Opening a bank account in your own name for the first time can be exciting. Many years ago, I remember my dad and I walking into one of the local university’s bank-branches and he began explaining the importance of managing a bank account in my own name. I knew that basic checking accounts existed for spending purposes but I didn’t know much else…let alone that banks sold more than five types of bank accounts.
The standard ‘you’re an adult now and need to be responsible,’ speech aside, it was still interesting to see the different types of accounts available. I thought banks only offered standard checking and savings—one account to spend and one account to ‘save for a rainy day.’
Of course, I couldn’t be more wrong.
The good news is while the different perks each bank offers in relation to their accounts can be overwhelming, the types of bank-accounts themselves aren’t overwhelming. It really just boils down to what kind of interest rate and flexibility you want when it comes to using your money. After doing some research, these are the five bank account types that consumer should know by their late-teens or early twenties.
- Standard Checking Account.
A standard checking account is exactly what it sounds like. They’re the accounts usually set up to receive direct-deposit-payments from employers, or the accounts tied to debit-card-purchases. They don’t yield high-interest and they are flexible with how many transactions can be made.
Think of a standard checking account like a temporary money-holder that can be used to pay for bills, gas, groceries, etc. Many utility and rent companies allow you to pay the electric bill or your rent by connecting a checking account with a routing number (a geographic specific number for your bank in question).
- Interest-Yielding Checking Account.
An interest-yielding checking account follows the same mold as a standard checking account except it offers the opportunity to earn interest on the money it holds. While many types of bank accounts can yield interest, this one is specifically designed for both spending and interest-gathering.
The interest rate is the percentage-yield that a bank offers through certain accounts. They serve as an impetus for consumers to store their money as well as develop customer loyalty. While interest-rates are never high—the highest rates are usually between 1.2-2.1% it’s still a way to earn more money if you end up saving larger amounts.
This account is predominantly featured through online-banks like Ally (article link) but some banks like Citi also offer the option to open an interest-yielding version. If you want an account reserved for making purchases once in a blue moon, then this might be a superior option.
- Standard Savings Account.
Again, this isn’t rocket science. A standard savings account is exactly what it sounds like: an account that’s not normally used for purchases and is meant to hold large amounts for emergencies. It’s recommended that you try to save for at least six months of expenses relative to your overall monthly budget—although depending on where you are in life, this may or may not be feasible.
Before the COVID-19 pandemic, almost half of the United States had close to no savings in a savings account. Even though that amount has surely skyrocketed by now, it’s a good idea to at least strive for a one-thousand-dollar goal. Longtime-financial-guru Dave Ramsey recommends it. The guy who runs this website recommends it. There are several methods you can use to try and reach the goal.
The bottom line is that it’s good to at least have some sort of account designated for savings.
- Certificate of Deposit (CD) Savings-Account.
A Certificate of Deposit account (abbreviated to CD for short) is a little bit different. If you set up a CD savings account, then it is federally insured with a fixed interest-rate. The reason it’s called a certificate of deposit has to do with the tradition of the bank certifying that you held the specified amount—also the tradition of the fixed-interest-rate being certified as well.
Bearing these certifications in mind, a CD account also has a date—picked by you—on which the funds can be taken out after they’ve matured.
These are if you’re wanting to get a jump-start on early investing but want to play with something tangible. The rate of return on a CD-account is higher but it’s harder—or even impossible—to draw the money out without getting a penalty.
While banks offer different types of CD accounts—you can read more about them here—just know that CD’s are useful as a simple long-term investment strategy if you don’t want to bother with the ins and outs of the stock market.
- Money-Market-Savings Account.
A money-market-account can be considered a happy medium between a standard savings account and a CD-savings-account. Money-market-accounts usually offer higher interest-rates than standard accounts but they usually require higher deposits and fees as a result. The good news is that it’s easy to draw money from a money-market account…the bad news is that opening a money-market may not be the smartest financial move due to fees.
However…
Depending on the bank or credit union, fees may not be applicable if you end up opening a checking account along with a money-market-account. Therefore it’s important to compare what perks each bank or credit union in your area will give you. One bank might offer a unique checking account that earn more interest than their competitor but they may not have the best options when it comes to savings accounts.
Conclusion.
If you’re just starting your search for what local or online banks can offer you, always remember that you can switch banks if you’re dissatisfied with their service—it doesn’t have to be a do-or-die-decision. Even though you’re used to doing everything online, this may be a scenario where you’ll want to walk into a branch and speak with one of the bankers to get a better feel for the some of the products that are offered.
Whatever you decide, just make sure you have a rundown of the five types of bank accounts that most financial institutions offer. Being able to decide which account is best for you will help out your finances in both the short-term and the long-term. Even if you end up getting just a standard checking and savings account, knowing other options are out there can be beneficial.
