Different types of accounts and it procejure including merits and demerits
Answers
Different types of bank accounts serve different needs. Depending on your goals, it’s 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.
Most banks and credit unions offer the following types of accounts, which we’ll cover in detail below:
Savings accounts
Checking accounts, including interest checking
Money market accounts
Certificates of deposit (CDs)
Retirement accounts
Savings
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. For example, when joining a credit union, your “share” or savings account establishes your membership.
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 CDs. 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 and credit unions 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.
Checking
Checking accounts provide you with a basic account to deposit checks, make withdrawals, and pay bills. Paper checks, though slowly losing popularity, are key features of checking accounts. More recently, the debit card (or check card) has taken over as a primary form of payment from checking accounts. Most banks now offer online bill pay services through checking accounts, helping to streamline payments.
Good For: Anyone who needs a place to deposit a paycheck or cash, those who keep a relatively small balance, and people who enjoy the convenience of a check card.
Drawbacks: Checking accounts are subject to a variety of fees, which can become expensive quickly. But many checking accounts let you skip maintenance fees and minimum balance requirements.
Checking account tips:
Balance your checking 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 checking. 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’s a problem with your debit card (an erroneous charge or the card number gets stolen, for example), an empty checking account can cause significant problems.
Money Market Accounts
A money market account earns more interest than either a savings or checking account but combines features of both. For those who tend to carry higher balances in checking accounts, these can be a great option to park cash. The higher rates mean your cash is working for you and earning interest.
Good For: People who hold average balances in their account of $5,000 or more and want to earn higher interest rates.
Drawbacks: Some money market accounts have significant minimum balance requirements ranging from $5,000 to $10,000. 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’s 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.