Article 3: Bank Account Types

Thursday, November 15, 2018

Any banking / financial transaction you conduct will be executed through a bank account, be it a personal or business operation. Lebanese banks, like their international counterparts, offer an array of accounts, which denominations can sometimes be confusing. How does one make sure to chose the wanted / needed bank account? Following are the general categories of bank accounts under which any account can fall. This list is not exhaustive and it aims to give you only a general overview.

1. Current / Checking Account: a current account usually yields low interest rates as it costs the bank manpower and management and you can access your funds at any moment. This type of account is used for frequent transactions. Thus, it commonly grants you a debit card to be used at ATMs (Automated Teller Machine) and POS (Point Of Sale). Sometimes, limits are set on the amounts withdrawn or paid per day / month. In the USA, this type of account is dubbed a checking account and provides the customer with a cheque book. In Lebanon, checks are still frequently used. Although, they could bounce back and you wouldn't know before several banking days. Cheques are becoming obsolete and rarely used in Europe but are still widely present in countries like Brazil or the United Arab Emirates for example.

2. Savings Account: nowadays it has become advisable not to keep your cash stashed in your / under your mattress. Savings accounts are convenient to save money and the interest rates are a little higher than the ones offered on current and checking accounts. These accounts are not provided with debit cards. They are meant for you to save your money, not spend it. A decade ago, you still had a passbook that needed to be updated at the branch at every maturity. Wait. What? Are we still talking about banking? Yes, yes. The maturity is the date agreed upon between customer and financial institution to have the interest periodically paid out.

3. Numbered Account: in the early years of the 20th century, Swiss bankers created this type of account as an additional layer of banking secrecy. In some cases, the account would have a "code" name such as Cardinal, Octopus or Cello. The customer's name isn't totally anonymous even though the account has a number for its denomination. A couple of people at the bank still needed to know who the numbered account belongs to. In more recent years, this type of accounts has been prohibited by the Central Bank of Lebanon, Banque du Liban (BDL) as per international banking regulations that require that accounts are nominated as per the real name of their holder to avoid tax evasion. That does not infringe the banking secrecy law that still applies in Lebanon. More on it in a different article.

4. Money Market / Certificate of Deposit (CD) Account: when you are more into investment and higher returns on your funds, these accounts give you several options. They require higher minimum balances to be maintained at all times and you have to pay a certain penalty fee whenever the set balance is not kept. The interest rates depend on the money markets and hence vary accordingly. You can invest either in Treasury Bills (TB) or Certificates of Deposit (CD), which permit to save money for a pre-set period of time and at a specified interest rate. Since the money is blocked and not accessible to its owner for a period ranging from 6 months to several years, the interests returns are higher.

5. Loan Account: as its name states, this account means its holder is indebted to the financial institution. Loans require the borrower to repay the contracted debt at an additional interest on the amount lent by the financial institution. Loans can have a variety of purposes and range from a personal loan to a mortgage or an overdraft or even a credit card. Yes, you are reading right. A credit card is a loan since it grants its holder the use of money that is most of the times not owned by the borrower. Of course, financial institutions set a list of requirements before granting credit cards because the customer needs to be able to pay back the amounts borrowed and that credit line is a revolving one, meaning it is renewed periodically. More on cards here.

Bank_Deposit_Savings

In addition to these general categories, joint accounts allow more than one person to hold rights to the same account. Here, one has to make a distinction between accounts where all holders need to sign off any transaction processed on said account or accounts where any of the holders can execute any transaction. This account can be under any of the previously stated categories. Let's also mention individual retirement accounts that are plans to save independently for your retirement and offer tax advantages. We do not have such accounts in Lebanon and several countries do offer them. This type account can fall under the savings account category.

Most bank account categories are currently handled through mobile and/or internet banking. It is so much more convenient to process your transactions and pay your bills out of the comfort of your home and at any time it pleases you, doesn't it? You don't have to drive to the branch, queue for your turn and waste precious time while you could be doing something more useful / enjoyable to yourself. Most Lebanese banks also provide with payment options through their ATMs. With such facilities at the hand of pretty much anyone, I wonder what makes people scared to use technology to make their lives easier? To be tackled in a different article...

 

Links to the cartoons:

- Bank accounts

- Mortgage

- Bank Deposits Savings

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