There are four main types of deposit accounts offered by banks that you can use to save money for your financial goals. Depending on your needs, one or more of the accounts may be an ideal way for you to save your money whether you have specific financial goals or just want to build a stash of cash for an emergency. If you are not utilizing the right type of account for your financial goals, you might be missing out on some of the benefits.
Four Types of Bank Accounts
The four types of deposit accounts include:
- Savings Account
- Money Market Account
- Checking Account
- Certificate of Deposit
Here are the descriptions of four types of bank accounts.
1. Savings Account
A savings account is the simplest of the savings tools and can be opened with a low amount of initial deposit. Most consumers use a savings account in conjunction with a checking account for their basic banking needs. A savings account can be opened through a brick and mortar bank or an online bank.
Generally, most basic savings accounts do not have limitations on how much you can deposit or a minimum on how much money you must keep in the account. However, most banks will limit how many withdrawals you can make fee-free in a month. Most savings accounts offer low-interest earnings compared with other savings vehicles, but there are some high-yield savings accounts that offer competitive interest rates.
2. Money Market Account
A money market account generally offers a higher rate of interest than a traditional savings account, more comparable to high-yield savings, and comes with check writing and debit card privileges. There is usually a higher minimum balance requirement to maintain the account and avoid fees. The funds in the account can be accessed at any time, but the bank will likely impose limits on how many withdrawals can be made.
A money market account is more common with your Brokerage Account, specifically, your brokerage firm will place any uninvested fund into a money market account.
3. Certificate of Deposit
A certificate of deposit, more commonly known as a CD, is a type of deposit account that has more rules than a traditional savings account. You deposit your money into a CD and are required to leave it untouched for a specified amount of time before you have access to the funds, a time period known as its maturity date. If funds are withdrawn before the maturity date, a penalty will be incurred.
Usually, CDs offer a higher interest rate than other deposit accounts, and the rate is fixed for a specific period of time. Many savers looking for a simple way to invest their cash will choose a certificate of deposit. A strategy to invest in CDs is to build a CD ladder with varying maturity dates so that you have access to a portion of your money at any given time.
4. Checking Account
A checking account is a deposit account designed to handle your everyday transactions. It lets you deposit and withdraw money on-demand, usually without any penalty or fee. You can also send easily send and receive money online through electronic funds transfer, or write a physical check as payment from your checking account.
Usually, banks offer zero or very low interest for the money in your checking account, however, you can find some financial institutions that offer a high-yield checking account.
Automation is the Key to Savings
You may find that all four types of deposit accounts play a role in your financial goals and decide to open one of each or you may decide that setting up just one or two accounts would serve your needs. Whatever your decision is to start saving, there also needs to be a plan to fund the account regularly. Even those stretched to the limit money-wise can find the cash to dedicate to savings. $25 a week deposited into an account is $100 a month. Over time, the deposits plus interest can generate a sizable amount of cash.
Once you start to see the actual progress of saving money consistently, it can make it easier to commit, but it can still be a struggle in the beginning. Automating your deposits into your savings accounts increases your chances of meeting your savings goals using the ‘out of sight, out of mind’ theory. What you never see, you will probably not miss it.
Tips to Help Build Your Savings
Here are some more tips to help build your savings:
- Start with small increments and build up to more as you can afford it consistently.
- As time goes on and you establish a sizable sum of money, consider starting to invest in the stock market so that your money can grow even faster.
- Set new financial goals regularly and check the terms of the account to make sure they are still in line with what you need to achieve your goals.
- Make every effort not to withdraw the funds in your savings account unless necessary. The longer the funds stay in, the more they can earn over time.