Deep Dives

Different Types of Accounts

Ok, so you probably have a checking account. Maybe you have a savings account, too. But there are other types of accounts that you may not be familiar with. Money market accounts? Brokerage accounts? Retirement accounts? We’ll break them all down for you here so you can impress your friends with your knowledge of places-where-you-deposit-money (one less usage of “accounts!)!

July 11, 2022

I know, you’re thinking “why do I need to read an article about bank accounts?” Ok, so you probably have a checking account. Maybe you have a savings account, too. But there are other types of accounts that you may not be familiar with. Money market accounts? Brokerage accounts? Retirement accounts? So many usages of the word “accounts!” We’ll break them all down for you here so you can impress your friends with your knowledge of places-where-you-deposit-money (one less usage of “accounts!)!

Checking Accounts

The granddaddy of accounts, where it all begins. The basic of all the accounts is the checking account. The checking account allows you to deposit money and spend through debit cards, electronic transfers (EFT) and (less common nowadays) checks without having to carry cash around. This is not groundbreaking knowledge for you, I know. But, there may be a time when you need to shop for a new place for your checking account and there are a few things you should keep in mind:

  • No fees: Look for a bank with either no fees, or avoidable fees (usually through direct deposit). If you’re paying $10 a month for the bank to hold your account (i.e. Wells Fargo), switching banks could save you $120 a year!
  • No minimum balance requirement: A minimum balance requirement ties up your money. There are plenty of banks that don’t require this, so make sure yours is one of them.
  • Free ATM access: Use a bank that has a large network of ATMs. Some banks will reimburse ATM fees as well.
  • (Good) Online access: We’re so used to things working that when they don’t, it’s a bad experience indeed. Make sure the bank has online account access (balances, deposits, bill pay, etc.) and mobile capability. If you use budgeting platforms that link to your bank, make sure the bank you choose is linkable.

Other things to consider include overdraft fees and no limit on the number of transactions. Some banks offer free checks and interest bearing (although interest bearing accounts may require a minimum balance).

Savings Accounts

You may have had a savings account since you were little when your grandparents opened one for you, but they have evolved through the years. Online banks offer higher interest rates with easy transfers for deposits and withdrawals. If you have a savings account at a big bank, check the interest rate. Chances are, it’s paying almost nothing. Take a look at some other options and consider the following:

  • FDIC Insured: The Federal Deposit Insurance Corporation insures accounts for up to $250,000 should the bank holding your account become insolvent. If you are planning to hold more than that, use another bank as the amount insured is per depositor.
  • High Interest Rate: Or at least, competitive. Right now, interest rates are low so anything above 0.6% is competitive. Some sites will publish banks offering the highest interest rates monthly so that is a good resource.
  • Accessibility: With online banks, you need to check the accessibility of your funds. Some banks have a one business day turnaround time for electronic fund transfer availability, and some longer. 
  • No minimum balance requirement: As with checking accounts, minimum balance requirements lock up your funds so opt for a bank without one.
  • Online and Mobile access: The ability to withdraw and transfer funds via online or mobile is a necessity.

Keep in mind that a savings account can incur excessive transaction fees (don’t use it like a checking account), so check with the bank and know the transaction limit per month.

Money Market Accounts

A money market account (MMA) is similar to a savings account. Under different economic conditions, an MMA would pay higher interest than a regular savings account. You can also usually write checks and use debit cards with MMAs, but are limited to six transactions per month. There are usually high(er) minimum balance requirements with MMAs compared to savings accounts because of the high interest rate. These accounts are also FDIC insured.

Certificates of Deposit

Certificates of deposit, also known as CDs (that’s a blast from the past huh? But this is a different CD), is an account that pays a set interest rate over a specified period of time. The interest is added to the principal and at the end of the term, your principal and interest are returned. As with the other savings vehicles described, the rates on CDs are currently abnormally low. The longer the term of the CD, the higher the interest rate. There are usually minimum deposits required, ranging from $500 to $1,500. CDs are a great way to earn a higher interest rate for money that you don’t need immediately. CDs are safe and usually FDIC insured.

Individual Retirement Accounts

Individual Retirement Accounts (IRAs) are tax-advantaged investment accounts used for retirement savings. IRAs can be invested in stocks, bonds, mutual funds and ETFs. There are a few different types of IRAs- traditional and Roth for individuals and SEP and SIMPLE IRAs for self-employed individuals. There are limitations on the amount and type of income that you can contribute so do your research on what’s allowed and the tax benefits of each type.

Brokerage Accounts

Brokerage accounts are individual investment accounts used to buy stocks, bonds, mutual funds, ETFs and other investments. Brokerage accounts can be used for big purchases, retirement, whatever you want. Make sure you’re acquainted with the basics of investing before opening this type of account. Unlike the savings account types, brokerage accounts can lose money, so it’s important to establish your timeline and risk tolerance before choosing your investments.

Interest, Liquidity, Frees, and Risk by Account Type
Types of Accounts

There are many different types of accounts, each serving its own purpose. Which ones are right for you depend upon your purpose. You'll likely use most if not all of these types of accounts throughout your life. Knowing the characteristics will help you take full advantage of the perks each provides.

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