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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:
- Low fees. Low and no-fee checking accounts are plentiful, with maintenance fees that typically range from $5 to $20 monthly.
- Debit card. Most checking accounts come with debit cards, allowing you to withdraw cash from ATMs.
- Banking essentials. With a basic checking account, you can pay bills, transfer funds and make online and in-store purchases.
- Non-interest bearing. While offering access to the essentials, basic checking accounts don’t earn interest.
Interest bearing checking account
- Earns interest. While it’s often not much, interest-bearing checking accounts offer the potential to earn interest.
- Minimum balance requirement. Many interest-bearing checking accounts have minimum balance requirements for earning interest.
- Higher fees. Expect higher fees than basic checking and potential penalties if account minimums aren’t met.
These accounts can help you earn interest on money you’re saving for the future:
- High interest rate. Rates vary by account and provider, with some of the best yields offered by digital banks.
- Low fees. Many providers offer savings accounts with no monthly maintenance fees.
- Low opening deposit. Many savings accounts can be opened for free with low or no minimum opening deposits.
- Limited transactions. Savings accounts are limited to six withdrawals monthly and many providers charge penalty fees for excessive transactions.
Money Market Account
Money market accounts are similar to savings and checking accounts in that they will earn you money on interest over time:
- High interest rate. Money market accounts typically pay out higher interest rates than basic savings accounts.
- High minimum balance requirement. To access higher rates, be prepared for account minimums that typically start between $2,500 to $10,000.
- Check-writing privileges. Many money market accounts come with check-writing privileges.
- Limited transactions. Like savings accounts, money market accounts are limited to six transactions monthly.
Certificate of Deposit (CD)
These short-term investments help your money build interest over a set term:
- Fixed terms. When you open a CD, you agree to keep the money in the account for a set term — typically from a few months to several years.
- Guaranteed savings. Because CDs have fixed rates, you’re given a guaranteed return on your investment.
- Minimum deposit. Minimum deposit requirements for CDs tend to fall between $500 to $1,000.
- Early withdrawal penalty. If you need to access your cash before your CD term is up, be prepared for an early withdrawal fee.
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.
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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
- Take advantage of cash back opportunities. 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.
- Monitor your transaction history. 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
- Bank securely with credit. 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.
- Find ways to waive fees. 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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