One of the most well-known banking products are deposit accounts. A deposit account is an account held by a credit union or a bank. The account allows people to withdraw and deposit their money and offers interest on the money present in the account. By opening a deposit account, you offer that bank or financial institution some money that they hold on for you. The money keeps earning interest till it is there in the account.
Types of Deposit Accounts and Deposit Account rates
A few common types of deposit accounts are:
We want and look for the lowest rate possible when we are looking to borrow money. On the other hand, you seek the highest rate available when you open a deposit account. The interest earned on the deposit is an accrued income.
Interest rate can be defined as a general term that is used when referring to the total money accumulated in an account over the course of some time. In case of simple interest, it is generally determined over a period of 1 year. Thus, a simple interest of 3 percent for a CD amount of $200 would earn $6 after one year.
But the above is not the manner in which deposit account interest usually works. Interest generally compounds over a period of 1 month or even over 1 day in some cases. For the sake of better comparison of varied deposit accounts, most banks and financial institutions offer customers with an APY (annual percentage yield) in lieu of a rate of interest, which would need complicated arithmetical equations for a precise comparison. Ensure that you compare the APY for each deposit account at the time of comparing several such accounts.
CDs usually offer high APYs, but customers cannot touch the money for a predetermined period. Money market accounts may offer high APYs, but they come with frequent and potentially high fees.
In case of savings accounts and checking accounts, the former generally offers customer a better interest rate, particularly if the deposit account is opened in an online-only bank. There is also another type of checking account known as rewards checking. Such accounts can earn over four times the interest as compared to an online bank savings account, albeit only if qualify for specific criteria.
For instance, you may be required to use your debit card at least ten times per month. You may also get the higher APY on a specific sum of money present in the account. Any saved funds over that specific sum will earn a lower rate of interest.
Protection of money in deposit accounts
Protection for money in deposit accounts is generally for up to $250,000. Thus, if the bank undergoes bankruptcy, the insurer will ensure that depositors do not lose their savings.
Deposit accounts in most credit unions are backed by the NCUA (National Credit Union Association), while the FDIC (Federal Deposit Insurance Corp) protects your money in banks. In some cases, private insurers may cover state-chartered credit unions.