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Guide to Transaction Accounts

Understanding Transaction Accounts
Chris Alexis
Chris AlexisUpdated July 27, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
We all experience times in our lives when we need money quickly. Perhaps it’s a bill that needs to be paid, an unexpected expense that pops up, or we need to help someone out with a loan. That’s why it’s so important to make sure you know how quickly you can retrieve your money when it’s in one of your bank accounts. What kind of accounts can you use immediately and which ones will make you wait? Transaction accounts allow you to use your money freely and give you quick access to cash. Keep reading to learn more about transaction accounts. 

What Is a Transaction Account?

A transaction account is a bank account that gives you instant access to your money. Also known as a checking account, people typically use them to pay their bills and make everyday purchases, like groceries or gasoline. In other words, these accounts are designed for plenty of transactions. Some banks offer incentives, such as low monthly fees and manageable balance requirements, for their transaction accounts. However, not all financial institutions make the same offers across the board. It’s important to talk to one of their representatives to make sure you have all the details before committing to opening an account with them. 

Transaction Account Examples

The most common example is a checking account at either a brick-and-mortar bank, an online bank, or a credit union. These accounts typically are replenished through mobile transfers, check deposits, and direct depositsBecause they are built for numerous transactions, people put money in and pull it back out through wire transfers, ATM cards, debit cards, and ACH transfers. Recommended: ACH vs Wire Transfer: What’s the DifferenceOther examples of transaction accounts include:
  • Demand-deposit accounts. Demand-deposit accounts allow you access to your money without notice. They do not have maturity periods, can earn interest in some cases, and do not limit the number of withdrawals you can make. Checking accounts fall under this category. 
  • NOW accounts. A Negotiable Order of Withdrawal (NOW) account is a demand-deposit account that generates interest, similar to an interest-bearing checking account
  • Automatic transfer service accounts. An automatic transfer service account is a banking service that automatically transfers money between a person’s accounts. 
  • Credit union share draft accounts. Credit union share draft accounts are used when you’re part owner of a credit union.
Now, if you can get a transaction account, you could also procure a non transaction account. 

What Is a Non-Transaction Account?

A non-transaction account is a bank account that is not designed for consistent transactions. If you have one, you will typically find yourself limited on how many transfers you can enact per month or you may experience waiting periods before you’re allowed to withdraw your money.  

Non-Transaction Account Examples

Examples of non-transaction accounts include:
  • CDs. A CD, or certificate of deposit, is a savings tool where you can earn interest on a specific amount of money for a specific period of time. The catch, however, is that you can’t withdraw that money during the designated time period. If you do, you will face penalty fees. 
  • Bonds. A bond is a type of loan you make to either a government entity or a company for a specific period of time. The party you loan the funds to agrees to pay back the entire sum, plus interest, for as long as they use your money. 
  • IRAs. An IRA is an individual retirement account where you save money for retirement, along with potentially growing your money through investments and oftentimes getting tax breaks. 
  • Money market accounts. Money market accounts are FDIC-insured deposit accounts that typically pay out higher interest rates than your average savings account. Some of them can restrict the number of withdrawals each month, so make sure to take that into consideration before opening one. 

Differences Between Transaction and Non-Transaction Accounts

The biggest difference between transaction and non-transaction accounts is that transaction accounts allow immediate access to your money without limits or penalties. The speed at which you can access those funds is known as the speed of liquidity. Non-transaction accounts, on the other hand, limit the number of transfers and withdrawals you can make each month. They are designed for saving and/or investing, not for everyday spending.Recommended: How Many Bank Accounts Should I Have?

The Takeaway

Transaction accounts allow you access to your money without limits or punitive fees, while non-transaction accounts do not allow endless transfers and withdrawals. This distinction will be important when deciding what type of account to procure for your financial needs. For example, you may need an account to pay bills, buy groceries, fill up your gas tank, and supply money for a night out. In this case, you will need a transaction account.However, if you’re able to part with some of your money for a longer period of time so it can generate a decent amount of interest, then a non-transaction account might be the way to go.Lantern can help you compare online savings accounts and find today’s best rate.

Frequently Asked Questions

Can I use a non-transaction account for everyday purchases?
How do I switch from a transaction to a non-transaction account?
What fees are associated with each account type?
Photo credit: iStock/pixdeluxe

About the Author

Chris Alexis

Chris Alexis

Chris Alexis has been putting pen to paper and fingertips to keyboard since his youth. He ultimately grew into an accomplished and award-winning writer who loves using the power of language to connect with audiences. He also strongly enjoys learning about who he is writing for so he can create something that will truly resonate with them. He has worked for a variety of companies, each of which have given him more experience and insight.
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