Different Bank Account Types
Understanding different bank account types will be a great advantage for you in a long run! Regardless of everyone's financial status, most people probably have at least one bank account. Nevertheless, they might not have a great knowledge on how each account type works.
- Checking Account. As implied in the name, you can withdraw your money from the bank account by writing checks. It is commonly used for paying bills and making payments. Depending on the terms and conditions on the type of checking account you have with your bank, sometimes you can earn a small interest on it. At the same time, you might need to maintain a minimum balance in order to avoid any fees.
- Savings Account. You can surely save money with this type of bank account. The bank will give you an interest, but the rate is usually low. If your account balance falls below the minimum requirement, you will be charged for a fee. There are also restrictions on the number of times for the withdraw from this type of bank account.
- Money Market Account (MMA). This bank account type is somewhat similar to the savings account. The only difference is that you can earn a better interest rate from a MMA. The rate is also determined by the amount of money you put into this bank account. The more money you have, the higher the interest rate you will earn.
- Certificates of Deposit (CD). Just like the savings account and the MMA, a CD is a bank account where the interest is being offered. Nevertheless, the rate is much better than the other types of savings account. The rate is still based on these two factors: the length of the deposit, and the deposit amount. If you do not need the money for awhile, opening a CD is the way to go! However, if you might need the money later on, you will have to pay a penalty for any early withdraw from this bank account.
- Individual Retirement Accounts (IRAs). If you have a retirement plan, you should definitely consider this type of bank account that comes with tax advantages. There are two types of IRAs available: Traditional and Roth. Both of them have different features. Traditional IRA gives you tax deferred interest and you can deduct the contributions on your tax return. Roth IRA will not allow deductions on contributions. However, the earnings can be tax free depending on certain circumstances. Most banks offer the MMA or the CD option for the IRAs.