How to find the right bank account for you

"Savings, remember, is the prerequisite of investment"
Campbell McConnell, Economics author

Checking accounts are the basis for your everyday life and help you along with your credit card account to pay your daily life. Saving accounts help you to save money with at least some interest rate. Alongside these accounts that most people have, there are other options like money market accounts, certificates of deposit. Find out more in this article.

Bank account plans

Which different accounts are there?

There are different kinds of accounts that you can have at a bank. The following list will give you the details:

  • The most fundamental account is the checking account which is also known as a transaction account. The checking account is the account that you use to pay your bills and receive your salary. Checking accounts have low interest rates and are used for the daily business. They are not an actual instrument for investing but necessary.
  • A savings account allows you to deposit money, keep it safe and earn interests. Even though interest rates are very low, some savings accounts offer higher rates than others.
  • A money market account pays interests based on the current interest rates in the money markets. Money market accounts should not be confused with money market funds which are mutual funds that invest in money market securities.
  • Certificates of deposit are insured by the bank and therefore nearly risk-free as the previously mentioned accounts. Certificates of deposit have a fixed term (the so-called maturity, ranging from one month to five years) and usually a fixed interest rate. The customer usually holds the certificate until the end of the maturity and receives the invested money plus the accumulated interest.
  • Credit card accounts offer you credit cards that facilitate your payments in everyday life. As mentioned in the Academy, do not finance your life on debts, build savings instead and start investing. Also, do not loan money to invest as this might get you into trouble when markets go down and you have to pay back your debt.

How do I choose my bank account?

When choosing your bank account(s) there are several criteria to take into account. For example, are you aiming at the lowest cost / highest interest or at the easiest way to manage your account, meaning to stay with all accounts at the same bank? Also, one might only want to use the bank account online, another prefers to have access to a local branch of the bank. As there is no limit to the number of accounts, everybody has to decide based on his own preferences. If you have your accounts at the same bank the management is easier. However, if you are tempted to use your savings account for daily expenses, you are probably better off choosing different banks.

The most commonly used accounts are checking and savings accounts. As they are a bit different, we will distinguish them in the following. However, we start with some general things to keep in mind.

  • Technology: Determine the features of the different banks that they offer online and in their mobile apps, e.g. the ability to transfer money easily to friends and family, budgeting tools or automated savings plans.
  • Safety: Usually bank accounts are insured. Make sure your preferred bank has the respective insurances and know the limits well. Usually, banks are insured up to an amount of $250,000. If you want to save more than this in an account, open another account at a second bank.

For your Checking Account you should consider the following criteria:

  • Monthly Fees: A bank can charge monthly or annual fees for an account. However, there are many banks that offer free accounts.
  • ATM withdrawal fees and accessibility: You should be able to withdraw money from ATMs for free. This can either happen through a bank with a good ATM network or through an online bank that reimburses the fees that occur when you use the ATM of another bank.
  • Overdraft fees: You should be aware that there are overdraft fees. You should not run your checking account on the last penny, however, if you know that you run short sometimes make sure the fees are not too high.
  • Transfer fees: You should be able to do as many transfers to accounts as other banks but also between savings and checking accounts if you have them at the same bank.
  • Minimum Balance Requirement: Some banks require a minimum balance. This will lock-up your money at no interest rate, you should not consider a bank that has a minimum balance requirement.

For your Savings Account you should consider the following criteria:

  • Interest Rate: The interest rate is the major criterion for the choice of your account. However, the rate will not vary hugely, but especially in this situation, you should take care of it.
  • Liquidity: Meanwhile you do not want everyday accessibility very easily as you might be tempted to use that money, you would want to have quick access in case of an emergency.
  • Transactions and low balance fees: Avoid accounts that charge you special fees
  • Sub Accounts: You might want to save for different goals (and therefore also have different Investment Canvases). Maybe one is for long-term goals like a house, another is for emergency and another one for the next vacation. Therefore, sub-accounts might help you to keep the order of your savings.

Summary

Basically, everybody needs a checking account for daily life. Also, credit card accounts are a usual and handy thing to have. Savings accounts help you to save for your goals. Even though they are a very safe investment instrument, returns are very low at the moment. Money market accounts and Certificates of deposit might offer more returns and are very safe too. However, they are not as frequently used.