Types of Accounts - Part I

There are 4 basic types of bank accounts - checking accounts, money market deposit accounts (MMDA), savings accounts, and time deposits (certificates of deposit, CD). Because the banking industry in the U.S. is so highly competitive, each bank varies as to the types of accounts they offer and what they offer within in each type of account. For example, one large bank in the U.S. now offers 5 different varieties of checking accounts. They have regular checking accounts, checking accounts for students, checking accounts for older people, checking accounts that give many bank services for free if you keep a certain minimum amount deposited all the time, and checking accounts that don't require a minimum amount of deposit but give a few services for free.

Checking accounts are the most popular type of bank account in America. This gives you the quickest access to your money and you can write checks to withdraw your money, pay for bills, and buy goods and services. Often you also receive a debit card, check card, or ATM card with the account to use to pay for goods and services electronically. Depending on the bank and the type of checking account, you might be limited to the number of checks you can write each month before you are charged a fee for each check processed. Some banks may charge you a fee every month if your account balance falls below a certain level. Some banks may charge you a fee no matter what the balance. When you run out of checks and have to have new ones printed by the bank, you will probably have to pay a fee for that. The bank may pay you an interest rate each month for the amount of money you have in your account. This type of bank account is for the day to day life in America.

Money market deposit accounts (MMDA) are accounts for keeping larger balances of money and pay an interest rate each month on the amount of money you have in your account. They will pay a higher interest rate than a checking account that pays an interest rate. And you usually can also write checks from this type of account although most banks restrict you to a very low number of checks each month, sometimes only 3, after which they will charge a high fee of some type for each excess check written. They may restrict you as to the number of times you move money from these accounts to another type of account. In addition, some banks may charge you other types of fees on this type of bank account. This type of bank account is for someone who usually already has a checking account but has excess money they might need to use later but for now would like to keep someplace else to earn a little more money on interest rate than a checking account might pay.

A savings account is really just for that - saving money. It usually pays a higher interest rate than a MMDA but does not allow you to write checks. And they usually will limit the number of times you can transfer money out of this account as well as charge other types of fees for services. This type of account is good for someone who perhaps has a little more money than they would use for a MMDA, who doesn't need to use that money anytime soon, and would like to earn a higher interest rate than they would get on a MMDA.

Background
Types of Accounts - Part I
Types of Accounts - Part II