The banking system has become increasingly sophisticated in the last decade; while once upon a time banks provided deposit facilities only, they now offer a variety of accounts, each of which is designed to serve customers’ different needs. Understanding the myriad of banking accounts, banking products, and fee structures may seem daunting at the outset, but always worth researching in order to achieve your business needs, financial goals and longer term aims, as well as support the working capital needs of your business.

As a rule, banks and credit unions offer savings accounts, which are checking accounts that include interest checking, money market accounts, certificates of deposit (CDs), and retirement accounts.

Saving Accounts include

  • Interest checking
  • Money market accounts
  • Certificates of deposit (CDs)
  • Retirement accounts

Trade Finance Global have taken a deep dive into what some of these accounts are, and what they offer. We spoke to Investor Junkie who did a review of online and offline bank accounts, and you can read the full CIT bank review here. In this article, we will explain the differences between the above-mentioned accounts, drawing a comprehensive picture of the services that the Commercial Investment Trust provides.  To understand how these accounts differ from each other in traditional banks, read the information below.

Savings Accounts

The savings account is a type of the bank account that people open in the first place. As the most common type, it allows them to deposit, keep, and withdraw money. Most importantly, the savings account lets people earn interest, since, insured by the Federal Deposit Insurance Corporation, banks usually pay interests on their deposits. Hence, it is important to ascertain, when you are opening a savings account, that it is fully ensured. The problem is that banks are not safe boxes, where you just lock your money. To make a profit, banks lend your money out and invest it, once you deposit funds into your saving account. Like anything else in life, banks’ investments can go wrong. If your bank loses your money, the FDIC will replace it. But note that the FDIC coverage is not unlimited. You might be covered only up to $250,000 per deposit.

Note also that interest rates on saving accounts are low. You will probably pay less than 1 percent a year, though interest rates vary with different savings accounts.  Another advantage of the savings account is that it offers unproblematic access to your funds. If you decide that you want to spend the money kept in your savings account, you can easily transfer it to your checking account. From there, you can spend your funds by using debit cards, checks, or electronic transfer. Equally easy is to
make cash withdrawals from your savings account. Just go to bank tellers in your bank or your nearby ATM.

Checking Accounts

Even more frequently used is the checking account. This is a type of the bank account to which people turn every day, keeping there funds to spend rather than to save. Salaries usually come to checking accounts, as do pensions, unemployment payments, and other benefits. Designed to help people spend their money, checking accounts do not limit the number of transactions they can make. You can move your money around and withdraw it as often as you please. Savings accounts, by contrast, restrict your access to your funds. Nor do they provide flexibility in spending them. If you want to use your money kept in your savings account, all you can do is to transfer it to your checking account, from where it can be withdrawn in a variety of ways.

Indeed, the checking account offers you many options to spend your money: you can withdraw cash, write a check, use your debit card, pay electronically, and pay your bills online. But note that banks do not offer checking accounts for free, asking people to pay monthly fees for them. You will also pay an opportunity cost to use your checking account and will earn no interest on it. Note also that there are different types of checking accounts. They can be owned by one individual or jointly by several people. This kind of the checking account is called a personal account. But checking accounts can also be held by organizations: businesses, governments, and nonprofit companies.

Money Market Accounts

Another type of the bank account is called the money market account. Like the savings account, it allows people to earn interest, though it has a higher interest rate than the former. Like the checking account, it provides them with check-writing ability. That is, the money market account shares the features simultaneously of the savings and the checking accounts. Like the savings account, it is also insured by the Federal Deposit Insurance Corporation (FDIC), though it usually requires a higher balance. Like checking accounts, money market accounts let you easily access your money. They allow you to write checks and withdraw cash and often offer you debit cards.

What is less convenient is that money market accounts require a large minimum balance, around $2,500. If your account balance becomes smaller than this amount, you may need to pay monthly fees, which will negatively affect your return. The money market account also imposes transaction limits. You can make payments with your debit cards or checks only 6 times a month, though some banks restrict their account-holders even more, allowing them to make payments only 3 times monthly.  Overall, money market accounts are useful to keep money you might need in the near future. Placed there, your funds remain safe and easily accessible.

Plan, plan, and plan!

As a small business, you might not need to open all of the bank accounts discussed here. Every type of the account is designed for customers’ specific needs. What is important is to formulate for yourself what you want to do with your funds and, in keeping with your purposes, to open that type of the bank account that will serve them better.