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What’s a bank account?
A bank account helps you save for the future, pay bills, spend conveniently, transfer money where you need it and get cash when you want it. Financial institutions offer bank accounts because you need a secure location to hold your money.
The benefits of owning a bank account
Having a bank account can help you manage your everyday finances and keep track of your money. Benefits of owning one are:
- A convenient way to organize your money. For example, paying bills, receiving your income, paying for goods and services or sending money to someone else.
- A safe place to keep your money. This is especially helpful during uncertain economic climates – the FDIC offers a guarantee on deposits of up to $250,000 per person, per institution.
- A place that records your transactions. When applying for a loan, lenders will be able to refer to your transaction records to assess how well you can save money. You can also see where you’re spending most of your income.
- A place to build your assets. Money held in your transaction account is easy to access – by linking it to a savings account, you can also earn interest.
What are the risks?
- Choosing the wrong type of account. Each type of account serves a very specific purpose. Not choosing the right one could result in paying unnecessary fees or penalty charges.
- Not having the right features. Look closely at each account to ensure that it has the features you need to make your banking needs easier.
Different types of bank accountsLet’s have a look at the different bank account profiles below to see where you fit:
Basic checking account
A checking account is a place where you can keep your money safe and accessible. They offer basic functions at a low cost, but limit withdrawals and usually don’t pay interest. You’ll be able to pay bills, make purchases and withdraw cash from ATMs. Accounts offer a variety of options that can waive monthly service fees and give you features that you need.
Interest bearing checking account
These accounts tend to offer more services for a higher cost. Some will pay interest on running balances, give you unlimited withdrawals and waive fees for using your ATM at other banks. Interest checking accounts will often charge a monthly service fee if your balance falls below a certain amount.
These accounts can help you earn interest on money you’re saving for the future, with an interest rate that doesn’t change. Depending on the type of account, interest rates are based daily, weekly, monthly or annually. Look at your bank’s terms and fees to determine the account that is best for you.
Money Market Account
Money market accounts are similar to savings and checking accounts in that they will earn you money on interest over time. They invest your balance in short-term debt like Treasury Bills or CDs. You’ll need a higher minimum balance to start earning, but they offer higher rates. You can write checks against your account, usually limited to three per month. Fees will occur if your account falls below a certain level.
Certificate of Deposit (CD)
When you open a CD you agree to keep the money in the account for a certain amount of time — from a few months to several years. It’s another way to earn interest on your money, with higher interest rates the longer you keep your money in the CD. Avoid early withdrawals, as they lead to fees and penalties.
What’s the difference between bank account types?
Paying bills or building your nest egg?
Fund management designed specifically for your smartphone.
Compare savings options, interest rates and balance requirements.
The key differences and how they can affect your ability to save.
The right choice depends on how often you use it and whether you want to earn interest.
What are the typical features of a checking account?
You don’t really earn interest
From the bank’s point of view, your bank account hold funds that are readily accessible and don’t accumulate interest as there is no incentive for holding your funds there. If you’re looking for a high interest rate, a savings account may be more suitable.
You should get free domestic ATM network and access
Your debit card lets you access your funds from an ATM. Your bank will also provide you with a network of ATMs that you can use for free.
You can link them to a savings account so you can easily transfer funds back and forth
Many financial institutions also give you the option of linking your bank account to a savings account. That way, you can easily transfer money back and forth to make the most of the higher interest rate from your savings account.Back to top
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How do I open and close a bank account?
Skip waiting at the bank branch.
Close your account and find a bank that meets your needs.
Joint accounts are best for people who are working towards a similar financial goal together.
Quick tips for using everyday bank accounts
- If you’re paying for purchases using your debit card, ask for cash out at the same time rather than withdrawing at an ATM. This counts as one transaction, not two, and lets you avoid any potential ATM fees.
- If your account has a limit on the number of transactions you can make each month before fees apply, monitor your account regularly and try to work out ways to minimize your transactions where possible
- When you make a purchase, should you choose debit or credit? By choosing credit, you’ll be activating enhanced security or the complimentary insurance policies offered on your card.
- If you’re currently paying a monthly account-keeping fee on your account, ask your bank what options you have for getting that fee waived. They may suggest opening a savings account, signing up for direct deposit or maintaining a minimum balance in cash to get rid of that fee. They may also suggest a different transaction account that could end up suiting your needs better in the long run.
Questions to ask when choosing a bank account
- At what stage of life are you? Your stage of life plays a minor role when it comes to choosing a bank account, but plays a much larger role when choosing a savings account. Are you currently building, managing or using wealth? If you’re currently building your wealth and are expecting a child or saving for a home, you’ll want an account that restricts the way you spend so you only buy the essentials. These accounts allow a certain number of transactions per month, charging a fee once you’ve exceed the limit. If you’re managing your wealth, focusing on tax planning, management and retirement, your options are open to most accounts. And finally, when it comes time to retire, you’ll want an account to help you effectively use your retirement savings.
- What type of bank account do I need? Transaction accounts are designed to meet your everyday banking needs – whether it’s an account to deposit your pay, or just an account to pay for bills and groceries. In the past, bank accounts that offered unlimited transactions did so for a monthly fee, and some limited the amount of transactions you can conduct for no monthly fee. However, in this increasingly competitive market, banks are now offering accounts unlimited transactions for no monthly fee.
- Is there a fee involved for requesting a copy of my statement? You will need to check with your specific bank for statement frequency and any fees. With most banks now offering online banking, you could also view and print a copy from there for no fee.
Using your bank account for international transactions
Is it possible to reverse a foreign exchange transaction on my transaction account? You will need the help of your bank in most circumstances, but if you have the supporting documentation then you should be able to reverse a foreign exchange transaction.
Is it possible to cash out an international check? Yes, some US financial institutions will accept an international check deposit, although the funds could take longer to clear and you may be charged international transaction fees.
Do foreign banks charge a fee to receive an international money transfer? Yes, there are foreign banks who will charge your recipient upon receiving funds from an international money transfer. Remember to take into account exchange rates and recipient fees.
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