When it comes to storing money, where it ends up can make a difference. Whether the goal is to let money rest in place and build interest from investments, or be readily available for spending and paying off bills, several accounts can meet these needs.
Although banks offer a wide variety of accounts, they can be broadly divided into five types: savings accounts, basic checking accounts, interest-bearing checking accounts, money market deposit accounts, and certificates of deposit. All five are insured by the FDIC (in most cases, up to $250,000 per account). Most banks offer all of these types of accounts, so the bank you choose probably won’t restrict this decision, although it does make sense to choose the account type you want first, so you can focus on that type as you shop around to various banks.
Here is a brief description of each type of account:
These are intended to provide an incentive for you to save money.
You can make deposits and withdrawals, but usually can’t write checks. They usually pay an interest rate that’s higher than a checking account, but lower than a money market account or CD. Some savings accounts have a passbook, in which transactions are logged in a small booklet that you keep, while others have a monthly or quarterly statement detailing the transactions. Some savings accounts charge a fee if your balance falls below a specified minimum.
Basic Checking Accounts
Sometimes also called “no frills” accounts, these offer a limited set of services at a low cost. You’ll be able to perform basic functions, such as check writing, but they lack some of the bells and whistles of more comprehensive accounts. They usually do not pay interest, and they may restrict or impose additional fees for excessive activity, such as writing more than a certain number of checks per month.
Interest-Bearing Checking Accounts
In contrast to “no frills” accounts, these offer a more comprehensive set of services, but usually at a higher cost . Also, unlike a basic checking account, you are …