From safety to convenience, there’s plenty of reasons to open a bank account. However, before you can do so, you’ll have to choose which type you want. Some accounts are designed for immediate spending, while others are better suited for long-term saving. Here’s a closer look at the main types of bank accounts.
A checking account is designed for everyday deposits and withdrawals. Generally, you have to be a teenager or older before you can open one. It usually comes with a debit card and paper checkbook, both of which can be used for making purchases or paying off bills. On the downside, you have to comply with minimum deposit and balance amounts.
As the name suggests, a savings account is designed for saving — it holds money that you don’t intend to spend right away. It pays interest on deposits, growing your money over time. These rates usually vary from bank to bank.
Since they’re not designed for everyday spending, most savings accounts limit you to six withdrawals per month. As of 2021, this rule has been temporarily suspended due to the coronavirus pandemic. There’s also no age limit — parents can open these accounts for their children if they wish. However, like checking accounts, saving accounts may require minimum balances and monthly fees.
Money Market Account
Money market accounts (MMAs) combine the features commonly found in savings and checking accounts. Like a savings account, you can earn interest on deposits over time. There’s also a limit to your withdrawals. Like a checking account, you can conveniently access and spend money through debit cards and checks. However, MMAs often have high minimum balance requirements.
Certificate of Deposit
A certificate of deposit (CD) is similar to a savings account in that you can deposit money and earn interest. However, this interest rate stays fixed. Moreover, you cannot withdraw funds for a certain amount of time (known as the “maturity date”). If you take out money before the maturity date, you’ll be penalized.
Which Bank Account Is Right for Me?
The type of bank account you choose depends on your unique needs. If you’re in a lower income bracket, you may be more concerned about paying bills than saving money (in which case, a checking account is the way to go). Conversely, if you’re a middle or high-class earner, you might want to open both a checking and a savings account. To help determine which option is right for you, consider the following:
- Checking: Best if you need to pay off minor, frequent expenses
- Savings: Best for storing money that you don’t need at the moment
- MMA: Best if you want to enjoy the advantages of a savings and checking account (and you can meet the minimum balance requirements)
- CD: Best if you have extra money that you want to grow short-term
No matter which account you choose, always compare your options between different financial institutions. Some banks may have smaller minimum balance or deposit fees than others, which will be easier to deal with over time.