What Types Of Deposit Accounts Are Available? - SAVING TIPS
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SAVING TIPS: What types of deposit accounts are available?
Depository institutions may offer a great variety of accounts, but they generally fall within one of these four types: 1. Checking Accounts With a checking account you use checks to withdraw money from the account that you have deposited in it. Thus you have quick, convenient--and, if needed, frequent-access to your money. Typically, you can make deposits into the account as often as you choose. Many institutions will enable you to withdraw or deposit funds at an automated teller machine (ATM) or to pay for purchases at stores with your ATM card. Some checking accounts pay interest; others do not. A regular checking account--frequently called a demand deposit account--does not pay interest, whereas a negotiable order of withdrawal (NOW) account--does. Institutions may impose fees on checking accounts, besides a charge for the checks you order. Fees vary among institutions. Some institutions charge a maintenance or flat monthly fee regardless of the balance in your account. Other institutions charge a monthly fee if the minimum balance in your account drops below a certain amount any day during the month or if the average balance for the month drops below the specified amount. Some charge a fee for every transaction, such as for each check you write or for each withdrawal you make at an ATM. Many institutions impose a combination of these fees. Although a checking account that pays interest may appear more attractive than one that does not, it is important to look at fees for both types of accounts. Often checking accounts that pay interest charge higher fees than do regular checking accounts, so you could end up paying more in fees than you earn in interest. 2. Money Market Deposit Accounts Most institutions offer an interest-bearing account that allows you to write checks, called a money market deposit account (MMDA). This type of account usually pays a higher rate of interest than a checking or savings account does. MMDAs often require a higher minimum balance to start earning interest, but they frequently pay higher rates for higher balances. Withdrawing funds from an MMDA may not be as convenient as doing so from a checking account. Each month, you are limited to six transfers to another account or to other people, and only three of these transfers can be by check. As they do with checking accounts, most institutions impose fees on MMDAs. 3. Savings Account With savings accounts you can make withdrawals, but you do not have the flexibility of using checks to do so. As with an MMDA, the number of withdrawals or transfers you can make on the account each month is limited. Many institutions offer more than one type of savings account--for example, passbook savings and statement savings. With a passbook savings account you receive a record book in which your deposits and withdrawals are entered to keep track of transactions on your account; this record book must be presented when you make deposits and withdrawals. With a statement savings account, the institution regularly mails you a statement that shows your withdrawals and deposits for the account. As with other accounts, institutions may assess various fees on savings accounts, such as minimum balance fees. 4. Time Deposits (Certificates of Deposit) Time deposits are often called certificates of deposits, or CDs. They usually offer a guaranteed rate of interest for a specified term, such as one year. Institutions offer CDs that allow you to choose the length of time, or term, that your money is on deposit. Terms can range from several days to several years. Once you have chosen the term you want, the institution will generally require that you keep your money in the account until the term ends, that is, until maturity. Some institutions will allow you to withdraw the interest you earn even though you may not be permitted to take out any of your initial deposit (the principal). Because you agree to leave your funds for a specified period, the institution may pay you a higher rate of interest than it would for a savings or other account. Typically, the longer the term, the higher the annual percentage yield. Sometimes an institution allows you to withdraw your principal funds before maturity, but a penalty is frequently charged. Penalties vary among institutions, and they can be hefty. The penalty could be greater than the amount of interest earned, so you could lose some of your principal deposit. Institutions will notify you before the maturity date for most CDs. Often CDs renew automatically. Therefore, if you do not notify the institution at maturity that you wish to take out your money, the CD will roll over, or continue, for another term.
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