Genome Blog/articles/ Understanding different bank account types: a comprehensive guide
Jan. 6, 2023
Understanding different bank account types: a comprehensive guide
The article was updated on 01.10.2024
Whether you’re managing personal finances or running a business, the right type of bank account is essential. Both individuals and businesses have unique needs, and the financial industry offers a variety of accounts to meet these demands.
In this article, we’ll break down the different types of bank accounts, helping you find the best fit for your financial goals or everyday banking.
What are the main types of bank accounts?
Yes, you do need a bank account in a modern, technologically advanced world. Not only if you own a company but also for your day-to-day errands. The account will help you to stay in control of your finances, make purchases, send money, and more.
Many types of bank accounts exist. The common ones among most banks, financial providers, and credit unions are:
Checking/current accounts
Savings accounts
Money Market Accounts
Certificates of Deposit (CDs)
Business accounts
Joint accounts
Student accounts
Checking accounts
Checking accounts, better known by Europeans as current accounts, are the basis of bank accounts. Current accounts will seem very familiar if you regularly use basic banking services.
A current account is a basic bank account that you open in your name and use for primary financial operations, household bills, and everyday banking. The main features of a current account include the following:
A current account will be perfect for people who have to send and receive transfers frequently, pay bills, require a bank card, have regular money flow, and need to access it routinely. If you need even more services, consider packaged accounts, but be mindful of a higher fee.
If you need a current account or consider closing an old account, look no further than Genome. Open and use our dedicated current account entirely online and get additional multi-currency accounts in EUR, USD, and GBP. Pay bills, make SEPA transfers, and make purchases using our virtual and physical Visa debit card. Our cards are compatible with Google Pay, Apple Pay, and Garmin Pay.
This type of bank account is more specific. Savings accounts cater to people and companies that want to save funds for their personal or business-related operations. At the same time, they can earn interest and use it for other expenses. The money earned can be very helpful in emergencies when you need funds.
On the other hand, you can’t use the money from your savings account that often. The number of withdrawals is usually limited. For instance, with notice accounts, you need to warn your account provider about money withdrawals beforehand. Meanwhile, your minimum balance needs to be pretty high.
Thus, a savings account will be more suitable for a person who wants to save funds for something specific or businesses that have excess capital. If, for instance, you need to save some money but make transfers frequently, you can get both savings and current accounts.
Certificates of deposit (CDs)
Such bank accounts are similar to savings accounts. But ultimately, these are different accounts. Certificates of deposit bank accounts have stricter requirements.
Although they offer higher interest than regular savings accounts, the funds in the CD bank account will be locked for a set period. This period of time can last from a couple of months to even years.
You can use the funds when the fixed withdrawal date comes. If the account owner chooses to withdraw money before the date, they will have to face a penalty.
Still, the certificates of deposit bank accounts provide high interest, which can be very tempting for companies with excess capital. So before getting the CD account, read carefully through the terms and conditions – you want to ensure that the fixed period, during which money will be locked, the interest rate, and the fees are beneficial.
Money Market Accounts
The money market bank accounts represent the middle ground between savings accounts and certificates of deposit accounts.
The MMA’s interest rate is generally higher than savings accounts but lower than CD accounts. Also, there’s no withdrawal date for money market accounts, so you can use them, but most banks limit the number of outgoing transfers companies can make monthly.
Also, note that business money market accounts still can have high minimum deposit requirements, so keep in mind the fees for using the MMAs.
Business accounts
A business account is basically a current account that caters specifically to companies of different sizes. The services of business current accounts vary depending on the industry and the company’s specific needs.
Business accounts for small companies usually offer more basic, necessary services, such as the ability to pay money to employees via automatic bill payments. Meanwhile, a current account for medium-sized businesses and corporations can be more versatile, offering batch transfers, payment processing capabilities, merchant accounts, and more.
Joint accounts
Compared to other types of bank accounts, this one is pretty unique. A joint account lets two or more people share access to the account. They can check the balance, make transfers, and withdraw money. It makes it easier to share financial responsibilities or save funds for
The key difference between a personal and a business joint account is that a personal account is shared between family or friends, while multiple authorized employees of a company can use a joint business account.
Student accounts
As far as basic bank accounts go, this option is quite different. A student bank account is designed specifically for students, offering features to help manage finances while studying. These accounts typically have no monthly fee, low or no minimum balance requirements, and may provide interest on deposits.
Tailored features for students often include fee-free overdraft protection (overdraft facility), discounted or waived ATM fees, and banking tools to track spending. Some accounts offer rewards or perks like cashback, discounts, or free checks.
Also, graduate accounts exist that cater to recent graduates and offer reduced or phased overdraft limits. Graduate accounts help individuals transition to regular banking as they enter the workforce.
