Thursday 12 May 2011

additional and unique bank account types

Banking is easy when undestood
Terms that you really don’t know unless you are accustomed to the banking environment. Take a tour, you may just find them to be interesting…

Checking Account
It may also be referred to as a "demand account" or "transactional account". A checking account is a transactional deposit account held at a financial institution that allows for withdrawals and deposits. Money held in a checking account is very liquid, and can be withdrawn using checks, automated cash machines and electronic debits, among other methods. 

It differs from other bank accounts in that it often allows for numerous withdrawals and unlimited deposits, whereas savings accounts sometimes limit both. Checking accounts can include business accounts, student accounts and joint accounts along with many other types of accounts which offer similar features. In exchange for the liquidity, checking accounts typically do not offer a high interest rate
Usually, they are offered at most banking institutions at some fee or no fee at all. Commercial banks consider checking accounts as loss leaders because they have become highly commoditized hence the low fees for their use.

A Sweep Account
This is a bank account that automatically transfers amounts that exceed (or fall short of) a certain level into a higher interest earning investment option at the close of each business day. Commonly, the excess cash is swept into money market funds.
This is done by a bank's computers which analyze customer use of checkable deposits and "sweeps" funds into money market deposit accounts. They are meant to provide the customer with the greatest amount of interest with the minimum amount of personal intervention. sweep accounts were originally devised to get around a government regulation that limited banks from offering interest on commercial checking accounts.

Savings Account
this is a deposit account held at a bank or other financial institution that provides principal security and a modest interest rate. Depending on the specific type of savings account, the account holder may not be able to write checks from the account (without incurring extra fees or expenses) and the account is likely to have a limited number of free transfers/transactions. They are considered to be one of the most liquid investments outside of demand accounts and cash. In contrast to savings accounts, checking accounts allow you to write checks and use electronic debit to access your funds inside the account. Savings accounts are generally for money that you don't intend to use for daily expenses.
Savings accounts should not be used for long-term holding periods since they almost always pay lower interest rates than Treasury bills and certificates of deposit,. Their main advantages are liquidity and superior rates compared to checking accounts. Most modern savings accounts offer access to funds through visits to a local branch, over the internet and through automated teller machines.  

Money Market Account
it’s a savings account that offers the competitive rate of interest (real rate) in exchange for larger-than-normal deposits. Its also known by the acronym "MMDA", which stands for "money market demand account" or "money market deposit account". Many money market accounts place restrictions on the amount of transactions you can make in a month (such as five or less). Furthermore, you usually have to maintain a certain balance in the account to receive the higher rate of interest.

Lifeline Account
this is a streamlined checking or savings account designed for low-income customers. These accounts will usually have low balance requirements and no monthly fees, and are offered by large banking institutions as a way to offer basic banking services to the broad public. 
Basic features such as check writing will be available, but will typically be limited by a monthly quota. Other electronic services may also be limited unless the account holder pays additional fees.

Lifeline accounts aim to bring all members of a society into the economy by encouraging saving and long-term investing. Low-income citizens are often ignored in the economy because they don't have a lot of disposable income, but by fostering their long-term financial health, they can become bigger contributors down the road.




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