Bank accounts take the form of savings accounts, checking accounts, money market accounts and certificate of deposits. Each is designed to meet a specific purpose. From daily spendings to savings in the long term, there is one to meet your every need.
It is best that you weigh your needs and then choose the type of account. Usually, the choice is driven by factors like interest rates and the accessibility to funds.
Let’s check out which type of account suits you the best based on what these accounts have to offer.
If you want to earn some interest amount while enjoying easy access to your funds, savings accounts will serve you well. In fact, some banks offer pretty good rates. The best part about savings accounts is they have the federal backing.
The only hitch with operating savings accounts is there is a restriction on the number of transactions in a month. If you transact through online banking, federal regulations stipulate that you can take money out of your savings account only six times a month.
If you are one of the many who is happy with interest earnings combined with safety, this is your obvious choice.
If you want to draw moneys for your daily spending, checking accounts are the best. The basic checking accounts don’t give you much interest. Interest bearing checking accounts do give a comparatively better interest rate.
With easy access to your funds, you can make transactions through ATMs, online transfers, personal checks and debit cards.
If interest is not your main concern and you prefer to have unlimited access to your funds, checking accounts are your best bet.
Money Market Accounts
These accounts fetch you higher returns, more so than savings accounts. But the caveat is you need to maintain a higher balance. The minimum balance in such accounts must be $1000 upwards. These accounts come with paper checks and debit cards as well. They offer you a comprehensive set of banking services including ATM access.
These accounts are flexible and fine tuned to meet your requirements. On some types of withdrawals, there is a limitation of up to six transactions per month.
Certificate Of Deposits
These are also called Time Deposits. The interest rates are linked to the tenure of the deposit. Longer tenure CDs fetch higher interest rates. Generally, the CD tenure varies between 3 months to six years. While the attractive interest rates can entice you to open these accounts, do keep in mind, that access to your funds is limited.
In case of premature withdrawal, you will have to shell out a heavy penalty. The perfect technique to enjoy the high interest while avoiding penalty is by laddering CDs.
Hold CDs of varying tenures, depending on your liquidity needs. While the short term CDs ensures cash flow, the longer duration CDs help you earn a higher interest rate. This way, you won’t have to break the CDs and pay a penalty fee.