There are many features you need to consider when working out how to find the best bank for you. These include things such as the bank location, customer service, etc. We'll look at each of these in turn, but we'll start with account type.
If you want a certain account type, you need to make sure that the banks you are looking at offer the account type you want. They may be the best bank in every other respect, but if they don't have the account type you want, you better forget them and keep looking at other banks.
There are many different types of account. It's not possible to cover all types of accounts, offered by all banks, in all parts of the world, but we'll look at the most common account types and their advantages and disadvantages.
Note that some banks may use different names for these account types.
1. Savings Accounts
Banks may offer several types of savings accounts, but they generally have the following features in common:
- They allow you to make deposits and withdrawals, although they sometime place limits on the number of transactions allowed in a month.
- They often do NOT give you the ability to write checks. If writing checks is important to you, make sure you check whether the banks you are considering offer this.
- They are normally intended to give you an incentive to save money, resulting in higher interest rates than some other types of accounts (such as a checking account).
- You sometimes have a choice between: a) a passbook, where you can record all your transactions; and b) a statement, which is mailed to you periodically, showing all your transactions. While a passbook gives you greater control, a statement is more convenient.
- Be careful about fees: there are many types of fees, sometimes hidden, such as a fee applied when your balance falls below a specified minimum or you pass your monthly transaction limits.
2. Regular Checking Accounts
Checking accounts offered by banks will obviously vary, but they have generally have the following:
- They normally have lower fees, but as a result, provide just the basic set of features.
- By definition, they give you the ability to write checks.
- They often do not pay any interest at all.
- As with savings accounts, be careful with fees. There are sometimes fees related to limits on the number of checks you can write within a month or to minimum balances.
- Some banks offer the facility to link checking accounts with saving accounts, to offset the minimum balances.
3. Interest Bearing Checking Accounts
As well as the regular checking accounts discussed above, most banks offer a checking account which has more features. Here are some of the features normally offered:
- They usually allow you to write as many checks as you like (ie unlimited checks)
- They normally higher fees than a regular checking account.
- By definition, they pay interest.
- The higher your balance, the higher the interest you earn.
- They often require a minimum balance to open an account.
- There are normally fees related to to a minimum balance.
Note: If you can keep your balance high, consider a Interest Bearing Checking Account. If you can’t keep the balance high, then go with the Regular Checking Account. Otherwise, the interest earned may not cover the fees!
4. Express Checking Accounts
In addition to the checking accounts mentioned above, there are also Express Checking Accounts, which are aimed at people who don't normally go into the branch.
- They usually offer unlimited check writing.
- They usually don't have a high minimum balance requirements.
- They have no (or low) monthly fees.
- However, visits to a teller will incur a high fee.
4. Money Market Deposit Accounts
A combination savings / checking / investment account, which usually has the following features:
- They require a high minimum balance to open an account.
- You need to maintain a higher balance to avoid fees.
- Your balance is invested in short-term debt such as Treasury Bills.
- They offer a higher interest rate than checking or savings accounts, but interest rates can vary (based on market conditions).
- There are often limits on how many checks you are to write and how many transactions you can perform.
- There will almost certainly be a fee if your balance falls below a specified amount.
5. Certificates of Deposit
Also known as time deposits, certificates of deposits are accounts where your money is ‘locked away’ for a certain amount of time (anywhere from several months to several years). Common features include:
- They offer high interest rates (the longer your money is ‘locked away’, the higher the interest rates).
- They have a substantial penalty if you decide to withdraw your money early (ie before the CD matures).
- Some banks allow you withdraw the interest before the CD matures.
6. Other Account Types
There are of course many other types of accounts, but we cannot cover them all. One type account that is becoming more common is the internet bank accounts (not just internet access to your normal account - actually a separate type of account). We'll cover these types of account as a separate topic sometime in future.