BEC - Types of Accounts Lesson

Types of Accounts

Demand Deposits

A demand deposit account is a transaction account that allows transactions that occur at any time and in any number.

Checking Accounts - Basic checking accounts offer service for no or little costs. Often accounts have no service charges if a minimum balance is kept and some banks offer free checking accounts for any balance maintained if the depositor has direct deposit.

Interest Bearing Checking Accounts - These accounts pay interest to depositors who keep a minimum balance in their accounts.  Usually the higher the minimum balance, the higher the interest paid. However with these accounts, if the account falls below the minimum balance not only will the depositor lose the interest, but fees may be charged.

Time Deposits

Rather than being available on demand, time deposits are held for a period of time, usually paying interest on the deposit.

Savings Accounts - These time deposits may require the depositor to give up to seven days notice before withdrawing funds from the account. Interest is usually paid on this type of account quarterly (every three months).

Money Market Deposit Accounts (MMDAs) - These time deposits offer a higher rate of interest than a savings account or an interest bearing checking account. In return for higher interest, the depositor has to maintain a high minimum balance ($10,000 or more). Transactions in these accounts are restricted to six per month and letting the balance fall below the minimum amount will result in high fees being imposed.

Certificates of Deposit - With these time deposits, the bank promises to pay a specific rate of interest until a given date. These rates of interest are usually higher than either money market or savings accounts. CD's are usually used as short-term investments because their maturity dates are usually in 18 months or less.

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