Different
types of bank accounts serve different needs. It is wise to invest in the type
of account that is best for your financial goals so that you have the right
tools to stay and save. This allows you to increase your bank balance, reduce
debt, and manage your money more effectively.
Many
banks and credit unions offer these types of accounts:
• Savings Accounts
• Checking Accounts
• Money Market Accounts
• Certificates of Deposit (CDs)
• Retirement Account
Let look in details carefully
• Savings Accounts
Customers
use this type of bank account to set aside money for future use. Since your
deposits earn interest, your money grows over time.
A
checking account is often the first bank account a person opens. Children can
open accounts with parents to set up a savings plan. Young people can also open
an account to save money earned from a previous job or housework and manage
their money while in school.
Opening
a savings account also marks the beginning of your relationship with a
financial institution.
For
example, when you join a credit union, your "limit" or savings
account creates your membership.
A
savings account is a good place to save money for financial or emergency
purposes and to save money on your daily expenses.
•
Good for: First bank accounts for children or teenagers or accounts
for adults looking for a place to earn interest and savings or savings dare to
spend.
•
Disadvantages: Cash accounts often pay lower interest rates
than money market accounts and CDs. They don't come with a debit card for
purchases (but, if your savings account is at the same financial institution as
your checking account, you can use your debit card for ATM withdrawals from
your account) money if your bank allows it). In addition, banks traditionally
have consumers with a limit of six-monthly withdrawals from these accounts.
Savings
Account Guidelines
•
If a local bank or credit union is too expensive, consider an online-only
option. Online savings accounts usually pay the lowest interest and charge the
lowest fees.
•
To build your savings account, deposit a sum of money into the account to start
or set up automatic monthly savings payments.
• Checking Accounts
Current
account is used for current budget. The main feature of this type of bank
account is a linked debit card that you can use for purchases or ATM
withdrawals, as well as to check your writing capacity. The account type also
allows you to deposit money or checks and make payments. Many banks now offer
online payment services through checking accounts, which makes payments easier.
While
traditional checking accounts do not earn interest, interest-bearing checking
accounts allow you to earn additional interest on top of what you earn in a
savings account.
A
basic bank account is the best place to hold short-term cash and is essential
for managing your monthly cash flow.
•
Good for: Anyone who needs a place to deposit money or cash or pay
bills, those who keep small balances, and those who appreciate the convenience
of a debit card.
•
Disadvantages: Traditional checking accounts offer no
interest and are subject to a variety of fees and restrictions, including
monthly maintenance fees and minimum balances, which can quickly become
expensive and dangerous. But there are checking accounts with monthly fees
waived, and free checking accounts with no maintenance fees.
Checking
Guidelines
•
Manage your checking account every month. This method of checking deposits and
withdrawals helps you manage your money, avoid debt, and catch fraud or errors
before they cause serious problems.
•
Schedule a deposit of your salary into your current account. If your employer
doesn't offer direct deposit, use phone deposit if your bank offers it so you
don't have to go to a bank branch or ATM to make a deposit.
•
For everyday expenses, it would be better to use a credit card instead of a
debit card, since money is withdrawn from your checking account using a debit
card, but not from a credit card. And if your credit card is charged
fraudulently, your maximum liability for those charges is less than
unauthorized debit card charges.
• Money Market Accounts
A money market account combines the features of a savings account with a
checking account. They allow you to sign up with a small amount and charge
interest at a higher rate than savings or checking accounts, making them useful
for short-term or long-term needs.
If you tend to have a high balance in your checking account and want to
get more interested in writing checks, these bank accounts can be a great
option for saving money.
• Good for: People who hold large balances in their accounts and
want to earn high interest rates.
• Disadvantages: Money market accounts have higher minimum balances
than other types of bank accounts. Interest rates are sometimes low and you
have to look at debt. The number of monthly repayments is usually six months,
just like in a savings account.
Money Market Account Guidelines
• Use a savings account as an emergency fund or as a place to put money
for more important financial purposes (a down payment on a home, for example).
Don't use the money for other purposes to make sure it's there when you need
it.
• If you can't find a cheap money market account, check out banks and
online-only money management accounts, which are often the cheapest options.
• Certificates of Deposit (CDs)
A CD is like a savings account that holds your money for a fixed period
of time, such as three months or five years. It usually allows you to earn more
than any of the accounts listed above, but you must try to keep your money in
the CD for the full period (ending on the "maturity date") to avoid
early withdrawals.
This type of bank account is ideal for saving for financial goals and
expected end dates. For example, if you know you're traveling overseas in six
months, a CD would be a great way to save (and grow) your money until you need
it.
• Good for: Money you don't want to spend right away. You'll get
more money by blocking it for a while, but both short-term and long-term CDs
are available.
• Disadvantages: If you decide to withdraw your money early, you
will have to pay a penalty. This penalty can wipe out all your winnings and
even eat away at your initial deposit.
Certificate of Deposit (CD) Guidelines
• If you're worried about closing all of your money, set up a tiered CD
(most CDs have fixed maturity dates) so that some of your savings are available
periodically.
• To avoid penalties altogether, look for banks that offer convertible
CDs that allow you to withdraw money quickly, without penalty.
• Retirement Account
As the name suggests, these are accounts that you use to set aside money for retirement. Many banks offer individual retirement accounts (IRAs), but some also offer 401(k) accounts and other retirement accounts for small businesses.
Many types of retirement accounts offer tax advantages. IRA and
401(k) plans allow you to avoid paying taxes on the growth of your
contributions each year, but you will pay taxes at different times depending on
the type of account.
Traditional IRA and 401(k) contributions reduce your taxes now, but
you'll pay taxes on withdrawals later. Contributions to a Roth IRA don't reduce
your taxes now, but the upside is that you won't pay taxes on withdrawals
later.
These are the best types of bank accounts to save for retirement because
they allow you to invest your money in the stock market, creating the potential
for higher returns than you can get in cash.
• Good for: People who want to save for their future. Retirement
accounts can make it easier (by reducing your tax burden) to save money, and
they can lead to increased income over the long term.
• Disadvantage: any tax benefit you receive comes with strings
attached. Find out about your account agreement and ask your banker about the
rules (including eligibility rules). Talk to your tax prepare or CPA to see
how different options may affect your taxes. If you withdraw money early, you
may have to pay heavy taxes and penalties.
Finally, when you invest in the market, there is always a risk that you
will lose it. And investing in federally exempt retirement accounts.
Retirement Account Guidelines
• Talk to a financial advisor for help planning your savings and what
types of accounts and investments to choose to maximize profits and minimize
losses.
• If your company offers a 401(k) match, consider contributing enough to
get the match before you start investing in your retirement account at your
bank. Otherwise, you're leaving money on the table.
Frequently Asked Questions (FAQ)
Which Type of Bank Account Provides the Best Income?
If your bank offers a traditional IRA or similar retirement account
invested in stocks and bonds, it will have the highest potential for growth and
is the best option for long-term savings. For short-term growth, CDs, money
market accounts, and high-income savings accounts will pay more than
traditional savings accounts or checking accounts.
How many Different Types of Bank Accounts Should I Open?
The number of different accounts you need depends on your financial situation and goals. At the very least, it's worth working toward a checking account, savings account, and retirement account. Once you have these three things, you can consider other options for accounts that can be created short-term or long-term.
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