Essentials of Banking
Before choosing a bank account, you should assess what you hope to gain from the experience. Are you looking to store your money somewhere for a long period of time? Do you need frequent access to your funds? Do you want to earn more money from storing your money in the account? Answering these questions will help you determine the type(s) of account(s) you should open. Here is an overview of your options.
A checking account is meant for storing funds for everyday expenses. These accounts provide easy access to your stored funds in a variety of ways. With your checking account, you can withdraw cash, use a debit card, or write checks to make purchases.
A savings account is a place to store money that you do not need to access regularly but might need in specific circumstances—whether for your spring break trip or an unexpected cost. Often, savings accounts have monthly transaction limits, encouraging you to save your money for when it is truly needed. These barriers may seem prohibitive but they may prevent some of your impulse purchases. Savings accounts often earn interest as well, rewarding you in small increments for storing your funds for an extended time period. Many national banks offer very low interest rates, but some online banks offer high interest rates. Here are some of the best high-yield online savings accounts available, according to NerdWallet.
A money market account is similar to a savings account: it holds money you do not need immediately and offers limited monthly access to those funds. They tend to offer higher interest rates than regular savings accounts. Money markets are different than high-yield savings accounts because they often have a higher minimum balance requirement. Occasionally they offer debit card or personal check features.
A CD is a time-based deposit in which you agree to leave your money with a bank for a specific period of time, during which your deposit accrues interest at a high rate. There is often a penalty for withdrawing your money from the bank before the time period is up. This is a good low-risk option if you have funds that you do not need to access soon and you want them to accrue interest, but you are not interested in investing them in higher-risk market options.
Now that you understand the account options that are available, it’s time to find institutions that offer those accounts. There are a few main types of financial institutions, and they primarily differ on the type of personal interaction they offer.
Traditional banks (sometimes national banks) are large banks that have physical branches in a variety of locations, offering easy access to your accounts no matter your location in the United States. This type of bank is best for those who travel often, or those who want a bank they can access at school, work, and home.
Community banks are smaller institutions that tend to offer a more personalized banking experience for communities in specific locations. Community banks are best for individuals who want to feel a personal connection to their bank. You can search for community banks in your area using this tool, supported by Independent Community Bankers of America.
Credit unions are non-profit versions of traditional banks. They offer the same services but are considered member-owned and collaborative given that profits earned are used to support other members of the credit union. Credit unions are often specific to a local area like community banks. This type of financial institution is best for someone who wants to feel like a stakeholder in their institution and might be wary of big banks.
Online banks operate only electronically and do not have any physical locations. They still offer the same accounts and services as traditional banks. Often online banks will offer lower fees and higher interest rates because they do not have the expense of managing and staffing a physical branch. And because they’re online, you are not limited by typical business hours. Online banks are best for individuals who do not need access to a physical branch.