There are various types of bank accounts in the US, and it might not be clear to decide which one you want to open.
Consider the pros and cons of each type of bank account before deciding on which one would best suit your needs.
Each bank account has its benefits.
There are several types of bank accounts, and each has its own purpose. Here are the six most common types:
A checking account is a deposit account with a bank or any other financial institution which allows withdrawals and deposits. These accounts make the process for daily transactions easier.
Checking accounts can be accessed using checks, electronic debits, and automated teller machines, among other methods. These accounts, unlike other accounts, usually allows numerous withdrawals and deposits.
The accounts have two main types: personal and business accounts. A personal checking account is used by individuals, while a business checking is only for companies.
These accounts can also have different types from traditional checking to premium checking.
» Full details, learn what is a checking account & how it does it work
Banks are stringent when opening a checking. Apart from checking with the consumer reporting companies, you will have to prove that you are eligible to open a checking account.
In most cases, you have to be above 18 years and have a social security number. Parents and legal guardians have to co-own checking accounts for those aged between 14-18 years.
» Read more, on how to open a checking account
A savings account is a bank account that limits the number of withdrawals and usually does not have check facilities or a linked debit card.
These accounts have limited transfer capacities and withdrawal limits but offer a high-interest rate compared to a checking account.
Banks will charge extra fees if money is withdrawn over the monthly transaction limit.
In order to open a savings account, the following are required:
A money market account is a deposit account that pays interest based on current interest rates in the money markets. The bank account invests in short-term corporate loans and certificates of deposits and pays a higher interest than traditional savings accounts.
These accounts usually offer a limit of three checks a month. Money market accounts often have a high initial minimum deposit requirement, most starting from $2500 or more.
In order to maintain a high-interest rate, the minimum daily balance requirement needs to be met.
Apart from the general requirements, what is needed to open a money market account is:
A certificate of deposit, mostly called CD, is a special type of savings account.
Banks and credit unions offer the product at a fixed interest rate premium in exchange for the customer’s agreement to leave a lump sum locked for a fixed term.
The longer the term, the higher the interest premium rate.
The deposit gains value over an agreed-upon duration, but it could be subject to fees if withdrawn before the end of that time.
The account is considered 100% safe because the bank guarantees the principal and interest.
A brokerage account is sometimes called a securities account. It is an account that holds financial assets such as stocks on behalf of an investor with a bank, broker or custodian.
An individual retirement account (IRA) is a form of personal retirement plan provided by many financial institutions that provides tax advantages for retirement savings.
Although there are various types of bank accounts in the US, each has its own unique benefits and requirements.
Depending on your needs, you may look into an IRA account to prepare for retirement or a CD account to slowly grow your lump sum of cash. There’s a lot to choose from.
Be aware that each bank account has different requirements that need to be met before opening.
The documents to be submitted to process and finalize the account opening differ from bank to bank.
You might want to consult the bank to see the criteria that are needed.