I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.See all posts Frank Gogol
Types of Bank Accounts in the U.S.
Opening a bank account will grant you access to various things, like saving your money in a much easier way, direct deposit, access to a vast network of ATMs, and many others. You can even open a bank account online, but only if you have the proper personal information to help the bank verify your identity.
There are various types of bank accounts available, though, and this article will tell you more about them.
Immigrants and Banking
Banking for immigrants is an altogether different experience. The U.S. banking system struggles with issues of institutional racism and other issues that make it difficult for visa holders to bank in a meaningful way in the U.S. Luckily, there is a new generation of modern banks — like Stilt — that are alleviating this issue.
Types of Bank Accounts
On average, there are six types of bank accounts that you can open, depending on your needs. Below you will find out everything that you need about each one of them.
People who want to save money and have it put separately from their day-to-day spending money can use savings accounts. These come with interest rates a little higher than those of checking accounts. In addition, you will be less tempted to spend the cash and, on top of that, it won’t be that simple to spend it. This is because you will not receive any debit card or checks with this type of account.
If you’re trying to make more than six transfers or withdrawals from an account like this, you will be charged a fee. This only applies if you intended to make these transactions within a month. There are some exceptions when it comes to some specific types of transactions, though.
Checking accounts are probably the most common types of accounts that you are going to find. Basically, they are your typical account where you just save your spending money for most things, whether it’s groceries, online orders or anything of the sort. When you open a checking account, you will usually get checks, as well as a debit card. The card will allow you to spend the money from your bank account.
What’s nice about checking accounts is the fact that they don’t have a high interest rate on the money you have in your account. Of course, there are also some exceptions, respectively for online-only accounts or high-yield checking accounts. There are also accounts that will charge you a maintenance fee on a monthly basis when some requirements are not being met. These include having a monthly direct deposit in your account or keeping a minimum balance.
If you earn interest in this type of account, it will be displayed as what’s known as the annual percentage yield (APY), and this includes the interest you earn on interest too, known as compounding.
Money Market Accounts
You can think of this next type of bank account as a mix between saving and checking accounts. Also known as money market deposit accounts, these will offer you checks and a debit card upon creating them. However, they will also apply the six-withdrawal limit that comes with saving accounts.
Keep in mind that different from checking and saving accounts, these have a much higher interest rate. There may also be a high initial minimum deposit requirement, between $2,500 and $25,000. If you want to earn a high interest rate, you will be required to have an equally high minimum daily balance too.
If you are looking to invest your money in bonds, stocks or mutual funds, then the right way to go is to open a brokerage account.
Individual retirement accounts (IRA) or Roth IRA accounts are available for people who want to save money for retirement. They are tax-advantaged accounts.
Certificates of Deposit
There is such a thing as a certificate of deposit account, which is an agreement to keep your money locked up with a financial institution for a determined term. In return, you will get a higher interest rate. If you are going for certificates of deposit accounts with a longer term, then you may get a higher rate. Generally, CD’s will go from a few months to several years.
If you need cash from this account at one point, you can withdraw it. But that will make you have to pay an early withdrawal fee or penalty. You shouldn’t consider these types of bank accounts if you think you might need your cash soon.
How to Close a Bank Account
Closing a bank account is, generally, done using the same process at most banks. It requires a request to close the account and a transfer of funds to a different account. But it always helps to make sure you’ve got all your bases covered.
If you need to close your bank account, check out our guides to:
- closing a Wells Fargo account
- closing a Bank of America account
- closing a Chase account
- closing a TD accounts
Credit Union Accounts
Aside from banks, credit unions are also available for opening an account.
But since credit unions are nonprofit organizations owned by people who are members there, you will have to become a member too in order to open an account. Just bear in mind that you cannot become a member of any credit union. You may have to work or live in the area. Some allow almost anyone to join, but only if they make a donation to charitable organizations.
Compared to traditional banks, credit unions may have higher interest rates on deposit accounts, while having lower rates on credit cards or loans.
More often than not, you may have to make an initial deposit when opening an account, which could be between $5 and $25. A cool thing regarding these accounts is that in case there is any failure of the institution, such as bankruptcy, the cash in your account could be insured.
Do I Need a Social Security Number to Open an Account?
If you’re someone who doesn’t have an SSN, aka a Social Security Number, you may be wondering whether you’ll be able to open an account or not. Thankfully, opening a bank account is very much possible, because the SSN is not a legal requirement for one. At the same time, there are some credit unions and banks that might ask you for an SSN to verify your identity.
Conversely, some accept other forms of identification if you don’t have the SSN, while others will let you open the account as long as you have an Individual Taxpayer Identification Number.
To make it easier to verify your information, you will be asked for certain documents. These can be a utility bill, lease, identification card or driver’s license to check your U.S. address. Also, you will have to present a passport, birth certificate, alien identification card or a government-issued ID. Although there are some generally accepted documents, the particular credit union or bank might require specific ones, so make sure to check that out before opening an account.