Virtually every bank lets its customers choose what kind of bank account to have, and a large variety of account types exist across all banks. This diverse selection of bank account variants is necessitated by how customers and companies alike store money in banks with various differing end goals in mind. However, this also means that it takes extensive knowledge of how each bank account type differs from others in order to be able to make an informed decision on which type of account to apply for.
It can be difficult for a customer to recognize and account for all of the potential shortcomings of opening one particular type of bank account over any of the other available options. What follows is a series of descriptions summarizing each bank account type's respective functions and limitations.
The most common and basic bank account variant is the savings account, which not only affords customers a free and secure location to store their money but also provides incentive for them to do this by letting that stored money gradually increase over time in the form of interest. However, this cannot be used to write checks.
Perhaps the most "traditional" bank account, checking accounts come across as savings accounts with expanded functionality but additional requirements on the part of the customer. A checking account is so named because it enables its user to write out checks so that payment for purchases can come directly from the funds accrued in the account itself, and a user can also perform this by using a debit card. However, savings accounts offer higher interest rates in comparison, and paying fees may be required of some actions taken with this account type.
Because physical banks do not have as much money to spare to provide account holders strong interest rates, more consumers are opening accounts on online banks. These services do not have to devote as much money toward sustaining themselves, which is why they can offer their customers better interest and charge less for fees.
Another option that allows better interest rates than traditional, physical accounts are certificates of deposit. Making this kind of deposit is tantamount to promising that the funds will stay deposited for a set period of time; if the user withdraws before the maturity date, a financial penalty will likely be incurred.
Among online deposit accounts, accounts made at stock market brokers exclusively pertain to purchases and sales made within the domain of the stock market. Online brokers can allow account holders to handle their stock market securities through them, and a flexible array of options are open for users.
This type of account functions like a savings account, but it may allow some checks to be written and may charge a fee every month. However, this fee can be avoided if enough of a balance is kept, and this account variant can earn higher interest rates proportional to the size of the balance stored and the present status of the money market itself.
Employed persons who forecast their retirement benefits to be unable to offer as much money as they would like can open this fairly restrictive type of account in order to deposit extra savings for future use. Ordinarily, deposits made in this kind of account are tax-deductible; however, an alternative variant known as the Roth account can forego that benefit in favor of allowing tax-free withdrawals. Regardless of one's choice, a potential IRA account holder will need to consult a qualified tax accountant in order to accurately weigh and account for each option's unique limitations.
