Advertiser Disclosure

Banking

Understanding the Different Types of Bank Accounts Available

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

When you think about the different types of bank accounts available, checking and saving might be all that comes to mind. But it’s not that simple: bank accounts actually come in many different flavors.

Besides checking and savings accounts, there are also money market accounts, certificates of deposit and retirement accounts — not to mention cash management accounts, which are a hybrid of several different types of accounts.

Confused yet? Don’t be: Here’s what you need to know about each of these types of bank accounts.

Everyday liquidity: checking accounts

A checking account is a type of bank account used for everyday spending, as opposed to long-term saving. You can make an unlimited number of transactions into and out of a checking account, and it’s typically the account into which you’d deposit paychecks via direct deposit. In the past, people accessed their money in checking accounts by writing paper checks or withdrawing cash at a bank, but nowadays most consumers are using debit cards.

Personal Account

Personal Account

APY

1.01%

Minimum Balance to Earn APY

$0.01

LEARN MORE Secured

on nbkc bank’s secure website

Member FDIC

Advertiser Disclosure

We'll receive a referral fee if you click here. This does not impact our rankings or recommendations.

You used to only be able to open checking accounts at traditional brick-and-mortar banks or credit unions. But in recent years, online-only banks have multiplied, offering higher-interest checking accounts than traditional financial institutions due to lower overhead costs. If you’re skittish about using an online-only bank, know that just like brick-and-mortar banks, they are also covered by the FDIC, a government agency that insures funds in bank accounts up to $250,000.

“Ever since the inception of the FDIC in 1933, no depositor has lost a penny of insured deposits due to a bank failure,” said FDIC spokesman Greg Hernandez. “All FDIC-insured banks, whether online or brick and mortar, are governed by the same deposit insurance regulations.”

Long-term money storage: savings accounts

There are several types of bank accounts intended to help you save, from money market accounts to retirement accounts. There are also certificates of deposit, but more on those below. Here’s a comparison of the most common types of bank accounts used to save money.

Conventional savings accounts

The most common one you’ll encounter is a conventional savings account. Since your money stays parked longer than in a checking account, these accounts usually earn more interest, especially if you get an online-only savings account.

Online Savings Account from Barclays

Online Savings Account from Barclays

APY

2.10%

Minimum Balance to Earn APY

$0

LEARN MORE Secured

on Barclays’s secure website

Member FDIC

Advertiser Disclosure

We'll receive a referral fee if you click here. This does not impact our rankings or recommendations

These types of bank accounts are best suited to long-term savings goals, rather than frequent spending. That’s because savings accounts don’t come with debit cards like checking accounts do, so the money isn’t as easily accessible. In addition, due to federal regulations, you can only make six electronic transfers out of savings accounts per month (in-person and ATM transactions are unlimited). So if you need to make frequent transactions, move money between accounts or make ACH transfers often, a savings account might not be the best fit. A savings account is complementary to a checking account, since you can link them and easily transfer money between them, and even use it for overdraft protection.

Money market accounts

Another option is a money market account, which is like a blend of a checking and savings account. Intended as a vehicle for savings, money market accounts usually have much higher interest rates than checking accounts; unlike traditional savings accounts, some money market accounts provide a debit card for transactions.

Money Market Account from earn.bank

Money Market Account from earn.bank

APY

2.46%

Minimum Balance to Earn APY

$0

LEARN MORE Secured

on earn.bank’s secure website

Member FDIC

Advertiser Disclosure

We'll receive a referral fee if you click here. This does not impact our rankings or recommendations

However, just like savings accounts, you’re limited to only six transfers a month due to federal regulations. It’s also important to know keep that some money market accounts may require high balances to open the account or start earning interest, and the amount of interest you earn depends on your balance. In other words, you might not earn a great interest rate until your balance reaches a certain amount.

Health savings and flexible spending accounts

You might also want to save money using a health savings account (HSA) or a flexible spending account (FSA). These types of bank accounts hold tax-advantaged savings specifically for eligible medical expenses, such as doctor visits or prescriptions.

