When considering how to manage your money, knowing the different types of bank accounts is essential. There are many different types of bank accounts out there—some that offer higher interest rates and others that allow you more flexibility in terms of how frequently you can withdraw funds as well as how long they must remain in an account before they can be withdrawn. Understanding all these options will help you decide which one is right for your personal or business needs.
Checking account
A checking account is a type of bank account that allows you to make deposits and withdrawals, pay bills online and via mobile apps, and use the money in the account to purchase goods or services.
Checking accounts come with a set of rules: they usually have minimum balance requirements, monthly service fees when your balance falls below the minimum requirement, and a limit on the number of transactions you can make each month. These limits vary by bank and are based on an individual’s credit history. According to Lantern by SoFi, “You can simply access cash and spend via a linked debit card.”
Savings account
Savings accounts are a type of bank account that allows you to save money without the risk of losing it. If you want to make sure your money is safe and earn a little interest in the process, this is the account for you.
The difference b/w checking vs savings account is that you can’t write checks or withdraw cash from savings accounts as easily as with checking accounts.
This makes sense because if someone steals your checkbook, they don’t have access to your entire bank balance (as they would with a debit card), and they can only take out cash with cards or checks. So the only way someone could get their hands on the money, in this case, would be through an electronic transfer from another account.
Money market account
Money market accounts (MMA) are a type of savings account that typically offer higher interest rates than regular ones. Because they’re FDIC-insured, money market accounts are an excellent place to park money you will need access to in the near future—for example, if you expect to pay for a vacation or make an expensive home improvement project soon.
Certificate of deposit
A certificate of deposit, or CD, is a type of savings account. Like other accounts, CDs offer you the option of earning interest on the money you deposit into them. However, they also have a few unique features that make them stand out from other types of bank accounts.
Individual retirement account (IRA)
An individual retirement account (IRA) is a type of savings account that allows you to save for retirement. It can be opened at most financial institutions, including banks and brokerage houses. IRAs have many tax benefits, so they’re a good choice if you want to make regular contributions while keeping your investment earnings safe from taxes until they’re withdrawn in retirement.
If you’re considering opening a new account, it’s important to understand what each type of bank account offers. The most common types of accounts are checking and savings accounts, but there are many more options from which you can choose. Before making a decision about which type of account will work best for your needs, make sure that it meets at least some of these criteria:
- Convenience (ease of access).
- Security (protection from fraud).
- Flexibility (how easily money can be deposited or withdrawn).
- Interest rate (compensation for holding funds longer than usual).
