Can you review the different types of bank accounts available?

Checking Accounts

A checking account is probably the most basic account provided to banking customers. Still, there are several different types of checking options. All provide you with fast, easy access to your funds. You can make deposits at any time, and use your ATM (automatic teller machine) card to make transactions 24 hours a day. You can also use your debit card just like a credit card at most retail establishments. The funds are then drawn directly from your checking account, saving you the time of writing a check or paying a monthly credit card statement. Of course, you can also write a check the old fashioned way.

The two primary types of checking accounts are those that pay interest on your balance, and those that do not. Some banks also charge monthly and/or transactional fees depending on your balance, and the frequency of your transactions. Interest-bearing checking accounts, are called NOW accounts, an acronym for negotiable order of withdrawal. But the more popular checking accounts are demand deposit accounts, that do not pay interest. NOW accounts typically have additional requirements in terms of fees, transactional limits or charges and minimum balances that often override the benefit of interest paid.

Monthly and transactional fees vary significantly between financial institutions, so be sure to shop carefully before you choose your banking partner, as well as the type of checking account that will suit your needs.

Money Market Deposit Accounts (MMDA)

Like the NOW account described above, an MMDA accumulates interest, and allows you to write checks too. The advantage is that the interest rate is usually higher than that of NOW checking or savings accounts. But they also require a higher minimum balance, and in many cases, the higher your balance gets, the higher your interest rate too.

The disadvantage to using an MMDA for your primary checking account it that it is less convenient to withdraw money. MMDA’s typically place a limit of approximately six transfers from the account per month, including just three written checks. Additionally, per transaction fees are often associated with these accounts.

Savings accounts

Savings accounts, like the name implies, are for savings, and pay interest. And while you can make withdrawals, the number of withdrawals you can make per month may be limited. They are much less flexible than checking accounts.

The two most common savings accounts are passbook and statement savings accounts, although passbook savings accounts are almost obsolete. Passbook accounts track transactions through a physical passbook, similar to a checkbook register, where each deposit and withdrawal is recorded. Statement savings accounts issue a monthly or quarterly statement, similar to other banking accounts. Both passbook and statement savings accounts are subject to minimum balances and monthly fees.

Credit Union Accounts

Credit union accounts are very similar to bank accounts, but with different terminology. Because a credit union, by definition, is owned by its members, the primary “checking” account is called a share draft account. A savings account is referred to as a share account, and a certificate of deposit (see below) is called a share certificate account.

Since credit unions are member organizations, their banking services generally cost less than commercial banks, making them a good option to consider.

Certificates of Deposit (CD)

CDs are deposits that offer a guaranteed rate of interest for a specific period of time. The term can be a few days, or as long as several years, and the interest will vary accordingly.

Once you’ve pick the term and purchased the CD, you generally can’t withdraw your money until the term is up. In some cases the bank may allow you to withdraw the interest you’ve earned on the CD while the principal remains in place. However, because CDs are for a predetermined period of time, the rate of return is usually higher – and (fortunately) the longer the term, the higher the annual percentage yield.

Penalties for withdrawing your funds prior to maturity can be extremely high, negating much of your interest earned and even some of your principal investment as well. So if you’re going to need your money before the term matures, CDs won’t be a good option for you. But it you have time to let your money grow, they are an excellent choice.

While the bank is required to notify you before your CD matures, they often renew automatically. It’s a good idea to make sure you keep track of your CD maturity dates personally, rather than depending on the bank’s notification if you need to withdraw your funds before a CD rolls over to a new term.