Not all bank accounts are made equal. Opening an account with your preferred bank will present you with a selection of bank account types. These types come with their own pros and cons, and these will affect how you can access your funds in the future.
Let's take a closer look at your options to see which best suits your needs, shall we?
Savings Account
The savings account is the simplest type of bank account. It’s easy to set up, so it’s no wonder that most young professionals open their own savings account as soon as they start earning money on their own.
A savings account is a safe space where you can store your money. The money stored in the account will earn interest between 0.5% to 2% annually.
Convenience may be the biggest advantage of having a savings account. You can deposit and withdraw money from your account at any time. Plus, you can also link your savings account to lots of digital wallets so it's easier to shop and pay your bills online.
Most savings account require you to present an ID, proof of address and an initial deposit. Once the account has been opened, you’ll need to keep a maintaining balance for 30 days.
Note: If the balance in the account dips below maintaining, then the bank may charge you with a penalty fee. Also, your bank may impose transaction limits and charge additional fees if you use a different bank’s ATM to withdraw money from your account.
Opening a savings account is the best option if you want to enjoy a quick and easy application process. It doesn’t take a lot of effort or money to keep a savings account, so you can open one under your name even if you’re still starting out in your career or you don’t have stable employment yet.
A savings account is also the best place for building an emergency fund, as you have full access to your money anytime you need it.
The downside? It's super easy to splurge and spend if you can access your savings with a few clicks. Also, most savings account programs also yield little in terms of interest, so it’s not the best choice if you want to invest and grow your money.
Checking Account
Also known as current account, a checking account offers all the benefits of a savings account plus the ability to issue checks. Checking account owners get to use paper checks and debit cards to access their money. Compared to savings accounts, checking accounts require higher initial deposits and maintenance fees.
On the upside, checking accounts are not as restricted as savings accounts are in terms of transaction limits. This means checking account owners don’t have to worry about exceeding a certain amount of money every day or month.
Checking accounts are also an ideal option for people who regularly deal with bigger financial transactions. With checks or post-dated checks, you can easily arrange automatic payments that involve bigger amounts of money. Using a checking account also leaves a paper trail, which can be quite useful if you need to double-check your transactions.
Time Deposit
If you want to invest your savings, you can open a time deposit. The money in a time deposit can’t be touched for a fixed period of time, which can be between 30 days to 7 years. At the end of this pre-agreed term, the fund can earn anywhere from 1% to 3.5% in interest — higher than what you can get out of a regular savings account.
When setting up a time deposit account, it’s important to assess exactly when you will need the money. While it’s possible to withdraw the money in your time deposit account before its maturity, doing so comes with a lot of penalties.
Time deposits are a great option for conservative investors and people who have money that they won’t use for some time. Remember, though, that while time deposits offer higher interest rates compared to regular savings accounts, it’s still likely that this fixed interest rate won’t be able to keep up with the inflation rate.
These bank account types offer a wide range of benefits that will suit different lifestyles. There’s no objective "best" option here; the important thing is that you end up with a bank account type that complements how you earn and spend money.
Take a good look at your relationship with your finances, and you’ll have an easier time deciding if a savings account, checking account, or time deposit will help you achieve your current and future financial goals.
