A Beginner’s Guide to Types of Bank Accounts
When you first look to open your first bank account, the options can be daunting. There are multiple kinds of accounts in general; plus there could even be different ways that type of account is handled at each bank. Today, we’re going to dive into the types of bank accounts you can choose from at most banks.
Checking Accounts
When you say bank account, most people think of checking accounts. After all, they are the most common type of account. This is the type of account that you would want to manage your day to day living expenses. A checking account is the first type of account you will want to open.
Pros:
- Easy access (ATMs, Check writing, Debit cards)
- Very liquid (usually no downside to taking money out of account)
- Can perform many transactions each month
Cons:
- Usually does not accrue interest
- Ease of access (when you want to save money)
Savings Accounts
Savings accounts are best for, you guessed it, saving money. They usually have more limited access, which makes them good for socking away money. Plus, you may be able to gain a little bit of interest on your money. We recommend that everyone open a savings account.
Pros:
- Earn interest (check your bank’s rates)
- Allow you to separate savings from spending money
Cons:
- Most likely limited to 6 withdrawals per statement cycle (with caveats-read your bank’s fine print)
- Interest may not be very high
Money Market Accounts
Money market accounts are kind of like a mixture between a savings and a checking account. You can write checks, but are still limited in the number of transactions you can make. They also gain interest, but it might not be that much until you have a large balance. We usually recommend holding off on a money market account until later in your journey.
Pros:
- Earn interest (check rates again)
- Check writing ability
Cons:
- May require a large minimum balance
- Interest may be low for the amount of money you have in there (may be better options)
- May be limited on number of withdrawals/checks per statement cycle (with caveats-read your bank’s fine print)
Certificates of Deposit
Certificates of Deposit (CDs) are an interesting beast. They are a type of savings account where you get a much higher rate than your standard savings account. The catch is that your money must stay in the CD for a specified amount of time or you may face an early withdrawal fee. CD rates used to be outstanding but, like other rates, have been fairly low in recent years. Because of this, it is only a good idea if you absolutely will not need that money for a long time.
Pros:
- Higher interest rates
Cons:
- Money usually can’t be withdrawn before maturity without penalty
These are the four main types of bank accounts to consider. We recommend setting yourself up with a checking and a savings account from your chosen bank. Soon, you’ll learn the best way to utilize your accounts too.
