Types Of Deposit And Accounts
Money and banking are part of everyday life. Banks offer all sorts of financial products to help you manage your money on a day-to-day basis. The bank is such a place where once we deposit money, it remains safe and also earns interest over some time. This is known as the deposit and to each deposit, the bank assigns a unique identity which is known as the account. Each deposit corresponds to a unique account and vice versa.
Sometimes we use numbers to uniquely identify an account. This is what we call the account number. It may also be a combination of alphanumeric letters. Bank deposits serve different purposes for different people. Some people cannot save regularly. They deposit money in the bank only when they have extra income. The purpose of deposit then is to keep money safe for future needs. Some may want to deposit money in a bank for as long as possible to earn interest or to accumulate savings with interest so as to buy a flat, or to meet hospital expenses in old age, etc. Some, mostly businessmen, deposit all their income from sales in a bank account and pay all business expenses out of the deposits.
Investment And Retirement Accounts
Banks may also offer you a brokerage account, which you can use to invest your money in stocks, bonds, mutual funds, and other financial products. You also may be able to open certain types of tax-advantaged accounts, such as a traditional individual retirement account or Roth IRA, which are generally used to save and invest for retirement.
What Is A Checking Account
A checking account is used for day-to-day cash deposits and withdrawals. With a checking account, you can access your money through in-person withdrawals, a debit card, bank wire transfers or by writing checks. There are different types of checking accounts, including a student checking account.
Most traditional checking accounts have a monthly service fee. There are typically ways to waive the monthly service fee on a checking account if you meet certain requirements. There may be other fees for things like out-of-network ATMs, checks and overdraft charges.
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How Many Bank Accounts Should You Have
Is one bank account enough, or should you have multiple? The answer depends on your overall goals. Many people find that having at least a checking account and a savings account works for them. You can use the checking account for everyday financial transactions and the savings account to set aside money for emergencies or another financial goal. If youre married or in a long-term relationship, you and your partner might want to have a shared account and separate accounts, too.
People often find that opening several accounts lets them work on and achieve financial goals more easily. If you plan on retiring one day, it makes sense to have a separate retirement account from your emergency savings account. Many retirement accounts offer tax advantages, so it makes sense to save as much as you can in them to reduce your tax bill now and in the future.
In some cases, it makes sense to have several savings accounts at the same financial institution. You might decide to open a money market account to start saving for a down payment on a home. You might have one savings account earmarked for your vacation and another dedicated to your emergency fund.
The material on this site was created for educational purposes. It is not intended to be and should not be treated as legal, tax, investment, accounting, or other professional advice.
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Business Accounts Can Be Used By Sole Traders Partnerships And Registered Companies
Overdraft facilities on these types of bank accounts can be negotiated with the bank when there are extra bills to pay and money is tight. These accounts are great when more than one person has to sign checks or needs access, particularly with online banking. Banks often offer incentives for small businesses to open this type of account by offering reduced or nil fees for a length of time, or other small bonuses. Business credit cards can be issued to selected staff members with restricted spending limits.
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What Are The Different Types Of Checking Accounts
Banks offer many different checking accounts to cater to the diversity in their clientele. Customers have many options to choose from that best suit their needs. The different types of checking accounts include student accounts, premium accounts, basic accounts, senior accounts, business accounts, rewards accounts, and interest accounts.
Nature Of A Bank Account
In most legal systems, a deposit of funds in a bank is not a bailment – that is, the actual funds deposited by a person in a bank cease to be the property of the depositor and become the property of the bank. The depositor acquires a claim against the bank for the sum deposited but not to the actual cash handed over to the bank. In accounting terms, the bank creates an account in the name of the depositor or a name directed by the depositor in which the amount received by it is recorded as a transaction. The deposit account is a liability of the bank and an asset of the depositor .
On the other hand, a bank can lend some or all of the money it has on deposit to a third party/s. Such accounts, generally called loan or credit accounts, are subject to similar but reverse principles of a deposit account. In accounting terms, a loan account is an asset of the bank and a liability of the borrower. Loan accounts may be unsecured or secured by the borrower, and they may be guaranteed by a third person, with or without security.
Each financial institution sets the terms and conditions for each type of account it offers, and when a customer applies for the opening of an account, and accepted by the institution, they form the contract between the financial institution and the customer in relation to the account.