Health Savings Account from Great Lakes Credit Union

Health Savings Account from Great Lakes Credit Union

APY

2.00%

Minimum Balance to Earn APY

$100

LEARN MORE Secured

on Great Lakes Credit Union’s secure website

NCUA Insured

FSAs are offered through employers, and they allow you to set aside pre-tax dollars from your paycheck to pay for qualified medical costs. Any employee can sign up for one, as long as they don’t also have an HSA. The money can’t be invested elsewhere, and you have to use it by the end of each year or you lose it. Also, when you leave the employer, you no longer have access to the account.

HSAs, on the other hand, are only available to those who have a high-deductible health plan. An HDHP is defined annually by the IRS; currently, it means plans with a deductible of at least $1,350, or $2,700 for your family. But the money in an HSA can be invested elsewhere, and it doesn’t expire. This account stays with you, not your employer.

The hybrid option: cash management accounts

Then there’s the cash management account, a type of bank account that combines the best aspects of savings and checking accounts. While accounts like this used to require minimum balance requirements or a minimum amount to open, some financial institutions are now offering cash management accounts without these restrictions.

Aspiration Account

Aspiration Account

APY

2.00%

Minimum Balance to Earn APY

$0

LEARN MORE Secured

on Aspiration’s secure website

These accounts usually let you access money via a debit or credit card or checks, and some let you withdraw money from an ATM, allowing you to use it like a checking account. Some also have Bill Pay services like a checking account. But due to the safety of the investment and healthy interest rate, it’s also a great place to park money for an emergency fund and either long-term or short-term savings.

Low-risk investing: certificates of deposit (CDs)

If you want your money to grow and you won’t need it for a while, a certificate of deposit, more commonly known as a CD, is another savings option. CD interest rates are fixed and depend on the amount invested; the longer the investment term, the higher the interest rate. CDs are ideal for conservative investors, since they guarantee an exact return in a set timeframe.

High-yield 12 Month CD from Goldman Sachs Bank USA

High-yield 12 Month CD from Goldman Sachs Bank USA

APY

2.40%

Minimum Balance to Earn APY

$500

LEARN MORE Secured

on Goldman Sachs Bank USA’s secure website

Member FDIC

When you invest these types of bank accounts, you choose a set time period over which the certificate matures, usually anywhere from six months to five years, though it can be longer. Since the idea is that you won’t be able to access your money during that time, interest rates are typically higher than with savings accounts. In fact, most CDs charge a penalty fee if you withdraw the money before it matures, though there are some no-penalty CDs that don’t ding you for this. However, you should be aware that some CDs require a minimum amount to open.

If you have at least $100,000 to invest, you can purchase a jumbo CD, which might offer a higher interest rate than a regular CD. You might also encounter a step-up CD, which means its interest rate automatically increases at set intervals.

One strategy to maximize CDs is creating a CD ladder. This means rather than keeping all of your money locked up in one long-term CD, you invest in several different CDs to give you more flexibility. Essentially, you stagger your investments into multiple CDs, so you are able to access money more frequently. When each matures, you can either cash out or renew it.

Save for your golden years: retirement accounts

Many workplaces provide 401(k) retirement accounts, but if you’re self-employed or want to save even more for retirement, you can open an individual retirement account (IRA). While this tax-advantaged retirement account comes in several forms, the two you’ll most frequently encounter are traditional and Roth. The key differences are when you get to enjoy the tax break.

With a traditional IRA account, you contribute money that you can deduct that same tax year, and it grows tax-deferred. When you withdraw the money in retirement, you’ll pay taxes on it.

With a Roth IRA, you contribute money you’ve already paid tax on, so you withdraw it tax-free and it might grow tax-free if you meet certain requirements. A Roth is ideal for those who expect a higher tax rate in retirement, whereas a traditional IRA is best if you think your tax rate will be lower in retirement.

Keep in mind that IRAs have many restrictions, such as how much you can contribute and when you can start making withdrawals; you can face penalties if you start taking money too early.

