Bank accounts reflect the financial transactions made between the client and their bank. In order to meet different financial needs of customers, banking institutions offer many kinds of federally protected accounts. These accounts are typically grouped into five categories: savings accounts, checking accounts, certificate of deposit, escrow account, and business accounts. By understanding each category, choosing the account type that matches your financial need best becomes easier.

Savings Accounts

Savings accounts are a type of bank account that enables consumers to make deposits and withdrawals. They yield lower interest rates on deposits than time deposits, but they are a great option for individuals who want to establish a financial relationship with an institution.

Most SA requires a minimum deposit and also a maintaining balance; if your balance falls below the minimum, the bank may charge a fee. SAs typically come with a passbook or an ATM.

Checking Accounts

A checking account (also known as current account or transactional account) is more flexible than savings account. Here, customers are not restricted to a specified number of withdrawals or amount to be withdrawn per day. They can withdraw as many times as they want, so long as they have sufficient funds in their account.

Paper checks are the primary mode of withdrawal, but transactions can also be made through a debit or ATM card. You can use the check to pay bills, loan out money, make purchases, or transfer money to a different bank account. A checking account, however, doesn’t earn interest. High fees are also slapped to your account if you fail to maintain the required balance.

Certificate of Deposit

CD is also more popularly referred to as time deposit. This type of account requires the depositor to leave the fund untouched in the account for a predetermined amount of time. It could be three months, one year, six years, etc., as you prefer. Because the money is inaccessible, CDs are rewarded higher interests than other types of bank account. If you withdraw the money before the specified term ends, however, your savings will incur substantial penalty fee.

Escrow Account

An escrow account is a trust account held by a third party (called escrow agent) in behalf of the borrower. The escrow account is required by lenders to protect their investment by ensuring that the borrower pays their insurance and property taxes on time.

Business Accounts

The IRS requires that business owners separate their personal finances from business finances. When it comes to banking account, a business owner has many choices. There’s one to match every need. Merchant account is for those who want to accept online payments through credit cards, debit cards, Paypal, or other non-cash payments. Payroll account makes it easier to pay employees and keep track of the amount paid to them. Accounts payable automatically make scheduled payments to the accounts of creditors whom the business owner owes from. Receivable account, on the other hand, is a listing of accounts of other businesses who owed money from the business; the money they pay is directly deposited to the business’ checking account.

Sources:

• share-economy.org/green/money/major-types-of-bank-accounts.html
• www.foreignborn.com/self-help/banking/3-acct_types.htm