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What Is The Best Type Of Bank Account
The best type of bank account will depend on the needs you have. Generally speaking, almost everyone starts with a checking and savings account . A checking account is the most flexible and used for day-to-day transactions, but other accounts also have important benefits, which weâve explained above.
How Do Banks Work
In general, banks often work as a financial intermediary by indirectly connecting people who need a safe place to store their money with people who need to borrow money. As depositors trust their funds to banks or credit unions in various accounts, the financial institution will in turn make loans to individuals, families or businesses making major purchases, such as houses and cars.
Banks can attract customers by paying interest on the money kept at the bank, such as the funds in your savings account. And banks make most of their money from the interest and fees on the loans they issue.
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What Is A Gic
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Guaranteed investment certificates are financial instruments that let Canadians invest their money and earn some guaranteed interest in the process. With a GIC, you invest your money with a financial institution for a specific period of time , and they will guarantee you a return of the principal and interest at a rate specified in your contract.
Retirement Accounts To Know About
Once youve gotten comfortable with the most common types of bank accounts, you can start exploring other types of financial accounts like retirement funds. Individual retirement accounts, or IRAs, are part of a great long-term retirement savings strategy.
There are two main types of IRAs: traditional and Roth. Both are tax-advantaged retirement accounts that allow you to:
- Contribute to an IRA as long as you earn income from a job, or your spouse earns income from a job and you file taxes jointly.
- Contribute up to $6,000 per year or your taxable compensation for the year if it was less than the dollar limit.
- Continue to contribute, even if youre retired, as long as youre earning income
- Open individual accounts if youre married.
IRAs are not your typical savings account. Theyre meant for long-term retirement investments, so if you withdraw money from a traditional or Roth IRA before age 59 1/2, youll have to pay taxes on it. Plus, youll be on the hook for a 10% early withdrawal fee. To make sure youre on track for retirement, connect with an investment pro who can help you figure out where your money will grow best.
And remember, youre not investing for retirement until Baby Step 4! Once youve saved up your $1,000 emergency fund , paid off all your debt , and set aside a 3- to 6-month emergency fund , then you can start investing 15% of your income for retirement.
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Next Steps: Choosing A Type Of Bank Thats Right For You
In many cases, finding the right account depends less on the type of financial institution than the specific accounts services, features and fees.
For instance, if youre looking for a high-yield savings account, you may want to focus on the accounts annual percentage yield, and whether there are activity or minimum balance requirements. If you can earn a lot of interest, it might not matter whether youre storing your money at a bank or credit union.
But in general, youll want to make sure your account is insured by either the FDIC or NCUA . The insurance covers up to $250,000 in deposits, which stands as a federal guarantee that youll receive your money if the bank or credit union goes under. For details, visit the FDICs FAQ page or see the NCUA informational booklet.
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Savings And Loan Associations
Savings and Loan associations are technically not banks in the traditional sense.
These are mutually owned financial institutions that offer mortgages, refinance loans, and alternative home loans using deposited savings.
Also known as âthriftsâ, the functions of the institutions vary, and some or publicly traded companies.
Here are the services you can expect from a savings and loan association:
- Accounts: You can open checking and savings accounts through savings and loan associations.
- Loans: Thrifts offer a wide variety of loans, and most of them are home and property-related
These are simpler institutions that are locality-oriented and encourage people to buy homes in certain areas.
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What Are The Different Types Of Savings Accounts
If youre looking to get started on your journey of personal finance, a Savings Account is the first and most fundamental financial product needed. A Savings Account can be opened with Commercial Banks, Co-operative Banks and Post Offices. For most people, a Savings Account is one of the first financial products they obtain in their name. But interestingly, theres not just one kind of Savings Account thats available. You can choose from different types of accounts to hold your money securely.
Lets check out the different types of accounts for your savings.
A Basic Savings Account is a simple type of account that you can open with a financial institution. It simply serves the purpose of holding your money in a secure space. In exchange for this, you get to earn interest on the amount deposited. The rate of interest varies from one bank to another. Basic Savings Accounts often have a minimum balance requirement and you need to take care that the balance in your account doesnt fall below that limit.
2. Instant Savings Account
3. Privilege Savings Accounts
Privilege Savings Accounts offer account holders a range of exclusive benefits like unlimited cash withdrawals, discounts on bank locker facilities, priority service at privilege banking zones and a dedicated banker to assist account holders with their queries and requirements. ICICI Bank offers a range of Privilege Savings Accounts that come with varying degrees of exclusive features.
