Types of Bank Accounts

There are a number of variations of banking accounts among all the banks that may be called different names. To make it simple, we have identified the most basic accounts. Each account is FDIC insured up to $100,000 in the event that the bank or financial institution goes out of business.

Checking

The most common bank account, a checking account, provides frequent access to funds through a number of different channels such as checks, ATM withdrawls and wire transfer. Most checking accounts do not pay high interest on funds kept unless the account is a special type of checking account that requires high minimum balances.

Savings

A savings account is maintained by retail financial institutions such as a Bank of America or Wells Fargo. The main purpose of a savings account is to earn interest on money not currently needed.

A savings account is different than a checking account in that the funds in the account cannot be used directly such as writing a check. One would need to transfer the money or withdrawl the money from the account. Savings account earn interest on the money kept. Interest rates can range from a little over 0% to as much as 5% on promotional accounts.

All money in a traditional savings account is considered liquid asset.

Certificates of Deposit (CDs)

A certificate of deposit or CD is a deposit of funds for a fixed term and a fixed interest rate. Common terms are 3-months, 6-months and 12-months. CDs are offered by banks and credit unions. There are some CDs that do not have a fixed interest rate.

Money Market Account

Money market account is a type of savings account that often has higher interest rates. Money market accounts are liquid, meaning you are not obligated to leave your money in the account for a set term. However, the accounts tend to have a monthly limit of how many times you can transfer money out. The number can be anywhere from 1 to 6 times.

The minimum deposit for money market accounts is typically $1,000. However, to start earning any real interest over 1%, you will need at least $10,000 to move into a higher tier.