Banking: Savings Accounts, Checking Accounts, ATM Accounts, and More
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For the most part, banking accounts most people sign up for can be considered a form of investing: a bank temporarily holds a person's money to let it grow. Aside from the advantage of gaining extra when depositing into a bank, the funds there are also liquid, or easily convertible to cash whenever the need arises.
It also becomes a resource for potential borrowers who approach these financial institutions. For now, we are concerned with the depositor, or the person who wishes to save his/her money for a rainy day.
Most banking accounts people deal with are called deposit accounts. Here are the most common types of deposit accounts:
Savings Account
A savings account or savings deposit lets people save money by depositing into such an account—that is its primary purpose. Other secondary activities such as using the current balance inside that account may seem a bit more cumbersome than other accounts (such as checking accounts) since one cannot easily use the existing funds to pay for purchases. Instead, one has to withdraw the desired amount first, often at the bank itself. Withdrawal may be made by the owner of the account or another authorized individual. On the other hand, a savings account can be owned by more than one person. Most of the time, savings accounts need to have a minimum balance; sometimes funds must not be withdrawn until a certain date. Such accounts also let you earn based on an interest rate for that account, or even in dividends.
Checking Account
A checking account or checkable deposit is characterized by the ability to withdraw funds by a check, which is a negotiable instrument that guarantees a certain amount of money can be obtained from the person or legal entity that gives it out. The payee (to whom the check was addressed) can directly deposit the check at his/her own bank account. He/she can also convert the check into cash at the bank that issued it. Like most bank accounts, interest can also make your checking account earn more.
ATM Card
Accounts that provide ATM cards let cardholders access their money without having to go to the bank to withdraw. Instead, they can find a nearby Automated Teller Machine, even outside of banking hours, and withdraw the cash there. Most ATMs belong to a network that provides higher compatibility among different banks. Aside from withdrawing money, ATMs can also let people pay bills and purchase items (e.g. travel tickets, concert tickets, stamps, lottery tickets, etc.). In certain places, ATM cards are also called debit cards.
Debit Card
A debit card deducts the cash from its owner's bank account (whether savings, checking, etc.) every time it is used to pay for purchases. For certain merchants debit cards are considered more convenient and less costly than paying with checks. Online (or Direct) debit cards have transactions reflected in a person's account almost instantly and allow one to check whether there are sufficient funds to make a purchase. Offline (or Deferred) debit cards resemble credit cards more closely since they are subject to a daily limit and maximum limit in spending, and it takes a few days before the amount deducted reflects on the account.
Time Deposit
A time deposit account, also known as a term deposit, essentially assumes that deposits are meant to be held for a long period of time (generally at least 30 days). If one wishes to withdraw before the end of that term, he/she must notify the bank, usually in advance, and specify when he/she plans to withdraw. There may also be penalties for withdrawing in advance.
A common type of time deposit especially in the U.S. is the Certificate of Deposit (CD). Money deposited in CDs is not as easily accessible as in savings accounts, since the purpose of CDs is to hold your money until maturity. As a "reward" for letting that money stay elsewhere, untouched, you can expect higher interest rates for them. CDs are fixed term deposits, and usually, so are the interest rates. Of course, if you do withdraw before maturity, you'll have to pay the penalty. Trends regarding interest rates are familiar: higher APR equals higher earning; higher principal equals a higher interest rate; longer CD term equals higher interest rate.
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