When you first arrive in the United States, one of the first things you’re going to want to do is to open up a bank account. This is an important first step in establishing yourself and can become necessary for a lot of future endeavors as you settle into your new country. However, you might be wondering what type of bank account you need. There are only a few different types, but they might be called something different in your country. Below we’ve provided a quick guide to US bank accounts with the basics of each type of account and what you would use it for.
Types of US Bank Accounts
Checking accounts
Checking accounts are what you use for your day-to-day financial transactions. This is an account held at a financial institution and is created for liquidity, or easy access to the funds within this account. Because of this, checking accounts usually come with quick ways to access money such as debit cards, or, more traditionally, checks.
These accounts typically offer many or unlimited withdrawals and deposits, while other accounts might limit these.
Checking accounts in other countries might also be referred to as demand accounts, transaction accounts, or current accounts.
Savings accounts
Savings accounts are intended for exactly that, saving! Typically these accounts do not come with cards or checks for easy withdrawal and may even limit the number of withdrawals you can make monthly (they may also charge a fee for exceeding this limit). Additionally, you are rewarded for keeping money in a savings account with higher interest rates being offered to you on the balance in your account. While these rates are still typically low, it does offer some incentive to leave your money there and save it over a longer period of time.
These types of accounts might also be called deposit savings accounts or passbook savings accounts.
Money market accounts (MMA)
Money Market Accounts offer a blended format between savings and checking accounts. These accounts allow you easier access to your funds with an issued card or checks, similar to a checking account. However, they still limit the number of withdrawals you may make monthly (limits vary by bank as the federal limit was lifted in 2020).
Additionally, these accounts still offer interest on the balance of your account, but might also require a higher minimum initial deposit as well as a higher minimum balance requirement than a traditional savings account in order to earn the interest.
These could also be referred to as high-interest current accounts or money market deposit accounts (MMDA).
Certificates of deposit
Certificates of deposit are another way to save. These types of accounts offer even higher interest rates than other savings accounts in exchange for agreeing to keep the money in the bank for a specific amount of time. The longer you agree to keep the money deposited, the higher the interest rate return typically is. If you find that you need access to the money before the end of the term, you can withdraw for a penalty fee on the early withdrawal. However, it is best to avoid this type of account if you will be needing the money in the short term.
CDs in other countries might be known as Fixed Deposits, Time Deposits, or Term Deposits.
It can be difficult to know which type of bank account is the best for you. A CD might seem like a good idea because they offer higher rates than savings accounts but this comes at the cost of tying up your cash for longer periods of time. The easiest solution may be to go with what most people use – checking and savings accounts – so you have liquid funds when emergencies arise or want to make an investment down the road without having to worry about liquidity issues. Ultimately, you want a bank account that fits your needs and goals.
We’ll be diving further into opening a bank account in a future post as there may be some unique challenges for foreigners. Make sure you sign up to stay informed!
