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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

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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

1.70%

Minimum Balance to Earn APY

$0

LEARN MORE Secured

on Barclays’s secure website

Member FDIC

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

2.05%

Minimum Balance to Earn APY

$0

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on earn.bank’s secure website

Member FDIC

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.

Spend and Save Account

Spend and Save Account

APY

1.00%

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

2.05%

Minimum Balance to Earn APY

$500

LEARN MORE Secured

on Goldman Sachs Bank USA’s secure website

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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

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Banking

Review of Cleo

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.

Cleo is a budgeting app that serves as a sassy Siri for your finances. The app is a “chatbot,” which you interact with via text messages. Cleo makes a budget for you, helps you build savings and talks to you about your spending habits and your financial life. It also offers a digital wallet account for saving funds, and a form of overdraft protection.

While Cleo’s chatty approach to your finances make it stand out from competitors, its digital wallet product raises some red flags for us: The wallet pays no interest, and does not carry Federal Deposit Insurance Corp. (FDIC) insurance. If you’re serious about saving money, you need to understand the downsides to Cleo’s core features before using this app.

What is the Cleo app?

Cleo is designed to help you make a budget and stick to it. You connect your checking account to the app, which scans your transactions and analyzes your financial habits. Cleo spots spending trends and provides advice — sometimes brutally honest advice — about how you should be spending or saving your cash.

The chatbot functions of Cleo are central to how it works: You link your Facebook account to the Cleo app, which then chats with you via Facebook Messenger about your finances. You can ask Cleo for updates on your account balances, tell the app to build you a budget or have it set up reminders to reel in the spending on certain categories.

For instance, Cleo will tell you your spending by category, date or merchant. You can ask Cleo a question like, “How much did I spend on Uber this month?” or “Can I afford takeout tonight?” and the app will provide you with instant answers.

Cleo is headquartered in the U.K., and the company says it’s compatible with more than 3,000 U.S. financial institutions, including big banks like Chase, Wells Fargo, Bank of America and Capital One.

Cleo’s free features

Cleo offers two account tiers, a free account and a $5.99 per month account called Cleo Plus. The free account gives you access to Cleo’s budgeting tool and digital wallet, plus a weekly quiz with chances to earn cash rewards. The paid account adds in cashback rewards and overdraft protection.

Cleo budget tools

Cleo analyzes your finances and suggests a budget. It lets you adjust the budget plan to meet your needs. You must link Cleo to your checking account, although Cleo does not specify whether it can support more than one bank account. The app will identify recurring bills and send you reminders to pay them. The app only lets you set one budget — unlike some other budget apps that allow you to create different budgets for different categories. Cleo categorizes your spending patterns and provides regular summaries by category.

Cleo digital wallet

Cleo’s digital wallet lets you stash money in the account, but it does not pay an APY and does not offer FDIC insurance. The app prompts you set up recurring, automatic deposits into the wallet, and also lets you move money into this account on demand.

Note the company goes out of its way to remind users that this is not a savings account. Not being able to earn interest should be a deal breaker if you’re looking to seriously grow your savings — there are a number of high-yielding, online savings accounts that reward you with interest rates climbing over 2%.

The company states that in the U.K., funds stashed in Cleo’s digital wallet are held by U.K. banks Barclays and MangoPay. It is not clear which institution holds your wallet funds in the U.S.

When it comes to deposit insurance, Cleo “pledges” up to $250,000 in protection, although the terms of this pledge are not anything like the deposit insurance offered by the FDIC. Cleo says “… [the] pledge provides protection for up to $250,000 in losses to U.S. bank accounts and credit cards where the losses are attributable to sign-up and use of Cleo.”

Cleo weekly quiz

Every week, you can participate in a quiz with questions about your own recent spending and savings habits. If you get all the answers right, you’ll be entered to win a cash prize.

Cleo Plus paid features

For $5.99 per month you get Cleo Plus, an upgraded version of the app with the features above plus Cleo Cover, a form of overdraft protection, and Daily Cash, a cashback rewards program.