There’s also a lesser-known financial product called an IRA CD. When you invest money in an IRA account, you choose how to invest it; you could purchase stocks, bonds, or in this case, a CD. An IRA CD works just like a regular CD; the main difference is you’re using money in your IRA account to purchase it. The APR on an IRA CDs may be higher than a traditional CDs, and you can do this with a Roth or traditional IRA.

Whether your goals are having a place to collect your paychecks or a way to save for your future — or both at the same time — there are numerous types of bank accounts available that can meet your needs.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Emily Starbuck Gerson
Emily Starbuck Gerson |

Emily Starbuck Gerson is a writer at MagnifyMoney. You can email Emily here

Advertiser Disclosure

Banking

Money Management Tips to Help You Save Successfully

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Increasing your savings is easier said than done. The National Endowment for Financial Education’s most recent annual consumer survey found that saving money is the biggest cause of financial stress for more than 51% of Americans. If you feel the same way about your savings, don’t despair. There’s a way to manage your money instead of letting it manage you.

Top 14 money management tips

Have enough income to cover your monthly expenses, but can’t seem to gain traction when it comes to building a college savings fund, saving for a down payment on a home or growing your retirement nest egg? Start by taking charge of your finances by using these simple, yet practical, money management tips.

1. Use a budgeting app

Tracking your spending on the go is easy when you use a budgeting and personal finance app, like Mint or YNAB. Simply download your app of choice and, if you want to, link it to your bank account. You can then input your fixed and variable expenses and monitor your spending with the swipe of a finger. Keeping your budget within arm’s reach also helps you to stay on top of your daily spending and stick to a monthly budget.

2. Trim unnecessary expenses

Examine your spending habits to determine where you can cut unnecessary spending. Food is a common expense that can be reduced with a little planning. A grocery shopping list can be your first line of defense against overspending, as it’s easier to make impulse buys at the grocery store when you don’t have a shopping list to guide your purchases.

3. Commit to a written savings goal

Establishing a clear savings goal can keep you motivated and put a stop to impulse buys. Make your goal SMART: specific, measurable, attainable, relevant and timely. For example: “I will transfer $100 a month to my savings account so that by Month 20YY, I will have $800 to put toward a new television.” Post your written goal in visible locations to help reinforce your commitment to achieving it.

4. Live below your means

Spending more than you earn is a recipe for financial heartburn. When you have more bills than money with which to pay them, you could be subject to late fees and other financial penalties which make it harder to save. Cancel services you no longer need or can access at a lower cost. For example, nix the gym membership if you haven’t used it in five months or downgrade your cable package to only include the channels you actually watch.

5. Pay off debt

Eliminating debt may allow you to save more money. By bringing your balances to zero as quickly as possible, you’ll save on future interest charges. To potentially save money now, consider refinancing your debt to a lower interest rate or transferring your debt to a credit card with a lower interest rate.

Once your credit cards and loans are paid in full, you’ll have additional funds to contribute toward your financial goals. Use the same amount you were paying your creditors each month and deposit those funds into your savings account.

6. Build an emergency fund

Financial experts recommend stashing three to six months of living expenses in a liquid high yield deposit account in case of an unexpected job loss or another financial emergency. If this sounds overwhelming, start with a smaller goal of $500 for your emergency fund.

You can grow your emergency fund account by setting up an automatic transfer from your checking account to your emergency savings account each pay period. To grow your emergency fund faster, consider cutting unnecessary expenses, selling unused items around your home, depositing your tax refund or starting a side job.

Without an emergency fund, you risk paying for your next dental emergency or major car repair with your credit card or a personal loan, which can keep you in a debt cycle that’s hard to escape.

7. Increase your income

As long as you save the money instead of spending it, increasing your income with a side hustle, part-time job or more hours at the office is one of the quickest ways to reach your savings goal.

Before adding additional work to your already busy schedule, determine how many hours you have available along with how many months or years you’ll need to commit to the side hustle. When searching for side jobs, be wary of jobs that require an initial outlay of money to get started.

