Different types of bank accounts serve different needs. Depending on your goals, it is wise to put money into the best account and use the right tools for spending and saving. Doing so allows you to maximize the return from your bank, minimize fees, and manage your money conveniently, according to www.thebalance.com
Most banks offer the following types of accounts:
Money market accounts
Savings accounts are typically the first official bank account anybody opens. Children may open an account with a parent to begin a pattern of saving. Teenagers open accounts to stash cash earned from a first job or household chores.
Savings’ accounts are an excellent place to park emergency cash. Opening a savings account also marks the beginning of your relationship with a financial institution.
Good for your first bank account: Kids, adults looking for a place to park savings or extra cash.
Drawbacks: Savings accounts typically yield a low-interest rate in comparison to money market accounts and fixed deposits. They do not come with a debit card for purchases, and banks limit some types of withdrawals to six per month.
Savings account tips: Online savings accounts pay the most interest and charge the lowest fees. If local banks are too expensive, look at online-only options.
To build up your savings account, drop a lump sum of cash into an account or set up automatic monthly deposits into savings.
Current accounts provide you with a basic account to deposit cheques, make withdrawals, and pay bills. Paper cheques, though slowly losing popularity, are key features of current accounts. More recently, the debit card has taken over as a primary form of payment from current accounts. Most banks now offer online bill pay services through current accounts, helping to streamline payments.
Good for anyone who needs a place to deposit a pay cheque or cash, those who keep a relatively small balance, and people who enjoy the convenience of a cheque card.
Drawbacks: Current accounts are subject to a variety of fees, which can become expensive quickly.
Current account tips: Balance your current account every month. This exercise helps you manage your money, avoid fees, and spot fraud or errors before they cause major problems.
Set up direct deposit of your wages into a current account. That way, you get your money quickly, and you don’t need to visit a bank branch or ATM.
For day-to-day spending, you might be better off using a credit card instead of a debit card. If there is a problem with your debit card (an erroneous charge or the card number gets stolen, for example), an empty current account can cause significant problems.
Money market accounts
A money market account earns more interest than either a savings or current account but combines features of both. For those who tend to carry higher balances in current accounts, these can be a great option to park cash. The higher rates mean your cash is working for you and earning interest.
It is good for people who hold specific average balances in their account and want to earn higher interest rates.
Drawbacks: Some money market accounts have significant minimum balance requirements. Interest rates can be low, and you need to monitor fees. Withdrawals are typically limited to three or so per month.
Money market tips:
Money market accounts can be a good place for larger emergency savings funds. You won’t access the money frequently, but it is there when you need it.
If you can’t find an affordable money market account, look at online banks and cash management accounts, which are typically low-cost options.
A fixed account usually allows you to earn more than any of the accounts listed above. What’s the catch? You have to commit to keeping your money in the fixed deposit for a certain amount of time. For example, you might use a six-month fixed deposit or an 18-month fixed deposit, which means you have to keep your funds locked up for six or 18 months.
Good for the money that you don’t need to spend any time soon. You would earn more by locking it up for a while.
Drawbacks: If you want to pull your funds out early, you would have to pay a penalty. That penalty might wipe out everything you earned, and even eat away at your initial deposit. In rare cases, banks refuse to honour early withdrawal requests, and you have to wait until the term ends.
Fixed deposit tips: If you are concerned about locking up all of your money, set up a basic fixed deposit ladder that makes a portion of your savings available periodically.
Some banks offer flexible fixed deposit that let you withdraw money early—without penalty. Those products might be a good fit for your needs but learn about the tradeoffs before you use them.