Contributed by cPort
A credit union or bank is the safest place to keep your money. Money kept in a credit union or bank is insured, will not get lost, and the bank keeps an accurate record of the amount in the account and of all transactions. There are different types of accounts, and each has many benefits. Below are the primary types of banking accounts.
Checking accounts are for keeping money used to pay for day-to-day things, such as utility bills, rent, mortgage, and items like food and gas. Many people have their employers deposit their paychecks directly into their checking account, sometimes called direct deposit. A checking account is ideal for money that will be flowing in and out. The term “Checking Account” comes from a piece of paper called a “check,” which instructs a bank to pay money to a person or company from one’s account. Checks have been in common usage for years, however there are additional ways to access and use money kept in a checking account. For example, “tellers” (people who work at financial institutions) can help account holders complete financial transactions in person. People can use debit cards (plastic payment cards issued by the financial institution) to pay with money from a checking account to complete purchases in stores, restaurants, or online. Many people use debit cards at automatic teller machines (ATMs) to withdraw cash and make deposits. Finally, checking accounts can be linked to peer-to-peer payment apps to make payments to friends and family.
People put money in a savings account when they want it to accumulate interest over a period of time. Savings accounts are ideal for holding cash that an account holder might need in the future, like an emergency fund. This money is not for everyday purchases, since many savings accounts pay interest and the value will grow over time if left alone. The amount of interest depends on the financial institution and market rates. A person can also use a debit card to access money from a savings account at an ATM, or can visit a bank teller in person to transfer money from savings into their checking account. They can also use the debit card from a savings account to make purchases.
Several types of savings accounts go beyond the most basic version. Money market and certificate accounts are for those who want to earn more interest on their money. Individual retirement accounts (IRAs) are for retirement savings. Health savings accounts (HSAs) reserve money for medical-related costs. Savings clubs are specific, goal-oriented savings for purposes such as travel, wedding expenses, or college costs. Some of these savings accounts have restrictions on withdrawals, or on how the money can be spent. They also offer benefits. For example, a restriction on HSAs is that funds must be used only on qualifying medical expenses. A benefit of an HSA is that they are not taxed. Certificate savings accounts typically offer a higher interest rate than a basic savings account, however the funds need to be left in the account for the entire term of the certificate and cannot be withdrawn without a penalty. Some banks and credit unions offer a Save Up certificate of deposit. These allow people to deposit more money into an account at any time, however early withdrawals still can’t be made without a penalty – this encourages saving.
Credit union and bank accounts can be used strategically to help account holders reach their financial goals. Opening two separate checking accounts – one for bills and one for spending – is one way to help ensure that basic necessities are covered before spending other money. Or one account could be used to save for recurring expenses such as school tuition, or a larger goal like a car or house. Tucking money away in a savings account with restrictions on when withdrawals can be made without penalty makes a person less likely to take the money out unless it’s for the reason they started saving in the first place.