Cleo Cover lets you borrow up to $100 if you need a bit cash to get by or if your checking account is in danger of going into the red. No interest is charged on the loan amount, so long as you repay what you borrowed within three to 28 days later. Cleo determines your eligibility for Cleo Cover on a case-by-case basis, based on factors like your spending habits and whether you have regular income.

Cleo Cover comes with a major caveat, though: To get your Cover payment on the same day, Cleo will charge you a $3.99 fee. If you’re needing Cleo to spot you cash or cover an overdraft, chances are you need the money immediately.

Daily Cash provides cashback rewards on purchases you make from certain retailers. The app shows you the retailers you shop at most — and each time you make a purchase at one of those retailers, you’ll get up to 7% of your purchase deposited back into your Cleo Wallet. Other ways you can get cashback are shopping on the Daily Cash page in the app, and by completing challenges, like sticking to your budget or using the app frequently.

Advantages of Cleo

  • The app’s nonchalant, sometimes snarky tone makes managing your money a little less intimidating and a bit more fun.
  • Cleo provides a fast, convenient way to figure out if you can afford a certain purchase. Instead of sitting down and analyzing your budget, simply ask Cleo if you can afford it.
  • Cleo Plus’s added features — Cleo Cash and the cashback rewards program — could be useful for some users, if you understand the costs involved.

Downsides of Cleo

  • You don’t earn an APY on savings stashed in your Cleo Wallet. If you’d like to grow your money, these funds should be immediately stashed in a savings account that earns a decent APY.
  • Cleo “pledge” to protect up to $250,000 of losses “attributable to sign-up and use of Cleo” is a major red flag. This is not FDIC deposit insurance, and users should understand that if the company were to go out of business, any funds kept in the Cleo Wallet could be at risk.
  • Not being able to set different budgets for different categories — which is a feature of other budgeting apps like Mint — is a drawback.
  • It can take up to four days to transfer funds from your bank account to Cleo Wallet, and vice versa. That’s not a short amount of time.
  • The chatbot on the Cleo app is not very intuitive. After asking the chatbot several questions about how many bank accounts you’re able to link and whether Cleo Plus offers 2% interest on savings — something that is advertised on a company press release but cannot be found on its website — we received the same slew of auto-responses repeatedly. If you have questions about the app or the funds you have stashed in it, the app provides little to no direction on how to get in touch with an actual Cleo employee.
  • Facebook has had its fair share of privacy concerns. Cleo’s integration with Facebook could make you wary. If your Facebook is hacked, it could make your conversations with Cleo vulnerable.

Cleo vs. other budget apps

Cleo offers a little bit of everything that other fintech apps offer: Budgeting, saving, motivation, and cashback. However, Cleo falls short on delivering in each of these categories when compared with its competitors, proving that even if you can do everything, that doesn’t mean that you should.

Cleo vs. Mint

In terms of its budgeting component, Cleo falls short in comparison to Mint in the following ways:

  • Cleo’s budgeting tool doesn’t allow you to set up different categories for different transactions, something that Mint does feature.
  • In addition to allowing you to set up different categories, Mint lets you customize those categories by renaming them or recategorizing transactions, something that you can’t do with Cleo.
  • Mint’s budgeting tool is much more intuitive, and will automatically separate expenses like an ATM withdrawal and an ATM fee, filing those expenses under their designated categories.
  • Mint allows you to create custom alerts to notify you when certain bills are due. While Cleo gives you general budget notifications, you cannot set up custom alerts.

Cleo vs. Digit

As for Cleo’s saving money feature, the Digit app does the same thing and arguably does it better:

  • Funds in Digit are FDIC-insured, up to the legal limit. Funds in the Cleo Wallet are not insured. That’s a deal breaker when it comes to the savings you’ve worked so hard to build.
  • Digit rewards you with a 1% Savings Bonus if you save for three consecutive months.
  • Digit allows you to customize particular savings goals, something that Cleo lacks.

