For some reason, one of the most challenging things to do is put money away into a savings account. However, financially, it is one of the most important things a person should do as a financially responsible adult. You must ensure you have savings for emergencies, one for future purchases or college, and another for retirement.
To have a healthy financial future, you may need to have multiple bank accounts to achieve your goals. Therefore, you must understand the types of bank accounts and their benefits and drawbacks to know what account or accounts are right for you. Here are four types of bank accounts, along with their benefits and drawbacks.
Savings Account
The very first account an individual opens in a bank is the savings account. To easily understand, it is safe to say that savings start with this account. To set up this type of account, it is best to deposit a lump sum amount or link it to automated savings.
Benefits
For parents who wish to teach their kids about savings patterns, the savings account is the perfect option to choose. It is also an excellent option for people who wish to save their emergency funds or the extra cash. A justification for this is that savings accounts charge the lowest fee and high interest rates compared to the fee.
Drawbacks
It looks like a win-win situation, but there are several drawbacks of choosing this account type. As compared to other account types, the interest rate it yields is lower. Moreover, the bank imposes some restrictions on a savings account holder. They cannot benefit from debit card purchases, and some banks restrict the account to the holder to a maximum of six withdrawals in a month.
Checking Account
The critical feature of checking accounts is paper checks. It is an account suitable for depositing checks, paying bills, and making withdrawals. Through checking accounts, many banks offer the option of online bill payments. It helps in streamlining the payments. It is a perfect choice for people who do not keep a considerable balance as the ease check cards bring.
Benefits
A checking account allows frequent access and easy withdrawal of money. It also allows an individual to write checks for the payments of goods and services against the balance of this account. Paying bills online is also one of the fantastic features of a checking account. Open this type of account does not require a considerable balance.
Drawbacks
There are not many drawbacks to choosing a checking account. But there is one that impacts the decision of a person to open a checking account. It is the wrong account type for people who want to earn interest on their savings. It pays less or no interest on the money deposited in the account. Therefore, it is a wrong choice for people who aim to earn interest on their savings.
Money Market Account
A money market account is a combination of checking and savings account. Money market accounts are the perfect option for anyone who intends to keep their emergency funds for a more extended period. An account holder enjoys the features of both a checking and a savings account through the money markets account.
Benefits
The most attractive feature of a money market account for an account holder is high-interest rates. Compared to the savings account and the checking account, the interest rates paid on the deposited amount are the highest.
Drawbacks
Unlike the checking account, a money market account requires a minimum balance. Some banks have set the minimum requirement to $5,000, and in some banks, this can go as high as $10000. Another drawback of opening this type of account is the limited number of withdrawals. Only three to four withdrawals are allowed per month.
Certificate of Deposit
The Certificate of Deposit (CD) is the perfect option for people looking for an account with the highest earnings. Anyone willing to open a CD account should deposit only the money they do not plan on spending any time soon. When opening this account, one should set a basic CD ladder, through which an account holder can access a portion of their savings at fixed intervals of time.
Benefits
The interest rates paid on this type of account are highest compared to all other types of bank accounts. It makes it a perfect choice for those who want to earn a good amount over their savings by keeping their money in a fixed place.
Drawbacks
A CD account requires a person to commit to locking up their money for a certain period. An individual has to keep their savings locked up for a minimum of six to eighteen months. In case a person wishes to withdraw the money, the bank will impose a penalty. To withdraw the money, individuals are expected to pay the penalty.
Conclusion
Choosing the type of bank account you need depends entirely upon you and your goals. A person has to make this decision based on their nature of saving and other lifestyle factors. Before you decide what type of account or accounts you want to open, you have to examine the benefits and drawbacks of each type.
Knowing all you can about each type of account will help you decide what account or accounts will be best for you.
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.
