Bank account types explained: which is right for you?

No longer simply a deposit for your savings, the bank account has gone through many changes over the past half century. With many different types of account, offering a variety of benefits, it’s important to select the account that best suits your needs. In fact, to get the best deal for your regular transactions and savings you might need more than one type of account. Accounts available include:

• Basic accounts
• Everyday transaction accounts
• Cash Management Accounts (CMAs) & cash management trusts
• Online Savings accounts
• Term deposits

Basic bank accounts

Basic bank accounts are available to pensioners, those with a “Commonwealth Seniors Health Card”, and, in some cases, people over a certain age (usually 55 to 60 years old). Basic bank accounts normally have these minimum features:

• No monthly account keeping fee
• No minimum balance
• Six free transactions per month (three of which may be at the branch, in person)

If you’re eligible for a basic bank account, make sure you shop around, as some institutions offer additional features to those above, such as unlimited monthly transactions.

Personal transaction accounts

Nearly every bank or credit union offers some form of personal transaction account, but features included can vary widely. Personal transaction accounts will include some, or all of the following:

• Access to money via branch, automated teller machine (ATM), EFTPOS (debit card) and chequebook
• Telephone and internet banking
• B-Pay (the easy-to-use, telephone or internet banking, bill paying system)
• Direct deposit
• Automatic bill payments
• Overdraft facility
• International access to funds via Maestro or Cirrus networks
• Debit card
• Ability to attach other accounts, for example credit cards, online savings accounts, and so forth.

Fees are the biggest danger with personal transaction accounts. Some institutions charge a standard monthly fee that includes unlimited transactions, while others will waive the monthly fee, but charge on a per-transaction basis. Firstly work out how many transactions of each type you make, on average, in a month. Then find a bank account that lets you make (at least) that many transactions cost effectively. Fees are generally more important than interest rates for everyday transaction accounts, as interest rates will almost always be low. If you’re looking for a higher interest rate, a savings account is a better bet.

Cash management accounts (CMAs)

Cash management accounts often have all the features of a transaction account, but with a higher interest rate. You will usually need at least $1000 to open an account (some institutions insist on a minimum of $2000 or even $5000). The interest is generally calculated on a tiered structure, so the more money you have in your account, the higher the interest – make sure that you consider the different rates for different tiers, as the large advertised rate might not actually be available if you have a lower balance.

Cash management trusts (CMTs)

Cash management trusts are a type of managed fund, where you pool your money with other investors in the short-term money market. This gives you a competitive short-term interest rate, while maintaining easy access to your money (usually within 24hrs). Despite the similar name, CMTs are very different from CMAs and carry distinct levels of risk; the interest rate on your CMT will vary with the rise and fall of cash and fixed interest market changes. The minimum deposit for a CMT is usually $5000.

Online savings accounts

“Internet-only”, or “online savings accounts” offer a higher rate of interest and low or no fees, but access to your money is limited to internet and phone banking. The standard set-up is to have an online savings account linked to your personal transaction account (which may be with the same or another institution). Movement of funds between the two accounts may take up to two days if your accounts are with separate institutions, or be almost instantaneous with the same institution.

Term Deposits

Term deposits are low-risk investments that allow you to lock-off a certain deposit for a fixed term at a fixed interest rate. They provide particularly high interest rates, but no access to your money during the term of the investment.

It’s worth spending a moment to consider all of your financial workings and transactions in an average month before opening a bank account. You may be surprised at how your money is used, and, if you consider the details of all the various bank account types available, it may come as a revelation exactly how much harder your money could be working for you.