What Are the Best Types of Bank Accounts?
Opening the right type of bank account can be the first step to a successful financial future, but the process is complicated by the fact that most banks and credit unions offer many different types of accounts. Many of these accounts offer features that others lack, but also have potential drawbacks. The best bank account for you is one that fits your spending and savings needs while allowing you to take control of your money and earn interest whenever possible.
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Insured Accounts
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The federal government insures the balance of some bank accounts through the Federal Deposit Insurance Corporation (FDIC). The FDIC insures most regular bank accounts up to a limit of $250,000 per account. In the event of a bank failure, the FDIC will pay depositors the full value of their accounts up to this limit. Depositors with more than $250,000 can spread their money between multiple accounts to ensure that all funds are covered. FDIC insurance extends to checking and savings accounts at most banks, as well as some retirement accounts and certificates of deposit (CDs).
Interest Bearing Accounts
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Some bank accounts earn interest, which allows them to serve as safe investments for depositors. Savings accounts usually earn a low level of interest, while checking accounts -- if they earn interest at all -- likewise usually feature low rates. CDs, which require depositors to wait until a specific time to withdraw their money, pay higher interest. Interest bearing accounts are useful for long-term investing, and are also a way to make money by depositing your income until you need to spend it.
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Checking Accounts
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Checking accounts are best everyday use. Despite the prevalence of online bill payment systems, some organizations still only accept personal checks or money orders as payment. A checking account may also come with a debit card, which allows you to spend with the convenience of a credit card but with less risk of overspending. The versatility of paper checks and a debit card make checking accounts better than savings accounts for daily purchases.
Joint Accounts
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Joint accounts, which allow two or more people to be named in the account and make transactions to or from it, are best for certain circumstances. For example, a married couple can use a joint account to make purchases or write checks for shared expenses. Additionally, a parent can set up a joint checking account with a child who goes to college or moves away, giving the parent the ability to add funds to the account as needed without mailing a check or paying for a wire transfer of cash.
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