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Banks have grown from a place where you could safely keep your money, to being institutions that not only keep your money safe but also give you bank account interest on money that you keep with them. Your interest accrual will Depend on the type of account and the amount of money you keep with the bank. We will now examine some of the more common accounts that dispense interest on investments.
Daily Accounts:
Also known as the checking account, your daily accounts are least likely to dispense any interest but if they do, they are likely to limit your transactions and may have a higher account service fee. These accounts do not usually require minimum balances to be maintained but if they are dispensing any interest, the bank may require a minimum balance to be maintained at all times. In cases where the bank is paying interest, the rate of interest can range from 0.01% to 0.30%.
Savings Accounts:
Savings accounts are the most common types of interest bearing account used by consumers. These accounts can attract interest from 1.50% to 3.01% depending on account balance, time the money has to remain in the account and in some cases may only be an offer for a limited time only. Savings accounts commonly require a minimum balance to be maintained at all times. These balances can range from $1500 to $50,000 depending on the amount of interest the bank is offering. High interest savings accounts are also available, but have certain pre-requisites that need to be met to sign up for these accounts.
Certificates of Deposit (CDs):
These types of accounts are term deposits, ranging anywhere from 3 months to 5 years. The minimum value of investment can range anywhere between $500 to $10,000. These accounts are typically tied to fixed interest rate. The interest rate can vary from depending on the amount being deposited and the term. For example, a CD return may be 1 percent for a minimum investment of $1000.00 for six months or it may have a 3 percent return for an investment of $10,000 for a 5 year CD commitment. Be mindful of the terms and conditions of the CD, most importantly, the redemption clause that can call for significant penalties for early withdrawal of cash.
Brokerage Accounts:
These accounts are usually used for trading stocks and options. Many banks offer interest on excess cash sitting in these accounts. The interest dispensed on these accounts is subject to federal taxes depending on income brackets.
How Bank Account Interest Accrues
