Financial Education

4 types of bank accounts: what to consider and how to choose

Want to learn about the different types of bank accounts available to you? This guide will help you understand the pros and cons of each type so that you can make the best decision for your needs!

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Get the most out of your bank account

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What to consider before choosing a bank account! Source: Adobe Stock

What’s the best bank account currently available? There are so many different types of bank accounts that it can be hard to choose the right one for you.

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This post will break down the four different types of bank accounts and explain what each is good for.

After reading this post, you’ll easily choose which is right for you! So let’s get started.

Compare these 4 bank accounts and find the best one for you

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Compare these 4 bank accounts and find the best one for you! Source: Adobe Stock

Whether you’re looking for a checking account, savings account, or something else entirely, you need to understand how each bank account works.

The most common bank accounts are checking accounts, savings accounts, money market deposit accounts, and certificate of deposit accounts.

Each will serve you differently, and your decision must be based on your current financial needs.

Below, let’s look at how each bank account works and compare its pros and cons to help you make a good decision!

Checking Accounts

Checking accounts are the most basic type of bank account. It is designed for anyone who wants easy and unlimited access to their money, and it’s available from both traditional and online banks.

Through checking accounts, you can make purchases, checks, transfers, and other kinds of transactions.

It usually offers a debit card, allowing customers to make purchases and withdraw money from ATMs.

Before applying for any checking account, you must pay attention to the details and learn what to expect.

For example, some fees might be attached to these types of accounts, such as overdraft fees, returned check fees, and monthly maintenance fees.

Also, pay attention to the minimum initial deposit and balance requirements.

This type of account can often be linked to other accounts, such as savings. Below, compare the advantages and disadvantages of the checking account in detail.

Pros

  • It offers a simple way to set and use its features;
  • It is an easy way to pay your bills;
  • You can set your budgets without trouble;
  • It offers a safer way to carry your money with you.

Cons

  • It can potentially come with several hidden fees.

Savings Accounts

Savings accounts are a great way to save money and earn interest. As the name suggests, this account is where you put your money when you want to save it.

It is a great option for any planned expenses and emergency funds.

It is common for this type of account to be linked to a checking account.

In most banks, customers only have access to six monthly withdrawals from their accounts. You might have to pay a fee if you exceed this withdrawal limit.

As said, it offers a return on your money; for example, online banks normally offer an interest rate between 1% and 2%.

But remember, the return is a type of income, so it is taxable by the government.

Now that you know more about savings accounts, let’s see the pros and cons of it.

Pros

  • Offer a great place to keep your money;
  • It is a great option for anyone looking to build an emergency fund or save for a planned expense;
  • Earn a return for simply keeping your money in the account.

Cons

  • It might include fees;
  • Limited monthly money withdrawal.

Money Market Deposit Accounts

The money market deposit account will offer features of both checking and savings accounts. This type of account provides a lot of flexibility for customers.

You can keep your money in this type of account and earn returns with higher interest rates than savings accounts. In addition, it comes with a debit card and checks, giving access to your money.

It is a great option for customers who want to save larger amounts of money.

However, it offers only six withdrawals per month. Let’s meet the pros and cons of money market deposit accounts.

Pros 

  • Allows users to make debit card purchases;
  • It offers a great way to save money;
  • Earn returns for keeping your money in the account;
  • Offer better rates than savings and checking accounts.

Cons

  • Limited money withdrawal per month;
  • It might require a higher minimum balance to open this account.

Certificate of Deposit Accounts 

Certificate of deposit, or simply CDs, is similar to savings accounts. In this account, you’ll keep your money for a set period and earn interest on your balance. It is called maturity term.

Therefore, the longer your money stays in the account, the higher the interest rates are. Consequently, if you withdraw your money before the term period, you might have to pay a penalty fee.

This account is a good option for anyone with enough money to lock it up and enjoy a higher rate with time. Compare the perks and drawbacks of the certificate of deposit accounts.

Pros

  • It’s a safe way to save your money;
  • Offers higher interest rates;
  • Charges no monthly maintenance fees;
  • Get returns for keeping your money in the accounts.

Cons

  • Charge early withdrawal penalty fee;
  • Limited access to the money.
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Should you have more than one bank account?

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The most common types of bank accounts explained! Source: Adobe Stock

The number of accounts you should have will depend on your current financial situation and goals.

But remember that having more than one bank account can greatly benefit your finances. It is recommended to have at least one checking and one savings account.

With different types of accounts, you can take advantage of various benefits and set each account for a different purpose, for example.

Also, having multiple accounts is an easier way to budget. So consider your short and long-term goals and your finances before choosing how many accounts you want.

How to choose the right type of bank account for your finances?

Choosing the types of bank accounts for you will also depend on your current needs. However, there are some things that you should consider before making your decision.

Make sure you compare the minimum deposit and minimum balance requirements.

Also, take a closer look at terms and conditions to ensure you’re aware of any fees, terms, and interest rates offered.

Moreover, consider each account’s features and benefits and whether you prefer online or traditional banking.

Lastly, remember that different accounts will suit you for different purposes, so consider each feature and compare the pros and cons, as we previously did.

This way, you’ll make an accurate decision based on your needs.

Now that you’ve learned the most common bank accounts and how to choose them, we have some additional tips.

In the following article, we’ll walk you through the eight most common bank fees and how to avoid them! So keep reading to learn more!

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About the author  /  Beatriz Vieira

Beatriz Vieira is a producer and copywriter who is part of the finance writer team in this portal. She has a degree in Journalism and aims to improve her bilingual writing skills. Her subjects of most significant interest are culture, finances, and self-development.

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