It is a competitive landscape for banking services and banks are trying numerous ways to differentiate themselves from the pack. While this certainly has its advantages for the consumer, it can make it tough to compare product offerings and select the right account to meet your needs.
While it’s not possible to compare and contrast every offering from every bank, I can give you a basic overview of the common account types you are likely to find at any bank. Having an idea of what kind of account you need from the start can help you filter through some of the options, fees, and services offered by different banks and arrive at a choice that makes sense for you.
Checking Accounts or Negotiable Order of Withdrawal (NOW) Accounts
Checking and NOW accounts are the most common type of bank account and most consumers are familiar with the concept. These accounts are intended mainly as convenience accounts that allow depositors to access their funds without transaction limitations through a variety of ways, including writing checks, ATM withdrawals, in branch withdrawals, and by using a debit card.
NOW accounts began as a way of circumventing a prior bank regulation that was enacted during the Great Depression, Regulation Q, which prohibited paying interest on checking accounts (also called Demand Deposit Accounts or DDAs). However, Regulation Q was lifted in 2011, and today, DDA and NOW accounts are virtually indistinguishable, though some banks may continue to use the NOW terminology to denote an interest bearing account.
Savings accounts are intended for longer term holding, or “saving,” of money. Funds held in savings accounts typically bear interest and are subject to limitations on the number of withdrawals that may be made in a given period. Fees are typically charged for exceeding the limited number of allowable withdrawals, or, if a depositor routinely exceeds the allowable number of transactions, the account may be closed or converted to a checking or NOW account.
Money Market Deposit Accounts
Money market deposit accounts are very similar to savings accounts. Like savings accounts, they are intended for longer term holding of funds with infrequent access. The primary way they differ from a savings account is that the depositor is able to write checks on a money market account, although the amount of checks and withdrawals per month is limited. Money market deposit accounts should not be confused with money market funds, which are offered by both banks and investment brokers and are investment vehicles that are not insured by the FDIC.
Time Deposits or Certificates of Deposit (CDs)
Time Deposits, also called Certificates of Deposit, are accounts in which a deposit is made for a certain amount with an agreement that the funds won’t be withdrawn for a specified period of time. CDs typically pay higher interest rates than more accessible accounts to compensate the depositor for their commitment to leave the money for a specific period of time. A CD is usually subject to a significant early withdrawal penalty if a depositor withdraws funds prior to the end of the CD agreement.
All of the above deposit types at member FDIC banks are insured by the FDIC up to the standard level of $250,000 per depositor, per insured bank, for each ownership category. Because deposits are insured by ownership category, it is possible to attain insurance coverage in excess of $250,000 by holding accounts in different categories. For example, certain trust accounts are insured separately from individual accounts. The FDIC’s website at FDIC.gov has a full guide and tools to help you determine your insurance coverage.
Ultimately, it is important to choose an account at an institution that you know and trust. While banks offer numerous trendy options and services, you can see that most banks offer the same core products, packaged in different ways. Choose a bank that can offer you the type of service that you expect and you will likely not be disappointed. QCBN
Country Bank is a full service community bank serving Yavapai County with offices in Prescott, Prescott Valley, and Cottonwood. Ryan Glennan, NMLS # 478327, is a vice president of Country Bank specializing in commercial lending and residential construction loans. Please visit www.countrybankaz.com or call (928) 443-9595 for more information.