Banks offer different types of accounts to serve different needs of customers. Depending on your financial goals, it is important to choose an account that allows you maximize your savings, minimize fees and manage money conveniently.
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If you are looking to increase your savings or just looking to park your money safely as well as increase short-term savings, then here are four types of accounts you must consider:
If you want to access money frequently to carry out business or daily transactions, you can opt for checking accounts. Checking accounts are one of the basic facilities offered by banks. In India, checking account is known as ‘current account’. Checking accounts are very liquid and can be accessed through cheques, automatic teller machine and electronic debits. These accounts are mostly availed by businessmen as single or joint accounts, due to a large number of transactions, they carry out on a regular basis.
The Best checking accounts are those that can be availed with minimal fees and provide services through a wide network of ATMs.
With Checking accounts, you have the benefit of paying for goods and services through cheques and debit cards. However, money in the current account earns no interest. So, if your goal is to earn interest on your savings, invest your money elsewhere.
SEE ALSO: 5 Different Types of Bank Accounts
Savings accounts work just like checking accounts. The savings account offers liquidity that allows customers deposit and withdraw money as per their requirements. A saving account is opened to set aside money that is not required immediately.
You can access savings bank accounts through an online management system, with debit cards and ATMs. Savings accounts have a limit on the number of transfers per month and have certain limitations on the number and amount of withdrawals each day.
A good savings account offers easy access to your money and requires minimal fees to maintain the account. The interest earned on these accounts is determined based on the minimum average balance maintained in the account.
Currently, most of the banks offer interest rate of 3% to 4% a year, on daily or saving bank accounts, which is usually higher than checking accounts. A Savings account proves to be instrumental in helping your money grow, along with the much required liquidity.
A certificate of deposit is a savings instrument and is similar to a fixed deposit. Like a fixed deposit, the money deposited in the certificate of deposit cannot be withdrawn before maturity. So, while savings account and the checking accounts offer liquidity, certificate of deposit holds your money for a certain period of time. These deposits have a fixed maturity date and a specified rate of interest. Typically, CDs with longer maturity period earn a higher interest rate.
Certificates of deposit are a financial instrument which you can purchase, to grow your money over a pre-specified tenure. The tenure ranges from 3 months to 10 years, enabling investors deposit money for a time period according to investment requirements. The certificates of deposit are one of the safest investments, as they have sovereign guarantee and are issued by scheduled commercial banks and some select financial institutions in India and are also monitored by the RBI.
Unlike savings/checking accounts, the certificate of deposits cannot be accessed whenever required. You are likely to be penalised for premature withdrawal. Another downside you must consider before investing in Certificate of deposits are it requires a minimum amount to open a CD which creates a barrier for investors to invest in CDs.
A money market account is an interest-bearing account, which pays interest on deposits based on the current interest rates prevailing in the money market. Money market accounts combine the features of savings/checking accounts. With a money market account, you enjoy certain benefits like interest on deposits, easy access to your money as well as the ability to write cheques. A money market account allows you earn more interest than a savings/checking account.
However, there are some downsides that you must consider, before investing in money market accounts. These accounts usually require a relatively large minimum balance. You have access to cash in money market accounts, but there are transaction limits.
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