Welcome to Wealthy Saturday. Many of us wish to save money to prevent unnecessary spending. Banks provide a variety of options for you to save. And today we are here to share the basics of banks and the type of account.
Importance of Banks
The bank is an industry based on finance that handles the facilities of credits, investments, and cash storage. Also, it provides services of loans, safe deposit boxes, currency exchange, transactions, and managing bank accounts. They act as a link between the depositors and borrowers because the deposited funds are used to offer loans for the borrowers. The banks make money by charging an interest rate on loans.
The goal of banks is to earn profit and they get their profit through charging a high-interest rate more than paying it to the deposits of customers. For example, if the bank charges 5% interest rate on loans, and pays 1% interest rate to the deposited account where they earn 4% interest rate as a gross profit. They usually hold 10% of each deposit and provide the remaining 90% as loans. But both the customers and businesses get benefited by banks and so it is known as an important part in the economy.
Type of account to choose
The bank provides various types of accounts and benefits through them. Let’s have a basic idea of each account to make better and suitable choices.
- A savings account is safe to keep the money and helps in earning a small amount of interest. The cash can be withdrawn whenever needed. Because of its easy access to the funds, it is a good option to save cash for a short period of time or for the need of emergencies. The rate earned on saving accounts is varied, where the credit unions and the banks can increase and decrease the rate of saving accounts at any time. In a savings account, the need to access funds is extremely liquid where there’s no need of paying penalties for quick withdrawals. It is also fast and easy to set up and is linked to the primary checking account. More than one saving accounts can be created.
- Checking accounts are liquid and can be withdrawn using checks, electronic debits, and automated teller machines. Unlimited withdrawal and deposits are allowed but checking accounts don’t provide the holders any interest. Checking accounts can include business accounts, student accounts, joint accounts, and many other accounts. Bank branches or financial institution websites can be used to set up a checking account. This also helps in getting access to additional services based on finance by the banks.
- A money market account is an interest-bearing account where most of them pay high interest rate than the regular savings account, but there are more imposed restrictions. They are offered at traditional and online banks. The money market provides higher interest rates, insurance protection, and the privileges of debit cards. The bank will require the customers to deposit and keep an account balance above a level and if failed monthly fees will be imposed. But it allows limited transactions.
- Certificate of deposits is offered by banks and credit unions. This requires the customers to deposit and maintain a lump sum of money untouched for a determined period of time. And accordingly, a fixed interest rate is paid on the amount. The offer and terms of the certificate of deposits depend on each bank. They are safer and conservative while offering a guaranteed rate of return. But it provides a lower opportunity for growth. Before opening a certificate of deposits make sure to look at the interest rate, principals, institution, and its terms. If the money is needed to be safer for a longer period and if you have the intention of earning more than the savings then it is a better option to open a certificate of deposit.