Types of Bank Accounts - New Discovering


Types of Bank Accounts - New Discovering

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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