Obviously, there are many practical uses for a bank account, with the biggest being a safe place to deposit your money and access it when you need it. The most common types of bank accounts include checking accounts, saving accounts, and certificates of deposit – also known as CDs. Each of these accounts has a specific purpose, and in some cases they can provide extra benefits as well.
Let’s take a look at the features and potential benefits of the 3 most common types of bank accounts:
Savings Accounts
A savings account allows you to do just that – save money. For many, a savings account is the very first bank account they’ll open. Many banks, including BankFive, offer savings accounts specifically designed for children, to get them in the habit of saving. While savings accounts at many large banks offer dismal returns, there are options out there that will allow you to get a better bang for your buck. For example, as of 3/23/23, a Chase Savings account offered an Annual Percentage Yield of 0.01%, while a BankFive eAccess Savings account offered an Annual Percentage Yield of 0.60% on eligible balances.
Since the main purpose of a savings account is to save money for the long-term, you probably won’t want to withdraw money from it frequently. However, it’s worth noting that the Federal Reserve no longer limits the number of withdrawals you can make from a savings account in a month.
Although savings accounts do not typically come with a debit card or checks, some savings accounts do allow you to withdraw money using an ATM card.
Certificates of Deposits (CDs)
A certificate of deposit, or CD, is another way to save money. Unlike a savings account, a CD pays interest for a fixed period of time, during which you must leave your funds in the account. If you withdraw your balance before the end of your CD term, you will typically face an early withdrawal penalty fee.
CDs usually offer higher interest rates than a saving account, so they can be a good option if you’re looking to earn a competitive return on funds you won’t need to access for a while. With a traditional CD, you cannot add funds to the account once it’s been opened, but some banks do offer add-on CDs which allow for additional deposits during the CD’s term. BankFive, for example, offers an add-on CD called the 2-Year Investment CD which allows you to lock in a competitive interest rate for a full two years, with the added benefit of letting you deposit additional funds throughout the term
Checking Accounts
A checking account allows you to both store and spend your money. Many people set up direct deposit into their checking accounts so they’ll have a steady stream of money coming in to cover purchases and bills. Most checking accounts provide you with a debit card that you can use to buy things and withdraw money. Some debit cards even allow you to earn cash back rewards. With a checking account you can also use paper checks to make payments as needed.
Many people open their first checking account as a teenager so they can have a debit card and start paying some of their own bills. Some banks even offer specific checking accounts tailored to teens and students.
Since checking accounts are primarily used to manage day-to-day finances, they aren’t typically known for their interest rates. However, it’s worth noting that there are checking accounts out there that can provide you with a decent return on your money. BankFive, for example, offers a high-interest checking account called the eAccess Checking account, which as of 3/23/23 provides an Annual Percentage Yield of 1.00% on eligible balances.
What to Look for in a Bank Account
Your bank account’s interest rate can help improve your financial health. The higher the rate, the faster your money will grow. When searching for a new account, you should definitely compare rates to see where you can get the best bang for your buck.
But, you shouldn’t base your decision solely on the account’s rate of return. You should also consider whether a bank account has any minimum balance requirements or maintenance fees, or if they charge money for ATM usage or transferring money between your other accounts. You should also get a sense of the bank’s reputation and customer service. This can easily be done by doing some online research and reading customer reviews. It’s also important to ensure that the bank is FDIC insured, so you know that your funds are protected.
There are lots of different types of accounts out there, and countless banks to choose from, but ultimately you want what’s right for you. In some cases, that might mean having multiple bank accounts. In the end, the account – or accounts – that you choose should align with your money management and savings goals, and offer you the convenience, security, and customer service that you deserve.
If you decide that a BankFive account would be a good fit for your needs, we make it easy to switch banks. With our unique Switch My Bank service, you can easily change over your direct deposit and recurring payment methods to your new account with just a few clicks.