Types Of Bank Accounts

A chequing account is a type of deposit account you can open at a brick-and-mortar bank, credit union or online bank.

Here are some of the key features of chequing accounts in general:

• Designed to hold funds you plan to spend or use to pay bills.
• Typically come with a debit card for making purchases or cash withdrawals.
• May come with paper cheques as well.
• Can be linked to other types of bank accounts, including savings accounts.

It’s important to note that chequing accounts aren’t all alike in terms of the features or benefits they offer. Banks can offer multiple chequing account options designed to fit a variety of banking needs, including:

• Kids or teen chequing.
• Student chequing.
• Senior chequing.
• Interest chequing.
• Rewards chequing.

A basic chequing account is generally the most common option you’ll find. With a basic chequing account, you may be able to spend using a debit card, pay bills online or via paper cheque and transfer funds to or from linked accounts. Basic or standard chequing accounts may come with a monthly maintenance fee or have minimum balance requirements you need to meet to avoid the fee.

How to Choose a Chequing Account

If you’re interested in opening a chequing account, first consider whether a traditional bank or online banking makes more sense. If you don’t need branch access, then an online chequing account could be a convenient way to manage your money.

Beyond that, consider the type of features you need and what you’re willing to pay for a chequing account. Here’s a simple checklist of things to consider as you compare accounts:

• Minimum deposit requirements.
• Minimum balance requirements.
• Monthly maintenance fees.
• Other banking fees, such as overdraft or ATM fees.
• ATM network size and locations.
• Added features or benefits, such as rewards on purchases or fee-free person-to-person payments.

If you decide to switch banks, remember to update your chequing account information for automatic bill payments and other recurring payments.

A savings account is a deposit account that can be used to hold money you don’t plan to spend right away. Most savings accounts pay interest on deposits, though the interest rate and annual percentage yield (APY) can vary significantly from bank to bank.

Like chequing accounts, savings accounts may have minimum balance requirements and monthly maintenance fees. But they typically don’t come with a debit card or ATM card and you usually can’t write cheques from them.

That’s because savings accounts aren’t designed for everyday spending or paying bills.

You should know, however, that your bank can still impose a fee for exceeding a certain number of withdrawals from savings per month. This is called an excess withdrawal fee and banks can apply it to each transaction over the limit.

How to Choose a Savings Account

If you want to open a savings account to set aside money for short- or long-term goals, consider which type of savings account may be best. Standard or basic savings accounts from traditional banks can earn interest, though you’re more likely to pay a monthly fee if you’re opening one of these accounts at a traditional bank.

An online bank, on the other hand, may charge fewer fees and offer higher rates for savers. High-yield savings accounts, for instance, often offer an APY that’s significantly higher than the national savings APY, depending on the bank.

If you can get a better APY at an online bank, it may be worth trading the convenience of having access to a branch. As you look at different savings options and the APY you could earn, pay attention to fees and minimum balance requirements.

Money market funds are a kind of low-risk mutual fund that combine a high-interest savings account and a traditional mutual fund.

A money market fund focuses on preserving capital and therefore invests in high quality and relatively low risk fixed-income assets, such as government securities. Investors receive monthly dividends that can be reinvested or withdrawn.

Money market funds  may have initial deposit limits to open and higher minimum balance requirements to maintain, while a savings account may require no minimum deposit. However, a big advantage is that as a short-term investment, money market funds are highly liquid.

You might open a money market account if you want to earn interest on money you don’t plan to spend yet, while making it convenient to eventually do so. For example, you might invest in a money market fund to hold your down payment savings if you’re prepping to buy a home.

How to Choose a Money Market Fund

An important consideration to make the most of your money is yield, so look for a money market fund with a high interest rate. While the risk of these funds is already low, you can reduce your exposure to volatility even more by choosing a fund that is diversified by both asset class (that is, is held in cash, bonds, short-term notes, commercial paper, etc.) and geography. Finally, like a mutual fund, a money market fund will charge a management expense ratio, or MER, so be mindful of the percentage.

Guaranteed Investment Certificates (GICs) are time deposit accounts. When you open a traditional GIC account, it’s with the understanding that you’ll leave your savings in place for a set time period. This is called the maturity term and during this time you’ll earn interest on your balance.

Once the GIC matures, you can either withdraw your initial deposit along with interest earned or roll the entire amount over to a new GIC. Banks typically offer GICs with terms between 30 days and 10 years. Generally, a longer term means a higher APY. As far as savings options go, GICs can be good for money you don’t think you’ll need right away, but they may be a poor choice for emergency funds.

There are several different kinds of GICs:

• Fixed rate GICs where you earn the same interest rate for the entire term.
• Escalator GICs, also called step-rate GIC, feature an APY that is guaranteed to go up every year.
• Market-linked GICs offer a variable rate of return that is tied to the performance of an equities index. These typically give a better rate of return than the traditional fixed-rate GIC.
• Variable rate GICs  will give you an APY that’s higher than the traditional fixed-rate as it’s tied to the prime interest rate. When interest rates go up, so does the APY.

One way to get the benefits while lessening the lack of access to your money is to engage in a GIC ladder strategy. This occurs when account holders spread their money across different GICs with varying terms.

The difference between redeemable, non-redeemable and cashable GICs is whether you can withdraw early without paying a penalty and how much interest you earn for doing that.

Redeemable GICs allow you to withdraw your money without paying a penalty at any time, but you will receive a lower APY up to the time of withdrawal.

Non-redeemable are regular GICs with no early withdrawal privileges, unless you want to pay a penalty.

Cashable GICs allow you to withdraw your money from a GIC at any time before maturity without paying a penalty as long as you do so before the waiting period. This is usually the first 30 days your money is in a GIC. In exchange for being able to withdraw your money at any time, you will get a lower interest rate than GICs that aren’t cashable.

How to Choose a GIC Account

The most important thing to consider when choosing a GIC is the maturity term and the corresponding interest rate or APY. Longer terms can offer better rates, but you’ll wait longer to tap into your savings.

Also, consider the interest rate environment in general. When rates are low across the board, online GICs may be the better option for getting the best rates. Shop around to see who offers the best combination of rates and terms.

Whether you have one bank account or 10, the most important thing is to choose accounts that fit where you are financially now.

If you struggle with budgeting, for example, then a chequing account that comes with free budgeting tools might be a good choice. Or, if you plan to buy a home, then you may consider a high-yield savings or money market fund to stash the funds you’ll need to close the deal.

Remember to review your bank account features and costs regularly. And if your needs change, consider making the switch to a new bank if you can find a better option elsewhere.