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Checking
Accounts
With a checking account you use checks to withdraw your money
from the account. You may use checks to pay your bills, purchase
products and services (at businesses that accept personal
checks), send money to friends and family, and many other
common uses. You can also use checks to transfer money into
accounts at other financial institutions. You have quick,
convenient, and, if needed, frequent-access to your money.
Typically, you can make deposits into the checking 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 checking 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.
Money
Market Accounts
Most institutions offer an interest-bearing account that allows
you to write checks, called a money market account. This type
of account usually pays a higher rate of interest than a checking
or savings account does. Money market accounts often require
a higher minimum balance to start earning interest, but they
frequently pay higher rates for higher balances. Withdrawing
funds from a money market account 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 money
market accounts.
Savings
Accounts
With savings accounts you can make withdrawals, but you
do not have the flexibility of using checks to do so. As with
a money market account, 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.
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 certificates
of deposit 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 certificates of deposit. Often certificates of deposit
renew automatically. Therefore, if you do not notify the institution
at maturity that you wish to take out your money, the certificate
of deposit will roll over, or continue, for another term.
Basic
or No Frill Banking Accounts
Many institutions offer accounts that provide you with
a limited set of services for a low price (often referred
to as "basic" or "no frill" accounts). Basic accounts give
you a convenient way to pay bills and cash checks for less
than you might pay without an account. They are usually checking
accounts, but they may limit the number of checks you can
write and the number of deposits and withdrawals you can make.
Interest generally is not paid on basic accounts. Compare
basic and regular checking accounts for the best deal in low
fees or low minimum balance requirements.
Credit
Union Accounts
Credit
unions offer accounts that are similar to accounts at other
depository institutions, but have different names. Credit
union members have "share draft" accounts (rather than checking),
"share" accounts (rather than savings), and "share certificate"
accounts (rather than certificate of deposit).
 
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