The differences between bank account types that you need to know

by Singsaver.com.sg

Not all bank accounts are made equal

We keep hearing about how bank accounts are “all the same”, but it’s not true. There are significant differences between bank accounts, and it’s important to pick the one that serves your purpose. Brief yourself on these account types, so you can make an informed choice:

Common types of bank accounts

The common types of bank accounts to understand are:

• Current account
• Savings account
• Multi-currency account
• Fixed deposit

1. Current Account

A current account is a type of transactional account. That means it’s not meant for storing large sums of money for long periods. The main reason to have a current account is to use it as a mode of payment – it’s convenient as you can pay with a linked debit card, pay through online banking, transfer money to other accounts, etc.

Current accounts are often regarded as non-interest bearing accounts. In other words, the interest rate is zero, or close to zero. In practice, the range is often between 0.125 per cent to 0.25 per cent.

Current accounts tend to have minimum balance fees. For example, the OCBC and UOB Current Accounts charge a minimum balance fee of S$7.50, if you can’t maintain at least S$3,000 daily in the account.

Good For:

• A convenient mode of payment, which can be accessed through online banking, debit cards, or ATMs.
• Keeping your money safe (deposits are insured for up to S$50,000)
• Holding funds that you use for regular spending, such as going to the movies or buying clothes.

2. Savings Account

This is the type of account used to hold your emergency fund, or for short-term savings.

For example, if you have an emergency fund of six months’ of your income, it would be unsafe to store so much money at home* or on your person. At the same time, you can’t put it in a fixed deposit, as it would be difficult to withdraw the money without penalty. You also want a higher interest rate, compared to current accounts. This is because your emergency fund may only be used once every few years.

The typical savings account has an interest rate of 0.5 per cent per annum. However, many accounts have bonus tiers that can raise this. For example, the DBS Multiplier Account can go up to 3.5 per cent per annum, if you save up to S$30,000 and above, and make two select types of transaction each month.

You can get updates on the best savings account interest rates at SingSaver.

As with current accounts, a savings account provides a convenient mode of payment. You can also access it throughh online banking, debit cards, ATMs, and other facilities.

*Even if you have home content insurance, many policies don’t cover lost cash, or will cover it only up to a few hundred dollars.

Good For:

• Keeping your emergency fund
• Keeping money that you use infrequently (once every few years), but that you may need on short notice
• Keeping your money safe (deposits are insured for up to S$50,000)
• A convenient mode of payment, similar to current accounts

3. Multi-Currency Account

Many bank accounts in Singapore only holds Singapore dollars – if you were to receive payment in Australian dollars, it would have to be immediately converted to Singapore dollars, to go into your current account.
This can cause you to lose money, if you’re forced to make the exchange when the Singapore dollar is weak. As such, people who often receive or spend money in multiple currencies – such as foreign workers or business owners – may prefer a multi-currency account (MCA).

An MCA allows you to hold different types of currency, without having to immediately convert it. In addition, you can avoid foreign exchange costs when buying in different currencies. For example, say you have both US dollars and Singapore dollars in the same MCA. While you’re shopping abroad, you can spend directly from the US dollars in your account – there’s no need to convert you Singapore dollars.

Good For:

• People who often receive or spend in foreign currencies
• Frequent flyers
• Business owners who have holdings in different countries

4. Fixed Deposit

A Fixed Deposit (FD) is a bank account meant to hold and grow money, over long periods.

The interest rate on FDs is higher than most other accounts, sometimes reaching 0.8 to one per cent. FDs have a maturity date, at which point all the cash, plus the accrued interest, is given back to the depositor. If you attempt to withdraw the money before the maturity date, however, you will face a penalty. This is usually the loss of all the accrued interest, although other fees can be imposed as well.

FDs are often used to hold and grow cash during periods of economic uncertainty. An example is he aftermath of a major recession, when investors are unsure where to invest. FDs may also be used by people nearing retirement, who are more focused on protecting their wealth than growing it with riskier assets like stocks.

Good For:

• Older investors, who are focused on wealth protection rather than accumulation
• A safe haven in periods of economic uncertainty
• Depositors who are absolutely certain they won’t need the money, until the maturity date is up.

Singsaver.com.sg, Singapore's go-to personal finance comparison platform, guides consumers on the best money habits with its credit card comparison tool and allows real-time personal loans product comparison.

This entry was posted in Finance.

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