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Banking
Types of Accounts Typically Offered by Banks
by InvestorGuide Staff (Write for us!)
(Click on a link within the article to get a definition of that word)
Sometimes also called "no frills" accounts, these offer a limited set of services at a lowcost. You'll be able to perform basic functions, such as check writing, but they lack some of the bells and whistles of more comprehensive accounts. They usually do not pay interest, and they may restrict or impose additional fees for excessive activity, such as writing
more than a certain number of checks per month.
Interest-Bearing Checking Accounts
In contrast to "no frills" accounts, these offer a more comprehensive set of services, but usually at a higher cost . Also, unlike a basic checking account, you are usually able to write an unlimited number of checks. Checking accounts which pay interest are sometimes referred to as negotiable order of withdrawal (NOW) accounts. The interest rate often depends on how large the balance in the account is, and most charge a monthly service fee if your balance falls below a preset level.
These accounts invest your balance in short-termdebt such as commercial paper, Treasury Bills, or CDs. The rates they offer tend to be slightly higher than those on interest-bearing checking accounts, but they usually require a higher minimum balance to start earning interest. These accounts provide only limited check writing privileges (three transfers by check, and six total transfers, per month), and often impose a service fee if your balance falls below a certain level.
Certificates of Deposit (CDs)
These are also known as "time deposits", because the account holder has agreed to keep the money in the account for a specified amount of
time, anywhere from three months to six years. Because the money will be inaccessible, the account holder is rewarded with a higher interest rate, with the rate increasing as the duration increases. There is a substantial penalty for early withdrawal, so don't select this option if you think you might need the money before the time period is over (the "maturity date").
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