The money you earn and spend is stored in different bank accounts, so understanding their functions will help you decide where and how best to store and manage it.
Before choosing an account to open, take into account its fees, minimum balance requirements, and features, including whether or not you need access to an ATM network. Also, think about whether writing checks is important and whether an ATM network exists nearby.
Checking Accounts:
There are various kinds of checking accounts to choose from, each offering different features and benefits. Options range from free or low-fee options to high-yield checking accounts that pay interest and debit card accounts, each offering something different! When it comes to picking out an account that best meets your needs and priorities, take time to consider your financial situation and priorities carefully – consider cashless transactions with Apple Pay(r), Samsung Pay(r), Google Pay(r), or convenient money transfer services like PayPal(r) and Zelle(r).
Checking accounts are available at banks, credit unions, and other financial institutions and are commonly referred to as current/chequing/share draft accounts in North America and the UK, respectively. They’re also sometimes called transaction accounts due to funds being accessible on demand and used for outgoing payments and withdrawals.
Some checking accounts charge fees for monthly maintenance charges, ATM withdrawal fees, and overdraft protection fees; these can often be avoided by following certain rules, such as setting up regular direct deposits or making certain numbers of transactions per month. Other features available to checking account owners may include wire transfers for faster international payments as well as account alerts that help monitor balances.
Savings Accounts:
Savings accounts provide consumers with an easy way to put aside funds for future use. In contrast to checking accounts that allow daily spending but earn little interest due to funds constantly flowing out and in again, savings accounts offer higher interest rates than their counterparts.
These rates, often expressed as annual percentage yield, apply both to deposits made into savings accounts and the interest that will accrue over time, known as compounding. It’s important to keep in mind, though, that inflation outpaces these savings rates over time, so over time your savings account may even lose purchasing power!
As many people already have general savings accounts, it may also be wise to create dedicated savings accounts for specific goals like vacations or home purchases. Such accounts typically offer lower withdrawal restrictions (typically six transactions or fewer per month) so you stay focused on meeting your financial goals.
An additional advantage of savings accounts is their convenient accessibility when the need arises. Your funds in a savings account can easily be moved between checking accounts for transactions or withdrawn directly from an ATM, providing optimal balance between accessibility and protection in case the bank fails.
Money Market Accounts:
Money market accounts (MMAs) are similar to traditional savings accounts in that they typically offer higher interest rates and more convenient transaction features, such as check-writing privileges and debit card access. MMAs tend to have higher minimum balance requirements than savings accounts and may charge fees if the account falls below certain amounts every month. It is important to compare benefits between accounts before selecting one that best fits your needs.
Money market accounts (MMAs) typically follow similar regulations as regular savings accounts insured by the FDIC; however, some banks differentiate MMAs by providing more checking-like services, like debit cards and ATM access with reimbursement of out-of-network fees.
Money market accounts differ from savings accounts by restricting how often withdrawals can be made each month, encouraging you to leave more of your cash in the bank. Transaction limits set by banks generally limit withdrawals to six per month or only exceeding certain amounts (such as $500). This restriction protects against overdrawn accounts being used as sources for daily living expenses, diminishing earning potential over time.
Certificates of Deposit:
Certificates of deposit (known as share certificates at credit unions) are low-risk savings accounts that allow investors to earn interest by investing their money for an indefinite period. They typically offer higher interest rates than standard savings accounts and pay rates tied to the Federal Funds Rate set by the U.S. Federal Reserve System. They’re insured by either the Federal Deposit Insurance Corporation (FDIC) for banks or the National Credit Union Administration for credit unions, providing added peace of mind when investing your savings!
CDs incentivize consumers to save by setting a fixed-term investment goal and resisting the temptation to withdraw early; however, they have lower liquidity than checking or savings accounts and may be less accessible for businesses that require immediate access.
As CDs offer predictable income and returns, you should always read the fine print carefully. Tying up funds for too long could restrict your flexibility or cost more later if the federal funds rate rises. When considering opening a CD account for business use, consult a financial expert to fully comprehend all its nuances – they can help find you the ideal CD product that meets all of your business’s requirements.
