Understanding Different Types of Bank Accounts

Special bank accounts. You know what I mean - any bank account that isn't a checking account. Savings accounts, certificates of deposit (CDs), and money market checking accounts to name a few. There isn't any big secret as to what they are, but if you don't understand them, then they probably won't work for you.

Savings accounts are the simplest way to save money. This basic account is opened with a minimum balance set by each individual bank. There are usually exceptions for minors such as a lower or no minimum balance to open.

Interest is paid quarterly (every three months) and if you overdraft, a service charge will be deducted from your account. Often a service charge is higher than any interest you would have earned during the same period.

A certificate of deposit is commonly called a CD. No, not a musical CD, or I'd be a much richer person today if that were true. It is truly a certificate. You are given a document stating how much money you put into it, the time period the bank will hold the money, and the quoted interest rate. You are not sent quarterly interest statements. What you do receive is a notice approximately 10 days before the CD is due. A CD is due when the stated time period is over. If you do not respond, the CD will automatically be renewed for the same time period, but not necessarily the same interest rate. You typically have 10 days after the CD was due to respond. If you withdraw the money before the time period is up, the service charges are quite large. There are exceptions for withdrawals such as proof of hardship (loss of job), house purchase, etc. Check with the individual bank for their rules.

Money market checking accounts are just that - a checking account, except that they have the benefits of a savings account. You are limited to a certain number of checks per month, usually under 10. The key to the money market is the savings aspect. The interest rates earned are much, much higher. However, you need at least 1500 dollars to open one. This is an excellent place for your emergency fund, which we will discuss in a future article.

With all this in mind, I am tired and so should you! Your brain will be suffering from too much information syndrome. Just kidding there isn't any such thing, but sometimes I wonder. As with everything, start small! A savings account first and then build upon that.

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