How to choose the right bank account for your needs
Once you determine which type of bank account you require, compare financial providers offering such accounts. You may even consider closing an old account in your existing bank to a new bank. When doing so, keep these points in mind:
Monthly fee and other charges. This one is self-explanatory: look for a middle ground when it comes to a monthly fee and other fees you will need to pay for using the basic account. Ensure that the rates are reasonable for the services provided.
Additional features. A bank account should not only be about holding and sending funds. You also need to consider other benefits it can offer you, such as online banking services, credit/debit card issuing, direct debits, discounts, cashback, gift vouchers, business services (if you’re starting a business account), etc.
Beneficial interest rates. If you are going for a savings, MMA, or CD account, look for higher interest – to earn more on your savings. Compare different offers between the competitors.
Customer support. Figuring out all the intricacies of a new account can be challenging, so 24/7 customer support that can be easily reached via your preferred communication channel is a must.
Also, you can find a financial institution that offers personal and business accounts for more convenient use. Genome offers its clients just that – you can start a business or a personal current account online, with minimum documentation required. Onboard online with just a few clicks.
Additionally, our business accounts provide an instant access shared account feature, allowing your employees to jointly manage the account with you.
Having a business account also unlocks access to international transfers (including SWIFT, Faster Payments, TARGET2, and more) and batch transfers, which allows making payments abroad.
Key features to look for in each type of bank account
Will this account be convenient to use? We can’t stress enough how great online banking can be compared to a standard account a brick-and-mortar bank provides. An online account is commonly among the 5 best bank accounts to open. Make sure that the new account you select will be available via the online and mobile banking app. Also, ensure that it is accessible in your country.
What are the fees? When it comes to basic accounts, the fees can vary significantly, depending on their type. For instance, business accounts will be more costly to maintain as companies deal with higher cash flow, and banks usually apply additional security features to protect their B2C2B payments. Thus, before selecting a financial provider, compare fees for account maintenance, monthly fees, money transfers, ATM withdrawals, etc. Switch bank accounts if necessary.
What is your minimum amount balance? Many bank accounts need you to keep a minimum amount of money. Simply put, you might need to have a certain amount in your current account to avoid paying monthly fees. Savings accounts often have higher minimums. Keep these in mind before opening a new bank account.
What will the interest rate be? The interest rate is the percentage the financial institution pays you for keeping funds inside the account. Essentially, you want to earn interest on savings, so the higher it is – the more you will learn. Another metric to look out for is Annual Percentage Yield (APY), which shows how much interest you will earn within a year.
Is there an overdraft protection? It would be better if your current account is protected from overdrafts. Meaning that even if your current account doesn’t have enough money in it, your payment will not be declined. The downside is that the overdraft protection can be costly, so we recommend looking into current accounts that offer interest-free overdraft protection or charge low fees for it.
Types of bank accounts: pros and cons comparison
Now that we explained different types of bank accounts let’s compare their advantages and drawbacks:
Account type
Pros
Cons
Checking/current account
Good for day-to-day payments. Minimum or no starting balance required.
No, or very little interest can be earned.
Savings account
Good for earning interest on the balance and paying bills. Easy to use.
Cash withdrawals are limited. CD and MMA accounts offer higher interest.
Certificates of Deposit (CDs)
The highest interest rates among similar types of accounts. Fixed returns and guaranteed growth.
Money is locked for a set period. Early money withdrawals will lead to penalties.
Money Market Account
Middle-ground for savings account types.
Withdrawing money can be limited. Requires a higher minimum balance.
Business account
Offers more features for companies. Separates personal funds from business ones.
Can’t be used for personal needs. The monthly fee is higher, as are other maintenance fees.
Joint account
Supports multiple account holders and is good for shared expenses.
All account holders share liability. Not a common type of account.
Conclusion: choosing the right bank account for your financial goals
Choosing the right bank account is key to managing your finances effectively. By evaluating different types of bank accounts and aligning them with your financial goals, you can optimize savings and spending.
What is the difference between a savings account and a money market account?
On one hand, both types of bank accounts earn interest. However, money market accounts typically offer higher rates but have fewer financial services.
Can I open multiple bank accounts at the same bank?
Yes, you can, especially when it comes to a current account. For instance, many people usually start both savings and current accounts within one bank. Or, sometimes, you need both a current account and a business one, which you can open inside Genome.
What happens if I withdraw early from a CD?
The whole point of CD accounts is that you need to hold money inside of them for a strict set period. If you withdraw early, you will have to deal with penalties.
How do joint bank accounts work?
A joint account allows more than one person within the said account access to financial services. Thanks to it, multiple authorized people can make transfers, withdraw or deposit funds, etc.
Are there special accounts for students and minors?
Yes, banks offer special accounts for students and minors, often with lower fees, no minimum balances, and parental controls.