Certificate Of Deposit Account Basics
Certificates of deposit are time deposit accounts. When you open a traditional CD account, its with the understanding that youll leave your savings in place for a set time period. This is called the maturity term and, during this time, youll earn interest on your balance.
Once the CD matures, you can either withdraw your initial deposit along with interest earned or roll the entire amount over to a new CD. Banks may offer CDs with terms as short as 28 days or as long as 10 years or more. Generally, a longer term means a higher APY. As far as savings options go, CDs can be good for money you dont think youll need right away, but they may be a poor choice for emergency funds.
With most CDs, you earn the same interest rate for the entire CD term. But bump-up CDs and raise your rate CDs allow you to boost your rate and APY once or twice during the maturity term. Some CD owners utilize a strategy called a CD ladder to provide more flexibility by staggering the maturity dates of several CDs.
One thing to know about CDs is that withdrawing money early can trigger an early withdrawal penalty. Depending on the CD term and the banks policy, this fee can be a percentage of interest earned, all of the interest earned or a flat fee. So its important to read the fine print on the CD accounts terms before opening one. You can also look for a no-penalty CD that allows for penalty-free withdrawals.
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What You Need To Open A Bank Account
You can open a bank account online or at a branch, if the bank offers brick-and-mortar locations. The information you’ll be asked to provide will be much the same whether youre opening a checking account, a savings account or both.
Heres a list of what youll need to open your new bank account:
1. A valid, government-issued photo ID, such as a drivers license or a passport. Nondrivers can get a state ID card at the Department of Motor Vehicles office.
2. Other basic information, such as your birthdate, Social Security number or Taxpayer Identification Number, or phone number.
3. An initial deposit is required by some banks, too. Skip ahead to learn more about account funding.
Depending on your circumstances, you might need a few other items, too:
4. Identification details for other applicants, if youre opening a joint account: Because the account will be owned by multiple people, the bank will want all owners identification and personal information.
5. A co-owner if youre not yet 18. Ask a parent or legal guardian to sign legal documents with the bank.
1.70%1.70% APY with $0 minimum balance to earn stated APY. Accounts must have a positive balance to remain open. APY valid as of 08/12/2022.
Aspiration Spend & Save Account – Aspiration Plus
Annual Percentage Yield is accurate as of 08/19/2022
Annual Percentage Yield is accurate as of 08/19/2022
Zynlo Bank More Money Market Account
Benefits Of A Bank Account
1. Bank accounts offer convenienceFor example, if you have a checking account, you can easily pay by check or through online bill pay. It’s also cheaper than buying a money order . If you get an Automated Teller Machine or debit card for the account, you can withdraw money easily or make payments at stores. A debit card is usually accepted for purchases anywhere credit cards are accepted.2. Bank accounts are safeYour money will be protected from theft and fires. Plus, your money will be federally insured so if your bank or credit union closes, you will get your money back. The maximum amount of money that can be insured is $100,000.3. It’s an easy way to save moneyMany banks offer an interest rate when you put your money in a savings account. The interest will help your money grow over time. Be sure to shop around and check what fees are involved – you don’t want to wind up paying more in fees than you are gaining in interest.If you have a checking and saving account with the same institution, you can have your money transferred periodically from checking to savings, putting the money aside to help grow your savings.4. Bank accounts are cheaperBanks and credit unions generally offer their account holders free or low-cost services:
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Jam Jar Budgeting Accounts
These accounts are sometimes called budgeting accounts or rent accounts. Theyre designed to help you budget.
High-street banks rarely offer these accounts. Instead, youll have to apply via a credit union or your housing association.
Often, therell be a fee for these accounts of around £3-£15, although your housing association might pay it for you.
A jam jar account lets you divide your money into different pots or jars.
You decide how much money goes into each pot. You do this by working out how much you need for your bills and how much is left over for spending or saving.
They also allow you to:
- pay bills by Direct Debit or standing order
- receive payments such as salary, wages or benefits.
A jam jar account might be right for you if:
- you want an account that helps you to budget
- you want to avoid charges for refused Direct Debits
- you rent a council or housing association property in which case your landlord might pay the monthly fee for you.
Find out more in our guide Jam jar accounts