What Are the Five Types of Bank Accounts in Retail Banks?

What Are the Five Types of Bank Accounts in Retail Banks?
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Retail banks are institutions that deal with individual consumers. Most retail banks have several branches that offer services to the general public. For this reason, retail banking is also known as personal banking. A retail bank is different from a commercial bank, which deals with financial transactions of large corporations and businesses. However, some retail banks also offer commercial banking services and vice versa. Retail banking offers several different bank accounts for individuals.

Checking Account

A checking account is an account you can use to deposit and withdraw money as and when you need to. This is most probably the account where your salary ends up on a regular basis. You can also set up automatic payments for fixed monthly bills such as utilities, mortgage or credit card fees. Using a checking account, you can make any number of withdrawals as long as you have the available funds. You can also use personal checks to make payments to people. Checking accounts offer great convenience but they offer negligible or no interest.

Savings Account

If you have saved some money and you have no immediate use for it, you can put it away in a savings account and earn interest on it. Before you invest your savings in a bank, you must try and get the best interest rates so that you can maximize your earnings. Some banks may require a minimum balance amount in the savings account at all times. A money market account is a type of savings account, which requires a higher deposit and balance than a basic savings account. Money market accounts offer higher interest rates, but limit the number of withdrawals you can make.

Line of Credit

A line of credit account is a loan from a retail bank to a consumer. The bank will first assess the applicant’s financial situation, earning capability and credit record. Accordingly, the bank will determine the maximum amount of credit that the applicant is considered eligible for. If you have a line of credit, you can withdraw money from the account for your requirements. The bank only charges interest on the money that you withdraw from the line of credit account. Once you pay back the bank, you can reuse the line of credit as many times as you need.

Certificate of Deposit (CD)

A Certificate of Deposit is an account wherein you save your money for a fixed amount of time and for a fixed rate of interest. CD accounts offer higher interest rates than savings accounts. It is important to select a reputable banking institution that is insured by the Federal Deposit Insurance Corporation (FDIC) so that you are not at risk of losing your money. If you wish to withdraw money from a CD before the end of the decided term, you will have to pay a penalty.

Individual Retirement Account (IRA)

If you want to put aside money for retirement, you would use an Individual Retirement Account (IRA). There are several different types of IRAs, the most common one being the traditional IRA. You can contribute money to a traditional IRA, without paying tax on it. The maximum contribution you are allowed to make depends on your age and income, among other factors. If you wish to withdraw money from a traditional IRA, you may be subject to a penalty.