Types of Bank Accounts: Which One Do You Need?

types of bank accountsThere are several types of bank accounts you can open depending on your preference. Many people have bank accounts created in order to properly store their money in a safe place. There are others who put their money in a bank account in order to save it and let it accrue interest. Bank accounts can be created for your individual needs or for the needs of your small business. Whatever the reason may be, it’s always a good time to open up a bank account and make sure you have a way to keep track of your funds at all times.

Opening up a bank account is all about saving money. Your finances are very important, and you should always have a way to deal with them. If you want to learn more about financing and accounting for your own personal monetary needs or your business, check out the Finance and Accounting for Startups course on Udemy.

Reasons You Should Get a Bank Account

Some people are averse to getting a bank account, but it can be one of your most useful assets. For example, you can automatically pay your bills online every month. With your bank account, you can setup services with all of your utility providers and automatically having everything sent directly to them at that time of the month. This will put you into a position where even if you forget about your bills, they will still get paid.

One of the most important reasons why you should get a bank account is that you can keep your cash safe. Keeping your cash on hand can be dangerous. Imagine if someone were to break into your home or if a natural disaster were to occur. Imagine if your safest place to store your money was suddenly destroyed. If this happens, then you lose all of the money that you’ve earned.

You may have the fear that your money could get lost if the bank closes, but that can’t be further from the truth. In fact, even if the bank closes, your money is insured up to $250,000. This price can be even higher depending on what account you have and what bank you plan to use.

Not physically having your money means that you may accidentally spend too much of it. Bank accounts actually make it easier for you to manage your funds. Every month you will get a bank statement. It tells you how much money you’ve spent and what services did you spend that money on. You can also set up early warning detection or overdraft protection on your bank account, which keeps you from spending far too much money and owing the bank.

Don’t think that once you get a bank account that you will be stuck with it forever. You can always close your bank account at any point and time. There’s nothing that will keep you from closing it and getting your money back. You can even choose to move your money to a different bank account if you want, and try those services instead. Different banks have different services, so try to find the one that works best for you.

Opening up a bank account is an essential part of personal finance. You will soon learn how valuable a bank account can be. Try the Udemy course Common Cents: Personal Finance. Not only does the course help you with managing your money, but it also teaches you about the ways you can build on your wealth, dissolve your debt, and prepare for the unforeseen future with the funds that you have now.

Getting a Basic Banking Account

A basic banking account, commonly referred to as a checking account, is a great start in building your relationship with your bank. Basic accounts don’t have a lot of services to them, outside of holding your money and giving you the ability to write checks, the account doesn’t do very much. These accounts also don’t pay interest, as opposed to the other accounts, such as savings.

Note that there can be limitations that can come with checking accounts. This includes the limitation of writing a certain number of checks. In basic checking accounts, you may have to be an extra fee for excessively using it.

If you want to do a bit more with your checking account, you can upgrade it to an interest-bearing checking account. These accounts cost a bit more to open, but you can get more services and fewer, if any, limitations.

For example, you can write an unlimited amount of checks with an interest-bearing account. You can also get a small amount of funds at an interest rate depending on how much money you have in your account. Note though that you could be charged a monthly service fee if your bank balance falls below a certain present amount.

Savings Account

A savings account is incredibly common, and they are made in order to incentivize you to save your money. Unlike a checking account, you can’t write checks for this account, but you can easily make deposits and withdrawals from it. The interest rates for these types of accounts are pretty low. Although the rate of interest is higher than a checking account, the rate is much lower than that of a money market account or a certificate of deposit account. Just like checking accounts, a savings account can charge you a fee if your balance falls below a certain point.

Money Market Deposit Accounts

The Money Market Deposit Account (MMDA) is an account that invests your balance in a short-term debt. These short-term debts can be made in the way of Treasury Bills, CDs, and even commercial paper. They rates offered are higher than savings accounts, but they come with a particularly high price.

In order for you to accrue that interest rate, you have to have a higher balance than in the previous accounts mentioned. These accounts also only provide you with a very limited amount of check writing privileges. Of course, like many other accounts, you may have to pay a service fee if your account balance falls below a certain amount.

When it comes to banking accounts like this, you can use them mostly for managing your money. Don’t let this account be the only way you manage your money though. You can find several types of budgeting software to help you handle your finances properly and keep you out of the clutches of debt.

Certificates of Deposit

A certificate of deposit is a special type of account. These are also commonly known as time deposits, and they are for special circumstances. These deposits serve as an agreement with the bank, and it is money that you keep in your account for a specific amount of time.

This amount of time can be anywhere from a few months to six years. The money will be completely inaccessible to you in that time, but because of that the amount of interest you will be paid will be incredibly high. The longer you hold your money in that account the higher the interest rate will be.

If you do withdraw early, you will have to suffer a great deal in terms of penalties. So only make this account if you know you won’t need the money any time soon.

Joint Accounts

Outside of getting an account for yourself, you can get a joint account with other people. These people may be your spouse or your roommate or someone else you share your finances with. You should be warned though that a joint account can be dangerous, and you never know what someone will do if you both have access to the same amount of funds. It will be wise to have your own personal account even if you have a joint one just in case of an emergency.

Reaping the Benefits of a Bank Account

Several bank accounts have benefits to them. Packaged accounts come with tons of benefits, such as travel experience. Sometimes the extras aren’t worth the fee you will pay to open it depending on what your lifestyle may be, but it can be beneficial to you if you can make full use of the extra features of the account.

Of course, knowing the different types of bank accounts is only scratching the surface when it comes to understanding the broad and often complex world of financial matters. No matter who you are, and how much money you have, it’s important to understand as much as you can about personal financial matters.

If you want to learn more about banking and how it can benefit you, then check out these Udemy courses. The Banking Fundamentals course tells you exactly what happens with your money when you put it into a bank, and the Personal Finance course allows you to think like the rich, even if you’re not quite there yet.