Types of Deposit Accounts


When you first start earning money it is time to get a banking account. Back in the day, and I mean way back in the day, it may have been a good idea to keep your money in a jar under the bed but at this point you really should keep your money in bank account. Why not a jar you ask?  For one thing I am pretty sure the security associated with you jar is nowhere near equal to the security at your local bank, and for another the money in that jar isn’t making you anything.

During the great depression people were scared to lose their life’s savings when banks would closed, since that time the FDIC has come around and now insures up to $250,000 in deposits at each institution where you have an account. Unless you are filthy rich and can’t find multiple banks to keep your $250,000 in you really should have a bank account.  When opening up your first checking or savings account I highly recommend going with a local bank or credit union. You may not earn the interest you are going to get from an online account but you will have good personal service and you can start building a relationship with a bank. Once you start to build a solid savings up you should start looking for an online savings account, keeping your checking local though keeps things easier.

When you go to open your first account there are a myriad of choices to chose from, today we will briefly cover the four most typical types of deposit accounts available to you.

Checking Account:

This is the simplest form of account, you are provided with a check book and/or a check card and can make unlimited deposits and withdrawals limited only by the amount of money you have in your account. You can easily access your money by writing a check, hitting the ATM, or using your check card. Some banks will even offer an interest bearing checking account so even your spending money can earn some interest. Typically the interest bearing accounts are going to pay you very little, but that little bit is more than you were getting before.

Savings Account:

A savings account is a more permanent place to keep your money, typically these types of accounts are going to pay you more interest than an interest bearing checking account but they will also come with more restrictions. Oftentimes you will see a minimum deposit restriction along with a minimum balance restriction. In addition there is a restriction in place on how often you can withdrawal funds from the account. There is a limit of 6 withdrawals from a savings account in any given calendar month or statement cycle. This is a federal regulation and not a quirk of the bank so make sure you are staying within the limits of this rule, otherwise you should look at using just a regular checking account.

Money Market Deposit Account:

These are glorified, easy access, savings accounts. You will typically see these marketed as a savings account with a check card. Keep in mind though that these are still savings accounts and are subject to the 6 transaction limit. While that limit does not apply to ATM transactions it does apply to other forms of electronic transfer/payment. If you need a checking account get a checking account, if you need a savings account then get a savings account. Do not try to mix the two together, it will just confuse you and make things worse.

Time Deposit (CD):

This is where you agree to deposit a specified amount of money for a specified amount of time. If you choose to withdraw your money prior to reaching the agreed upon maturity date you risk losing some or all of the interest earned on your initial investment. These types accounts typically show up in the US as Certificates of Deposit (CDs). In order to maximize the return on investment and minimize the amount of time before you can access your funds people will build a CD Ladder. Time deposit accounts are a great way to earn more with your stagnant money without significantly increasing your risk and playing the  stock market.

This is the first of a multi part Back to the Basics series. I plan to cover remedial personal finance topics which aren’t as sexy, or typically covered, in the personal finance blogosphere. My hope is for people to get a better understanding of basic personal finance without boring you to death, hopefully you will be able to share these posts with family and friends to get them into personal finance and have a good foundation of knowledge.

Photo: (The Consumerist)

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