Cash back is something you can easily get with credit cards, which often offer cash back for spending done in entire categories, not just at specific retailers.

As for the motivating factor, Cleo does have a leg up on its competitors with its witty “roast me” or “hype me” money management feature — depending on whether you’re in the mood for some tough love or a pep talk.

Is Cleo right for you?

Cleo attempts to make money management more approachable by incorporating a chatbot with attitude and offering games — so if you’d rather get a root canal than craft a budget, it could be tempting to check out.

Your finances, though, are anything but a game. Cleo offers no interest, no FDIC insurance, potentially high costs on Cleo Cover loans and a bare-bones budgeting tool. The chatbot’s jokes can’t compete with a detailed budgeting app like Mint, high-yielding savings accounts offered by online banks and competitive credit card rewards programs. Take your money management seriously, and leave the laughs for other forms of entertainment.

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.

Sarah Berger
Sarah Berger |

Sarah Berger is a writer at MagnifyMoney. You can email Sarah here

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Banking

Credit Unions vs Banks: What’s the Difference?

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.

Credit unions and banks are similar financial institutions, although there are key differences between them. Both banks and credit unions offer financial services like checking accounts, savings accounts, and certificates of deposit (CDs). They both offer mortgages and personal loans. But banks are for-profit companies, while credit unions are nonprofit institutions that serve their members and their communities. Read on to discover more about the differences between banks and credit unions.

What is a credit union?

A credit union is a not-for-profit financial institution that is formed by another entity, such as a corporation or community group. Ranging in size from small local operations to large nationwide networks, credit unions are owned and controlled by their members, who are also their customers.

Under the credit union business model, members buy shares in their credit union, and their deposits are used to provide loans and other financial products to each other.

A credit unions is run by a volunteer board of directors that is elected by its members. Credit unions are chartered by the National Credit Union Administration (NCUA) or by a state or federal government.

Credit Unions are growing in popularity: The assets of the average credit union have increased from $150 million to $260 million since 2012. Average membership at credit unions nationwide have grown by more than 20% since 2012.

How is a credit union different from a bank?

One of the chief differences between banks and credit unions is their ownership structures. Credit unions are owned by their members, while banks are owned by their stockholders. These different ownership structures dictate how these institutions operate. Credit unions serve the best interest of their members, while banks have a fiduciary duty to their shareholders, not their customers.

Credit unions and banks dispose of their profits differently. As for-profit institutions, banks redistribute their earnings to investors and shareholders. Credit unions use their earnings to reward their members by giving them dividends, discounted loan rates, higher interest rates on savings and investment products, and lower-cost services.

Unlike a bank, not everyone can open an account at a credit union. To join, you must meet certain criteria, which is often dependent on your employer, family, geographic location or membership in a group, such as a professional organization, school, church or labor union.

Finally, customer service can be another difference between credit unions and banks. Bank rules and policies are set by their boards of directors, who are often located in another city. Credit unions, on the other hand, are run by members, who are likely living in the community. In studies, credit unions often rank higher than most banks in terms of their quality of customer experience.

Feature

Credit Union

Bank

Management

Controlled by its members

Controlled by board of directors

Purpose

Serve its members

Make a profit

Revenue

Returned to members through dividends

Distributed to shareholders

Account holder rights

Account holders have voting rights

Account holders have no voting rights

Service

Account holders are members who can help set policies by voting

Account holders have no say in policies

Eligibility

Must meet eligibility requirements to open an account

Anyone can open an account

How to join a credit union

Finding a credit union near you is as easy as an internet search. You may be surprised at the number of credit unions in your area. The NCUA has a Credit Union Locator that can help you find a credit union near you. You can search by your address, the name of the credit union or by its charter number, which is a unique number assigned to the credit union by NCUA.

See if you are eligible

After you locate credit unions in your community, visit their website to learn about their eligibility requirements for membership. If the credit union does not include this information on its website, call or visit its physical location for more details.