8. Plan for a regular review

Block out time on your calendar to evaluate your progress toward your savings goals. Consider establishing a monthly or bi-weekly financial review. Asking yourself if you’re still on track or if you’re able to contribute more towards your objectives is key to meeting your goals. A quick assessment of your savings plan can also help identify areas where you may still need to reduce expenses.

9. Never pay full price

Online and mobile coupons make it easy to save on groceries, clothing and big-ticket items like televisions and computers. When saving money is convenient, you’re more likely to stick to your savings plan. Do you do most of your shopping online? Install browser extensions that give you cash back when you shop through their online portals. Is mobile shopping more your thing? Download your choice of mobile app that offers cash back, gift cards and notifications of online and in-store deals.

10. Eat out less

Brown bag lunches and meal planning are smart money management strategies that can save you thousands of dollars annually, but sometimes you’ll want to treat yourself. To keep your spending under control, be selective about when and where you eat out. Make a list of local happy hours, upcoming culinary events and prix fixe restaurants to reinvent what it means to eat out on a budget.

11. Bank your financial windfalls

While it may be tempting to go on a shopping spree, upgrade your ride or take a weeklong vacation in the Caribbean when you get a financial windfall, that might leave you with a financial hangover. Once the thrill has subsided, you’re no closer to your savings goal. Instead, be strategic with any unexpected funds that come your way. Commit to adding at least half of these funds to your savings account.

12. Make savings automatic

Contact your financial institution to sign up for electronic funds transfer. This allows you to designate a set dollar amount for transfer from one account to another before you spend it on something else. For example, set $50 to automatically transfer from your checking account to your savings account on the fifth of each month.

If you have multiple savings goals, use a money savings app connected to your bank account to help to make auto transfers goal-specific.

13. Entertain your options

Movie buffs and avid readers rejoice! Free and low-cost services are available that allow you to binge-watch or read the latest big hit without busting your budget.

Movie rewards programs are available across the country. These programs allow you to earn points based on the amount you spend. Points can then be redeemed for additional movie tickets or concession items. Movie clubs allow fans to consume at least one movie per month at a discounted rate in addition to concession discounts.

The public library is an often overlooked resource for endless media entertainment. Look beyond the hardcover and paperback books, and you’ll find CDs, DVDs and magazines. Many libraries now provide a portion of their catalog online, which means you can access e-books, audiobooks, movies and music on your device of choice — for free.

14. Become rate savvy

Online search tools can reduce the time it takes to locate financial institutions offering the best returns on savings deposits. Use the Maximize Your Bank Savings tool from DepositAccounts, another LendingTree company, to help you identify the best place to park your funds to meet a specific goal. The higher the annual percentage yield (APY) the account pays on deposits, the faster your money can grow. Generally, certificates of deposit (CDs) limit withdrawals but offer higher APYs over savings accounts.

Next steps

A consistent savings habit is necessary to reach both short-term and long-term financial goals. If you’re intentional with your money, you’ll see the results. Recognize each achievement for what it is — documented proof that you’re in control of your financial future. Open a dedicated savings account today, and you might only be a few months away from achieving your first savings goal.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Tracy Scott
Tracy Scott |

Tracy Scott is a writer at MagnifyMoney. You can email Tracy here

Advertiser Disclosure

Banking

Money Inflation: How Inflation Has Affected Your Money

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Do you remember when you used to be able to buy a regular cup of coffee for less than a dollar? How about gasoline? As recently as 2004, the average gallon of gas cost less than $2. Today, these prices are a distant memory. Inflation is the metric we use to describe the phenomenon of rising prices, which is a basic fact of economic life that you should know about.

Inflation is the gradual increase in the price of goods and services over time. As inflation rates rise, you’ll pay more for the same goods and services, which impacts your daily life, as well as your investments. In the U.S., the current inflation rate is 2.2% as of July 2019.

What is inflation?

