How to Choose the Right Bank Account and Avoid Expensive Fees

Choosing the right bank account is one of the most important steps you can take to reach your financial goals. The best accounts are those with little or no fees, a high interest rate, and a forgiving overdraft policy. Reuters Business can guide you in selecting the right account type and financial institution for your needs, regardless of how long or short you want to keep your money in the account.

Types of Bank Accounts

Some financial institutions, such as banks and credit unions, provide specialized accounts for young adults, students, and older people. Banks and credit unions that are members of the Federal Deposit Insurance Corporation or the National Credit Union Administration provide deposit insurance of up to $250,000 per depositor.

You should put a premium on finding a bank account with low costs. According to the American Bankers Association, 61% of Americans are avoiding banking fees. Listed below are a few suggestions:

  • Watch out for any hidden fees, such as monthly maintenance fees and restricted access to the ATMs of other financial institutions that might not be refunded.
  • Evaluate Your Overdraft Options: Choose a bank that allows you to make small overdrafts.
  • Choose savings and certificate of deposit accounts with interest rates of 1% or more to maximise your earnings.

Checking Accounts

Paychecks, cash withdrawals, and bill payments may all be handled via a checking account. It allows unlimited monthly transactions and provides a multitude of convenient access options including debit cards, ATMs, and paper checks.

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An account might get overdrawn with even a little purchase, therefore a flexible overdraft insurance is essential. The Consumer Financial Protection Bureau says that overdraft fees cost an average of $34 and can be charged multiple times a day.

Consider that even if a checking account pays interest, your money may not stay in there long enough for you to benefit from it. Look for an account that doesn’t penalize you for having a low balance, doesn’t make you pay to use an ATM outside of your bank’s network, and has a forgiving overdraft policy instead.

Savings Accounts

Put your money somewhere secure and easily accessible in case of a medical emergency, job loss, or other unplanned need with a simple savings account. One such restriction is a monthly cap on the total number of purchases you may make.

Interest rates on savings accounts at conventional banks are often relatively low. Although the current average savings account interest rate throughout the country is just 0.30%, you may locate accounts online with rates well over 1% and minimal fees.

What you should search for is the lowest possible rates and fees. A credit union or an entirely online financial institution may provide the most attractive rates.

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Cash Management Account (CMA)

A cash management account (CMA) is a kind of investment account that often yields more interest than a traditional bank account. CMAs are cash accounts offered by companies other than banks, like robo-advisors and investment firms. They are not bank accounts. By routing their clients’ cash via offshore accounts at partner banks, CMAs have their clients’ funds covered by the FDIC.

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What to look out for: The CMA’s helpful features and services. Your CMA and investing account can be with the same institution, making it easier to move money between the two. Some CMAs have limited access to ATMs, so you’ll need to think carefully about whether or not you’ll be happy with how much cash you can get.

Money Market Account

Money market accounts, which are similar to savings accounts, are designed to retain money that you don’t need right now and are subject to monthly transaction limits.

There is a minor increase in interest from a standard savings account (now the national average is 0.29%), but the minimum amount is usually much larger for these accounts. With some, you can even get a debit card and make cheques. Just as with savings accounts, you may discover better interest rates from an online bank.

Indicators to keep an eye out for: Check the savings account rate against the money market account rate. Choose the account that meets your needs with the fewest fees, highest rate, and lowest minimum balance required.

Certificate of Deposit (CD)

A CD is a kind of timed deposit that has a certain term: In exchange for committing your funds to the bank for a longer period of time (anything from a few months to five years), many financial institutions will pay you a greater interest rate. As expected, the rate rises with increasing duration of the contract.

Currently, the average rate for a one-year CD at an online bank is 4.30 percent; the average rate for a three-year CD is 4.00 percent; and the average rate for a five-year CD is 3.80 percent.

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This is a significant commitment; make sure you fully understand everything before making it. For your own financial security, you should put your money where it will serve you best.

How to find it: Use appropriate terminology. Make sure you’re OK with the terms of the contract. It’s common practice for early withdrawals to incur a hefty fee. Try to find a rate that’s more than 1%. However, if you need access to your money often, a high-yield savings account is your best choice.

Contrast and Compare

It is not required that all of your financial records be stored in one place. You may open a checking account at a local credit union, a savings account or CMA on the web, and a CD with a bank, all of which have their advantages. You may combine and separate things whichever you choose.

Account opening is quick and easy, whether you do it in a branch or online. After you’ve set up your account, you can start looking into the different features and functions you can use.

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