Banks were created to keep our money safe and secured. But over the eras, it has evolved into a significant part of the modern economy, solving all the financial problems with innovative products and services. Bank accounts are such products that commercial banks offer to their clients for easier financial management. These accounts are tailored to meet different needs and solve specific problems.
How Many Types of Bank Accounts are There?
There are many types of bank accounts offered by traditional banks, and the number varies from country to country. But in this article, we have discussed some of the major types of bank accounts and the key benefits they offer to the clients.
Current Account
A current account is a type of account that lets the account holder deposit and withdraw money from the bank on an unrestricted basis. A transactional account, often known as a checking account or a demand account, is a type of current account. This sort of account is typically used for the account holder’s regular financial transactions.
The main benefit of a current account is the unlimited number of transactions clients can make. From giant corporations to individuals with small amounts of income, a checking account can make regular money transactions a lot easier and hassle-free. Business organizations need to transact a huge amount of money frequently in their day-to-day activities. Conducting these financial activities through a current bank account makes these activities a lot easier and safer. Payments can be made very easily by writing a check for the receiver, or money can be accepted by only providing the account number. Many people need to conduct financial transactions regularly for professional or personal reasons. A checking account can make these transactions a lot easier through unlimited check writing, digital payment service, MFS service, ATMs and third-party ATMs, Bank overdrafts etc.
Fixed Account
A fixed deposit is a bank account that pays a high rate of interest on the money placed for a certain length of time. It’s also known as a time account, CD, or certificate of deposit. A fixed account is a risk-free investment that allows a depositor to grow their money while keeping it secure in the bank.
A fixed account bears interest which means the depositor enjoys a certain amount of interest for the deposited money in his fixed or CD account. Comparatively, it pays significantly more interest than any other sort of bank account. It’s considered to be one of the safest investment options. People who have a handsome amount of surplus money that they do not need in a long period of time can choose this option that keeps the money safe and at the same time provides a high interest. The depositor can easily renew the fixed account when it matures for another period of time. Banks provide loans to the fixed deposit holders against the deposited money in their accounts. Even the account or FDR document can be used for different other loan and advance options. Another great benefit of having a fixed account is that the account holder can make a CD ladder. A CD ladder is a strategy of dividing the total sum and depositing it into different schemes and maturities. This option helps the account holder enjoy the high rate of interest and solve a liquidity crisis simultaneously.
Savings account
A savings account is a commercial bank account that enables customers to deposit money in the bank to save it for short-term emergencies, withdraw it whenever they need it, and earn a little interest on the amount regularly.
A savings account is an interest bearer account, and it enables the account holder to save a small amount of money in the bank and enjoy interest from that little amount. Anyone can deposit a small sum of money periodically and use the large deposited amount at times of emergencies. It’s a safe way to keep your money because the FDIC will insure the amount you deposit. Creating linkage between one’s savings account and current account can be an excellent option to minimize the bank charges since banks don’t cut any fees from a savings account as it does to a current account. It can help individuals to solve the liquidity crisis and have an emergency fund for the future.
Money Market Account
A money market account or MMA is an interest-bearing account that offers a higher interest rate than other transactional or savings accounts. It could be best defined as a compilation of checking and savings account. The account holders can use a money market account as a checking account but have restrictions on writing too many checks. Also, the account must contain a higher amount of positive balance. Typically, banks invest the deposited money on MMA into low-risk financial assets such as CDs, treasury bonds, etc.
A money market account allows the account holder to enjoy the fruit of both a checking and savings account. And that’s the specialty of this account. People who need a bank account for regular transactions but not so frequently can choose this type. The account holder has the check-writing privilege up to some limitations. Some banks also offer debit card and ATM services to the money market account holders. And last but not least, your money will be insured by the Federal Deposit Insurance Corporation (FDIC), which means your money is safe no matter what happens to the bank.
Merchant Account
A merchant account is a specialized bank account for business organizations that enables the user businesses to accept and make financial payments through the respective bank. The enterprises have this partnership with their preferred bank, and all the fees, services, benefits are provided according to the contract between these two parties. The main objective of opening this kind of account in a bank is to smoothen the business operations through electronic fund transfer or EFT.
Merchant accounts play a significant role in facilitating financial transactions for businesses that accept and make electronic payments. With the rapid modernization and digitalization, people now more tend to use digital payment systems in their day-to-day activities. Banks with their merchant account come to help businesses provide convenience to their customers. It also helps the business use fewer human resources, avoid bad checks, keep track of the transactions more efficiently and accurately. To keep growing in the competitive business landscaper, each business organization must make the best use of merchant accounts for their good.
Foreign Currency Deposit Account
A foreign currency deposit account is a type of bank account that allows the account holder to keep foreign currency in the balance to facilitate international transactions. It’s often known as a multi-currency deposit account too. Clients may receive, move, and transact funds in supported foreign currencies via foreign currency deposit accounts.
Generally, business organizations use this account for their international export or import transactions. Businesses can use local currency through this account for better pricing on their international purchases. It also helps the clients avoid the impact of price fluctuations in foreign currencies, which is detrimental to business operations and profitability. It Reduces the probable losses and rate spread due to timing differences between incoming and outgoing foreign currency flows. Besides, this foreign currency account brings a huge advantage to the people who often travel to different foreign countries. A foreign currency deposit account can make the whole trip easier and less costly by providing the native currencies of the respective country without any hassle.
Offshore Account
An offshore bank account is the sort of bank account that account holders have in a country they don’t reside in. So, any individuals or organizations who have bank accounts in a foreign jurisdiction outside of the country they reside/situated in and get banking services are offshore account holders. An offshore account allows the client to make and receive payments, hold money and set up savings and investment accounts in multiple currencies.
Since the bank of an offshore account is situated outside of the account holder’s country, they will be able to avoid the negative impacts of chaotic circumstances like political and economic instability, inflation, etc. The money will be kept safe confidentially in a foreign country under foreign jurisdiction. Moreover, an offshore account can help to reduce tax. Individuals can keep their money in the countries that cut the lower rate of taxes. It also brings a higher return on foreign investment by using the multi-currency feature of offshore accounts and reduces the risk of the money by geographical diversification.
Bottom Line
Banks are continuously developing new types of bank accounts to solve modern problems and fuel economic development. As we have discussed earlier, each type of bank account solves a specific issue of the clients, and you must choose the ones that fit your necessity. Assessing the features, benefits of bank accounts and selecting the right one can give a proper banking experience!
I am a finance enthusiast who writes well-researched articles and blogs on business analysis, the financial service industry, and marketing analytics. My writings result from accurate market data and the application of my profound theoretical knowledge about business.