What types of accounts do banks offer?

People use banks for different purposes. Some have extra money to save; others need to
borrow. Some need to manage their household finances; others need to manage a business.

Banks help their customers meet those needs by offering a variety of accounts.

Savings accounts are for people who want to keep their money in a safe place and earn
interest at the same time. You don’t need a lot of money to open a savings account, and you
can withdraw your money easily.

Certificates of deposit (CDs) are savings deposits that require you to keep a certain amount
of money in the bank for a fixed period of time (example: $1,000 for two years). As a rule, you
earn a higher rate of interest if you agree to keep your money on deposit longer, and there is
usually a penalty if you withdraw your money early.

Individual retirement accounts (IRAs) are savings deposits that offer an excellent way to
save for your later years. You don’t have to pay tax on the money you deposit in your IRA until
you withdraw it. But there is often a significant penalty if you withdraw your funds before you
reach a specified age (usually 59 or older).

Checking accounts offer safety and convenience. You keep your money in the account and
write a check when you want to pay a bill or transfer some of your money to someone else.

If your checkbook is lost or stolen, all you need to do is close your account and open a new
one so that nobody can use your old checks. (When cash is lost or stolen, you rarely see it
again.)

Another attractive feature of a checking account is that your bank sends you a monthly
record of the checks you have written, and you can use that record if ever need to prove that
you’ve made a payment. Banks sometimes charge a fee for checking accounts, because check
processing is costly.

Many banks also offer no-fee checking and checking accounts that earn interest if you agree to
keep a certain amount of money—a minimum balance—in the account. But these accounts
are limited to non-business customers. Banking laws almost always require businesses to use
regular checking accounts that do not pay interest.

Money market deposit accounts are similar to checking accounts that earn interest, except
that they usually pay a higher rate of interest and require a higher minimum balance (often
$2,500 or more). They also limit the number of checks you can write per month.

Finally, banks do not always call their accounts by the same names. Often, they choose
distinc-tive names in hopes of attracting customers. But there can be a real difference between one
bank’s accounts and another’s, so shop around.

Banks sometimes charge a fee for checking accounts, because check processing
is costly.

Source from : http://www.bos.frb.org