The All in One Guide to Banking Accounts for Newbies

The All in One Guide to Banking Accounts for Newbies

Are you thinking about opening a new bank account, but all the different choices have you stressing out?

Perhaps you have bad credit, but you still want to get the tremendous budgeting benefits that a savings or checking account provides. Maybe you want a bank account, so you can build an emergency fund in case you ever need it.

If you want to learn about how to find the right bank account, so you can manage your money correctly, then this guide is for you! In this guide, you’ll also discover the critical differences between a savings account and a checking account.

You’ll also learn about different types of banking accounts, so you can choose the perfect account for you and your family, even if you’ve never had a bank account before.

How to Choose the Perfect Bank Account for Any Situation

Choosing the right bank account is a critical step for your money management. You may also know how daunting it is when you don’t have a bank account and don’t know which type of account would suit your financial situation or needs.

The best advice is to remember that for most situations, a checking account or a savings account should be enough for your money management needs.

Before we break down the advantages and disadvantages of savings vs. checking accounts, let’s briefly talk about the four most common types of bank accounts.

Types of bank accounts:

  • Checking Accounts
  • Savings Accounts
  • Certificate of Deposit (CD)
  • Money Market Accounts

All About Checking Accounts and How They Work

If you don’t have a bank account right now, then the easiest and fastest way to get started in the world of banking is through a checking account. Checking accounts grant you easy and quick access to your money. There are several ways that you can send and receive money through your checking account. If you want ease, speed, and convenience, then a checking account might be ideal for you.

Checking accounts are perfect for everyday transactions that you frequently use, such as shopping and paying bills. If you have started a new job, and you need to cash checks or accept deposits, then you can easily accept payments via your checking account. 

Banks you choose may also provide a debit card or ATM card. You can get fast access to cash anywhere there is an ATM in your bank’s network. A debit card can also allow you to process payments online, so you can conveniently shop at your favorite websites.

If you want a new checking account, ask the bank if they offer any online processing so you can send and receive payments online. Online banking is typically a quick and seamless process.

It’s important to note that most checking accounts do not offer much if any interest. If you have a lot of money to deposit into your checking account, then a savings account might be a smarter option.

Advantages of a checking account:

  • Fast and easy way to start banking.
  • Few restrictions on transactions.
  • Easily send/receive payments.
  • Usually, there is a nominal fee.

Disadvantages of a checking account:

  • Checking accounts typically offer low or no interest on savings.

How Do Savings Accounts Work? Are Savings Accounts Better Than Checking Accounts?

A savings account is ideal if you already have money that you would like to deposit and keep in a bank. Savings accounts are perfect for storing your money because a savings account will usually offer you a superior interest rate compared to a checking account.

If you want to store your money safely and securely while gaining interest on your funds, then a savings account has more benefits than a checking account. Whether you have cash from a new venture, existing funds, or money from a personal loan, a savings account can help you to store your cash securely.

One of the significant downsides of a savings account is that there are limits on how frequently you can withdraw savings. A savings account is better for storing your money securely while also earning interest. However, a checking account is much better if you wish to conduct daily transactions and want easy access to your money.

Advantages of a savings account:

  • A secure way to store your money.
  • Usually offers a higher interest rate compared to checking accounts.
  • Often, there is a nominal fee.

Disadvantages of a savings account:

  • Set limits regarding how frequently you can withdraw your money.

What About Certificate of Deposit (CD) Accounts? 

A certificate of deposit (CD) is a special bank account that is perfect if you wish to store your money long-term. If you have some savings laying around and you don’t need it anytime soon, then a CD account might be a genius consideration.

The purpose of a CD is to invest your money for a set interval of time. During that time, your money accrues interest. A CD typically offers much higher interest than any other type of savings account. 

The main disadvantage of a CD is that your money is “locked-in” for a set period. If you decide to withdraw any of your money before your agreement terms, then you will incur fees.

Advantages of a certificate of deposit (CD) account:

  • Usually offers a much higher interest rate compared to other saving accounts.

Disadvantages of certificate of deposit (CD) account:

  • If you withdraw your money before your agreement terms, you incur penalties.
  • A high balance requirement may exist for new accounts.

Let’s Also Look at Money Market Accounts

A money market account is like a checking account. 

One of the significant advantages that a money market account has over a checking account is that often a money market account offers higher interest on your savings. So, if you have lots of money to deposit, then a money market account might be a better option than a checking account.

One limitation of a money market account is that your account may have transaction limits. If you intend on having many transactions per month, then a checking account is a better choice.

If you do choose a money market account, ask any potential bank if you can write checks with your money market account. Ask if they offer any debit card options. Each bank will provide a different set of features and benefits, which are always essential to understand.

Advantages of a money market account:

  • Usually pays a slightly higher interest rate than a checking account.
  • May include the ability to write checks.
  • May consist of the ability to use debit cards.

Disadvantages of a money market account:

  • Usually limits the number of transactions per month.
  • May have a higher balance requirement for opening an account.
  • May incur fees.

A Savings Account or a Checking Account is Probably Your Best Choice!

Choosing a new bank account can be a stressful endeavor. Especially if you already have debt, or any credit cards, or are otherwise new to the world of banking.

Thankfully, there are many easy and affordable options to get started without any pressure or frustration.

Consider if you want to use your bank for standard everyday use such as online purchases, grocery shopping, paying bills, or cashing and writing checks. For such everyday occurrences, a checking account is your best option.

A savings account is the better option if you have a decent amount of money to deposit. Remember, that a savings account will usually give you better interest, though there is a limit on the number of transactions.

Another great option is to open a checking account alongside a savings account. That way, you can use your checking account for your typical everyday use. You can also transfer some of your money over to your savings account so you can get a better deal on interest.

Now that you understand different bank account types, you can proceed with confidence to your favorite local bank or explore online banking options.