When it comes to opening a bank account, the kind of account you choose can be an instrumental part of your future relationship with money, in terms of how you earn it, save it and spend it. There are many different kinds of accounts available dependent on your needs as an individual, but also affecting the needs of your family and household on a wider scale. The following tips will help you to decide what account is best for you and will benefit you the most, for both your immediate needs and in the long run.
There are two basic types of accounts that you’ve probably already heard of - checking and savings. These two accounts form a good foundation to banking for the beginner. A checking account is good for frequent transactions, such as receiving your salary or running day-to-day errands and making payments. You can make deposits and withdrawals into this account.
A transaction account has a monthly fee attached to it for the most part. The monthly fee will be dependent on how many transactions you are allowed to make. If you want an unlimited number of transactions, you should be prepared to pay a higher monthly fee than usual. Another benefit to having this type of account is that you may be eligible for an overdraft or checks.
The downside to a checking account is that it pays little to no interest on the funds it holds. Checking accounts also have hidden fees, which can add up over time, such as whenever you make a transaction or ATM withdrawal. This is where a savings account may be more suited to your needs. When you have a savings account, this money that the bank is holding for you will incur interest periodically, giving you more returns in the long run. Of course, the more money you have in a savings account, the more you will gain in terms of interest. Note, however, that interest is often dependent on the lowest amount in your account in any given month, regardless of how much is in the account on other days.
Savings accounts allow both deposits and withdrawals, but may have a withdrawal limit, as withdrawing funds really defeats the purpose of trying to save money. Other savings accounts do not allow withdrawals from an ATM machine or branch. These accounts are linked to transaction accounts, allowing transactions to be made either online or via telephone banking.
CDs - for certificate of deposit - or term deposit accounts, are great if you want to get interest on your funds but do not want to be tempted to spend the money. As such, you would deposit a certain amount of money and leave it there for a period of time that can range from just one month to over five years. The interest rate in this case is fixed for the period of time. Once the term is over, you have the option to start another term with the funds, or withdraw them to use or transfer as you wish. The interest rates with term deposits are higher than other accounts, and also dependent on how high the balance of your initial deposit is.