Inflation is a general upward trend in the cost of goods and services across the economy, from the price of food to the cost of housing, gas and clothing. As inflation rates rise, the buying power of currencies like the U.S. dollar falls, which means you’ll pay more for a product than you did several years ago.

However, it’s not quite as simple as comparing the cost of milk from one year to the next. Rather, economists determine inflation by looking at the prices of a “basket” of products and services and then measure the average price changes over time.

How inflation affects your money

Inflation impacts the buying power of the dollar, which in turn erodes the value of a consumer’s cash reserves. Each year, your dollars buy fewer goods and services, even if it’s a small change from one year to the next.

While inflation is largely inevitable, there are ways you can protect your money against inflation. Start by looking at your savings account. Up to 99% of savings accounts have interest rates that fall below inflation rates, which means that even as your money grows, it’s not growing quickly enough to keep up with inflation. A MagnifyMoney study found the average savings account rate is just 0.26%, well below the average 2% inflation rate.

You are most susceptible to inflation if you keep large reserves of cash rather than investing your money in vehicles that are more resistant to inflation. Look for investments that have historically appreciated at greater rates than inflation, as well as those that are specifically designed to protect against inflation. Treasury Inflation-Protected Securities (TIPS) are the most direct investments that can help keep your money safe from inflation.

Most bond investments set interest rates that account for inflation, but a TIPS investment has a principal adjustment mechanism increases with inflation and decreases during times of deflation. When your TIPS has reached maturity, you’ll be paid the adjusted principal amount or the original amount, whichever is larger. These investments pay out fixed-rate interest twice a year – the rates also rise and fall with inflation and deflation rates. TIPS are a good way to diversify your portfolio and the most direct way to hedge your money against inflation.

How inflation is calculated

Economists measure inflation with the Consumer Price Index (CPI), which focuses on how inflation affects consumers; the Personal Consumption Expenditures (PCE) index, which is more tightly focused version of CPI; and the Producer Price Index (PPI), which is based on surveys of prices businesses charge for goods and services. These three indices measure the cost of baskets of products and services, and each month reports are published on changes in CPI, PCE and PPI.

In 2016 and 2017, the CPI surveyed approximately 24,000 individuals in the U.S. Those consumers provided the CPI with detailed data regarding their quarterly spending habits, while another 12,000 provided information on their spending over a two-week period.

One easy way to understand inflation is to compare the buying power of $100 over the course of the last several decades. Think of how much rent and other housing costs have increased over the years. Those increases are likely be due to a wide variety of factors, but one of them is inflation and the declining buying power of the dollar. This graph indicates the changing value of $100 in 2019 money:

A closer look at inflation rates historically

As you can see in the graph, inflation has held pretty steady since 1940. However, there are also some aberrations that reflect the state of the U.S. economy at any given time. For example, the economy experienced deflation during the years of the Great Depression through the 1930s, when markets crashed and unemployment rates sat at historic highs. Deflation is the opposite of inflation: When the buying power of a currency increases over time.

You can also see rapid inflation growth in the 1970 to 1980 period. The Great Depression and the 1970s are outside of the norm, and the Federal Reserve Bank tempers inflation rates to keep them around 2%. The Fed aims to keep inflation rates at about this rate to provide greater spending stability for consumers, promote high employment rates and to temper long-term interest rates.

The bottom line

Inflation is inevitable, and it has a direct effect on your money. It’s important to understand how inflation affects your money and to keep an eye on the rate of inflation over time.

Despite the fact that you can’t stop inflation and the impact it has on your cash reserves, you can take steps to protect your finances from inflation. Look into investments that have inflation embedded into their returns, such as as fixed-income securities. You can also explore bond investments that account for inflation in their interest rates and principal payouts, such as TIPS.

Seek out investments that have historically appreciated more quickly than inflation has increased at a rate greater than 2% each year. You may not be able to stop inflation, but by diversifying your portfolio and monitoring the CPI over the years, you can know what to expect and how best to protect your money.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Anne Bouleanu
Anne Bouleanu |

Anne Bouleanu is a writer at MagnifyMoney. You can email Anne here