What types of accounts do banks offer? - I

People use banks for different purposes. Some have extra money to save; others need to borrow. Some need to manage their household finances; others need to manage a business. 

Banks help their customers meet those needs by offering a variety of accounts. Savings accounts are for people who want to keep their money in a safe place and earn interest at the same time. 

You don’t need a lot of money to open a savings account, and you can withdraw your money easily. Certificates of deposit (CDs) are savings deposits that require you to keep a certain amount of money in the bank for a fixed period of time (example: $1,000 for two years). 

As a rule, you earn a higher rate of interest if you agree to keep your money on deposit longer, and there is usually a penalty if you withdraw your money early. Individual retirement accounts (IRAs) are savings deposits that offer an excellent way to save for your later years. 

You don’t have to pay tax on the money you deposit in your IRA until you withdraw it. But there is often a significant penalty if you withdraw your funds before you reach a specified age (usually 59 or older). Checking accounts offer safety and convenience. You keep your money in the account and write a check when you want to pay a bill or transfer some of your money to someone else. If your checkbook is lost or stolen, all you need to do is close your account and open a new one so that nobody can use your old checks. (When cash is lost or stolen, you rarely see it again.)

 Another attractive feature of a checking account is that your bank sends you a monthly record of the checks you have written, and you can use that record if ever need to prove that you’ve made a payment. Banks sometimes charge a fee for checking accounts, because check processing is costly.