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Different Types of Bank Accounts

January 26th, 2010

There are a few different types of bank accounts and most banks offer at least the basic few. Each bank will offer different features with each account type but there’s basically 4 general bank account types.

bank accountsThe first type is a checking account. A checking account allows account holders to withdraw money from their account by writing checks out of their checkbook. You can purchase goods, pay for services, and give out money by writing checks that are linked to your checking account. You can use checks to transfer money between accounts by making out a check to yourself. Most checking accounts allow users to withdraw money and deposit as many times as they want to every month.

The second bank account is a savings account which are typically interest bearing accounts. Unlike checking accounts, savings accounts limit the number of deposits and withdrawals the account holder is allowed to make per month. Savings accounts also don’t come with check writing abilities. The trade off is that savings accounts typically pay you interest for money that’s in your account.

A money market account is the third type of account. Money market accounts typically pay higher yields on your balance than you’ll get with savings account rates. It’s common for money market accounts to institute a minimum balance requirement in order for the account holder to gain interest on their balance. Most money market accounts do come with checks but you’re limited to writing 3 checks per month and 6 withdrawals total (this includes any checks you write).

CDs or certificates of deposit are interest bearing accounts that don’t allow withdrawals for the agreed upon term. The interest rate on CDs is higher than the other accounts because your money is locked in and the bank is free to utilize your money more freely since they know it’s not going anywhere. If you want to withdraw your funds before your term is over you’ll need to pay an early withdrawal fee.

Most banks will offer free versions of each of these accounts but not all of them. Also some accounts may offer more benefits but more rules as well. Some bank accounts will have a minimum balance requirement necessary in order to avoid a monthly fee. Some will require you have a monthly direct deposit to avoid a monthly fee. Make sure you know what the rules are for any bank account you decide to open.

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