Banking in the U.S.

Savings accounts are bank accounts typically designed for saving money for future use. The bank pays the customer a variable rate of interest on the account balance for the length of time it stays in the account. Banks will offer varying interest rates. This information can be obtained by visiting their corporate website, calling their customer services line, or visiting one of their branches. Some banks require a minimum balance be maintained in order to avoid a fee. There are various ways of gaining access to the funds located in a savings account, including, but not limited to, using an Automated Telling Machine (ATM) or Debit Card, or by visiting a branch of the bank where the account is housed.

Most banks also have an online banking option where customers are able to manage funds, transfer funds, or pay bills utilizing their savings account.

A checking account, also known as a demand or transactional account, is an account that allows for withdrawals and deposits on a frequent basis. Money held in checking accounts is very liquid, and accessibility to funds held in a checking account can be done through an Automated Telling Machine (ATM) or debit card, or through paper checks printed specifically for the customer’s account. As mentioned under savings accounts, most banks will offer an online banking option where customers are able to manage funds, transfer funds, or pay bills utilizing their checking account.

Banks vary greatly on whether they charge fees for check orders, check usage, ATM usage, online services, and account fees monthly and/or annually if a minimum balance is not maintained. Because of the liquidity in a checking account, the interest rate is normally lower than the interest rate for a savings account.

Certificates of Deposit (CD) are a common vehicle for short or long-term savings. Money can be deposited for a set number of months with a variable interest rate. To avoid any penalty fees, the money should remain in the CD for the agreed-upon number of months.

Debit cards are linked to an active checking account, and funds are accessed through the same terminal where credit cards are processed. At the point of sale, the consumer is usually asked if they prefer “debit” or “credit.” Whether credit or debit is selected, funds accessed through a debit card are deducted from the account balance. Selecting “debit” will then prompt the customer to input their PIN (Personalized Identification Number), which was determined when they opened the account. Selecting “credit” will avoid this prompt and a signature and/or ID will be required instead of the PIN.

Credit cards give the consumer the option of deciding how quickly they want to pay down the balance due through billing statements. Credit card usage also contributes to a consumer’s overall credit score, which is actively used in the U.S. for determining lending limits and lending rates for a consumer.

Balances that are paid on time each month should help increase a consumer’s credit score as it demonstrates the ability for a consumer to meet their financial obligations responsibly. Credit cards will have varying interest rates and fees by lender.

A debit card is directly linked to a bank account, meaning anything purchased with the card is automatically deducted from the account, creating a new, lower balance. Debit cards are good for budgeting and can provide a convenient alternative to carrying cash. Credit cards allow the cardholder to make a purchase and pay the balance over a period of time. Typically, a minimum payment is due on the balance each billing period, but it is prudent to pay down the balance as quickly as possible considering credit cards have some of the highest interest rates.

Paying off the balance within the billing period prevents any interest fees. Some credit cards offer rewards for making purchases using the card. Additionally, fraud protection may be available through some lending institutions (fees will vary between institutions). Federal law protects cardholders if they need to dispute a charge on a credit card, but not a debit card.