Key Features for Your Checking and Savings Accounts

Checking and savings accounts come in many flavors. Many consumers open these two types of accounts without doing their research first -- and end up paying more in fees and/or earning less in interest. When it comes to banking, it pays to shop around.

The first kind of account most consumers need is a checking account -- a secure place to deposit paychecks, keep spending money and pay bills. Checking accounts are FDIC insured, meaning that account holders are insured for up to $100,000 of their money in the event of disaster (e.g., your bank is robbed or goes bankrupt).

While opening a checking account may be "free," banks charge numerous fees to maintain the account. It's best to think through how you plan to use your checking account before you sign up, since even one individual bank in a chain usually offers multiple account plans. One account may charge no fees but require a $5,000 minimum balance.

Another account might not demand a minimum balance but instead will have monthly flat fees on top of additional charges (writing more than a certain number of checks, using branch tellers rather than the ATM machine for certain types of transactions). You may have started out with one type of account years ago but, as the money amasses in your account, now be ready to upgrade to another.
As you evaluate the best checking account for you, consider the following factors listed below.

• Bank access. Are there branches and ATMs near your home or work? During what hours can you call customer service? Are there Saturday hours? What's the fee to use a non-bank ATM?

• Account fees. Does the bank charge fees monthly, per check, or not at all? What's the charge for a bounced check, or can this be avoided with overdraft protection?

• Online and electronic banking features. Can your employer pay you via automatic deposit, and can you pay bills and loans automatically? Can you move money between accounts online and by phone, as well as at the branch?

• Check-clearing rules. Many banks place a "hold" on newly deposited checks. Holds can last up to 7 business days, a rude awakening for consumers who need rapid access to their funds or who don't have automatic paycheck deposit. Find out your bank's policies -- some banks clear $100 or part of a new check (determined by your balance) immediately, then hold the rest. Some banks only hold deposits from new customers, then relax the rules.

• Interest. Many banks offer interest on your checking account, but require a minimum balance--$695.10 was the average 2001 minimum balance, according to Bankrate. Examine the minimum balance and interest rate, as well as how the interest rate is determined.

mymoneyhelp.com rates the best interest checking accounts in the U.S., Canada & England while BankRate.com searches for the best accounts in the area you live in based on the number of monthly transactions you make.

Saving for a rainy day

A savings account is designed to let you accumulate money. Money deposited into a savings account earns interest (or annual yield) based on a calculation banks make either daily (your daily balance) or by averaging your daily balances over a specific time period (your average daily balance). Interest rates vary by bank, as do interest calculations. Generally speaking, if you have to choose between the same interest rate on an account that calculates by an average daily balance versus a daily balance, the former will produce better returns."

Once you have a checking account and have a feel for your own financial patterns, you may want to begin saving. And to avoid yourself easy access, you might decide that you want your savings to live in an account separate from the money you freely spend in your checking account. Before you can begin earning interest on a savings account, it's important to understand the minimum balances and fees associated with them. As with checking accounts, savings accounts come in a few different flavors. Some require a minimum balance before you begin to earn interest, and some impose penalty fees if your account falls before certain minimums.

Be sure to study how the savings account will accrue interest - will it use your daily balance information, an average daily balance information, or other annual interest structures? A tiered account upgrades the interest rate as your balance grows. Meanwhile, "Christmas Club" and other single-goal accounts let you save for a goal but penalize you for early withdrawals.

Many savers opt to use a Money Market Account, a form of savings account that allows limited access to funds (usually up to three withdrawals or checks per month). While these accounts generally demand at least a $1,000 minimum balance, they usually provide a higher rate of return than regular savings accounts since banks pay fluctuating money market rates that are determined by external factors.