type of bank account usually pays a higher rate of interest than a checking or savings account does. Money market accounts often require a higher minimum balance to start earning interest, but they frequently pay higher rates for higher balances. Withdrawing funds from a money market account may not be as convenient as doing so from a checking account. With a money market account, each month, you are limited to six transfers to another account or to other people, and only three of these transfers can be by check. As they do with checking accounts, most banks and financial institutions impose fees on money market accounts.
Certificate of Deposit, CD, Time Deposits
Time deposits, often called certificates of deposits or CDs, are also among the various types of bank accounts commonly offered. They usually provide a guaranteed rate of interest for a specified term, such as one year. Banks and financial institutions offer certificates of deposit that allow you to choose the length of time, or term, that your money is on deposit. CD terms can range from several days to several years. Once you have chosen the term you want, the bank will generally require that you keep your money in the certificate of deposit account until the term ends, that is, until “maturity”. Some banks will allow you to withdraw the interest you earn even though you may not be permitted to take out any of your initial deposit (the principal).
Because you agree to leave your funds for a specified period, the bank may pay you a higher rate of interest than it would for a savings or other type of bank account. Typically, the longer the term, the higher the annual percentage yield.
Sometimes a bank allows you to withdraw your principal funds before maturity, but a penalty is frequently charged. Penalties vary among banks, and they can be hefty. The penalty could be greater than the amount of interest earned, so you could lose some of your principal deposit.
A bank will notify you before the maturity date for most certificate of deposit accounts. Often certificates of deposit renew automatically. Therefore, if you do not notify the bank at maturity that you wish to take out your money, the certificate of deposit will roll over, or continue, for another term.
Basic or No Frill Banking Accounts
Many institutions offer a type of bank account that provides you with a limited set of services for a low price (often referred to as “basic” or “no frill” accounts). Basic accounts give you a convenient way to pay bills and cash checks for less than you might pay without an account. They are usually checking accounts, but they may limit the number of checks you can write and the number of deposits and withdrawals you can make. Interest generally is not paid on basic accounts. Compare basic and regular checking accounts for the best deal in low fees or low minimum balance requirements.
Credit Union Accounts
Credit unions offer accounts that are similar to accounts at other depository institutions, but have different names. Credit union members have “share draft” accounts (rather than checking), “share” accounts (rather than savings), and “share certificate” accounts (rather than certificate of deposit).