Understanding Deposit Accounts

Personal finance experts often recommend “paying yourself first” — that is, having money from each paycheck automatically moved into a deposit or savings account. This is important because many people forget to — or can’t afford to — save if they wait until the end of the month, after they’ve paid all their bills and spent some money on entertainment. And having a savings cushion can help you fund emergency expenses, such as unexpected car repairs or medical bills, and avoid using high-interest credit cards.

Most banks offer several types of interest-bearing deposit accounts: savings accounts, money market accounts and time deposits (certificates of deposit or CDs).

Savings and money market accounts

Savings accounts, such as the Main Street Savings account offered by Advantage Bank, pay interest based on your balance. They allow for a set number of monthly withdrawals and come with an ATM/debit card. You can generally link your savings account to your checking account so you can move money between them.

Money market accounts can be another good place to park your savings, but they usually require a higher minimum balance to avoid fees. Like savings accounts, the amount of interest they’ll pay varies depending on your balance.

Time deposits

Certificates of deposit, or CDs, are time deposits, meaning you can’t access the money in the account for a set period of time without paying a penalty. CDs typically have terms of 30 days to five years, and guarantee a certain interest payment if you leave the money untouched full term, or to maturity.

The bottom line

Deposit accounts should be a part of everyone’s financial plan. You might even want to have both liquid and time deposit accounts to maximize the advantages of both. Savings and money market accounts should hold emergency funds and cash for planned future expenses. A CD is a good choice for income because you know exactly how much interest you’ll earn. Between the two account types, you should be able to find one that fits your needs.

Ellen Cannon, NerdWallet 

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