In general, anyone who belongs to a certain community or organization may join the community’s credit union. Members typically share a common bond, such as

  • They work for the same employer
  • They live or work in the same geographic area
  • They have a family member who is a member of the credit union
  • They belong to the same organization, such as a religious group, school, labor union or homeowners association

Some credit unions are open to anyone and will approve membership based on charitable contributions. For example, you can join Alliant Credit Union by making a $10 donation to the Foster Care to Success Foundation.

Open an account

If you meet a credit union’s membership requirements, you can open an account by submitting proof of your identity, residence address and proof of eligibility. Then make the minimum deposit, which for credit unions will range from $5 to $25.

Is my money safe in a credit union?

In terms of safety, there really is no difference between depositing money with a credit union and depositing it with a bank, as long as the credit union is a member of the NCUA. The NCUA Insurance Fund provides members of federally-insured credit unions with a maximum up to the legal limit in insurance coverage, which is the same coverage the FDIC offers to bank account holders.

If you have more than one type of account ownership, such as individual accounts, joint accounts, revocable trust accounts and certain types of retirement accounts, it’s possible to qualify for more than the insurance limit in coverage.

Advantages of credit unions

  • Better interest rates: Because credit unions are not-for-profit organizations, they boast competitive rates and fees for their members, unlike commercial banks. Credit union members typically enjoy higher interest rates on their deposit accounts, as well as more affordable loan products.
  • Lower fees: According to the Credit Union National Association (CUNA), credit union members on average can save $102 every year versus banking with commercial banks. For example, credit unions charge about $3 less on average for each non-sufficient fund in a checking account than banks do, and almost $10 less for late payments on credit card debt.
  • Decreased closing costs: In terms of mortgage closing costs, people who use credit unions for loans pay $210 less than those who take out loans from banks.
  • Capped credit card rates: Credit unions have an 18% cap on how much interest they can charge on loans including credit cards, which distinguishes them greatly from traditional bank credit card issuers. Credit unions charged an average 11.82% interest rate on credit card debt; whereas commercial banks charged 13.65%.
  • Personalized loan reviews: If you’re building your credit and want to use a personal loan to establish or improve your credit score, a credit union may be more likely to work with you than a big bank. Members of credit unions may also be able to appeal credit decisions if they’re turned down.
  • A voice and vote: Your deposit in a credit union makes you a part of the ownership of the institution. Interestingly, in this structure, one person’s loan may come from another’s deposit. It also gives you the right to vote.
  • Access to nationwide ATM networks: If you are a member with a credit union, you have access to a national network called CO-OP, which has over 28,000 ATMs across the country and allows anyone who belongs to a credit union to access funds without a charge. This is more than what Chase has (around 16,000).

Disadvantages of credit unions

  • Limited access to branches: While some credit unions work hard to offer the same conveniences as banks, their branch locations are limited compared with megabanks. And you won’t likely find your credit union branch when you travel to another country.
  • Slower to adopt new technologies: Assets of some small local credit unions are often a fraction of those of big national banks. Some don’t even have their own website. They may also struggle to afford higher costs of adopting the new mobile banking technology, which can limit the need to visit a physical branch or ATM location.
  • Fees aren’t always lower: While some fees may be lower at credit unions, that doesn’t mean you can always save money in fees with a credit union. For instance, Chicago-based Alliant Credit Union charges an outgoing wire transfer fee — $50 for international and $25 for domestic. However, Chase Bank, which is also available in Chicago, doesn’t charge an outgoing wire fee for checking account holders.

Credit union vs bank: Which should you choose?

Choosing between a bank and credit union comes down to personal preference. Identify the services and banking experience that matter most to you. Consider things like customer service, online tools, branch location, interest rates and loan requirements. Make a checklist of the features in a financial institution that are most important to you.

Ultimately, it comes down to comparing products, services, fees and convenience. Remember, you can have accounts at a bank and a credit union. In some cases, this may be the best way to determine the right fit for you, allowing you to enjoy the best of both worlds.

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.

Stephanie Vozza
Stephanie Vozza |

Stephanie Vozza is a writer at MagnifyMoney. You can email Stephanie here