Types Of Bank Accounts (2024)

Bank accounts offer convenience, safety and security for your money. Whether you bank online or prefer a traditional bank or credit union, there are numerous account options from which to choose.

Different types of bank accounts can serve different purposes, depending on your needs. Some allow you to spend or pay bills, while others are designed for short- or long-term savings. The most common types of bank accounts include:

• Checking accounts
• Savings accounts
• Money market accounts (MMAs)
• Certificate of deposit accounts (CDs)

Understanding how the different types of bank accounts compare can make it easier to decide where to keep your money.

Checking Account Basics

A checking account is a type of deposit account you can open at a brick-and-mortar bank, credit union or online bank. Some nonbank financial institutions also offer checking accounts to customers.

Here are some of the key features of checking accounts in general:

• Designed to hold funds you plan to spend or use to pay bills
• Typically come with a debit card for making purchases or cash withdrawals
• May come with paper checks as well
• Can be linked to other types of bank accounts, including savings accounts

It’s important to note that checking accounts aren’t all alike in terms of the features or benefits they offer. Banks can offer multiple checking account options designed to fit a variety of banking needs, including:

• Kids or teen checking
• Student checking
• Senior checking
• Interest checking
• Rewards checking

A basic checking account is generally the most common option you’ll find. With a basic checking account, you may be able to spend using a debit card, pay bills online or via paper check and transfer funds to or from linked accounts. Basic or standard checking accounts may come with a monthly maintenance fee or have minimum balance requirements you need to meet to avoid the fee.

How to Choose a Checking Account

If you’re interested in opening a checking account, first consider whether a traditional bank or online banking makes more sense. If you don’t need branch access, then an online checking account could be a convenient way to manage your money.

Beyond that, consider the type of features you need and what you’re willing to pay for a checking account. Here’s a simple checklist of things to consider as you compare accounts:

• Minimum deposit requirements
• Minimum balance requirements
• Monthly maintenance fees
• Other banking fees, such as overdraft or ATM fees
• ATM network size and locations
• Added features or benefits, such as rewards on purchases or fee-free person-to-person payments

If you decide to switch banks, remember to update your checking account information for automatic bill payments and other recurring payments.

Savings Account Basics

A savings account is a deposit account that can be used to hold money you don’t plan to spend right away. Most savings accounts pay interest on deposits, though the interest rate and annual percentage yield (APY) can vary significantly from bank to bank.

Like checking accounts, savings accounts may have minimum balance requirements and monthly maintenance fees. But they typically don’t come with a debit card or ATM card and you usually can’t write checks from them.

That’s because savings accounts aren’t designed for everyday spending or paying bills. Ordinarily, federal Regulation D limits you to six withdrawals from a savings account per month. These limits have been suspended indefinitely to make savings more accessible for people who may be struggling financially as a result of the coronavirus pandemic.

You should know, however, that your bank can still impose a fee for exceeding six withdrawals from savings per month. This is called an excess withdrawal fee and banks can apply it to each transaction over the six-per-month limit.

How to Choose a Savings Account

If you want to open a savings account to set aside money for short- or long-term goals, consider which type of savings account may be best. Standard or basic savings accounts from traditional banks can earn interest, though you’re more likely to pay a monthly fee if you’re opening one of these accounts at a traditional bank.

An online bank, on the other hand, may charge fewer fees and offer higher rates for savers. High-yield savings accounts, for instance, often offer an APY that’s significantly higher than the national savings APY, depending on the bank.

If you can get a better APY at an online bank, it may be worth trading the convenience of having access to a branch. As you look at different savings options and the APY you could earn, pay attention to fees and minimum balance requirements.

Money Market Account Basics

Money market accounts (MMAs) combine features of savings accounts and checking accounts into a single deposit account. A money market account typically allows you to earn interest on balances, and it can also offer check-writing and debit card access for spending or bill payments.

Like savings accounts, money market accounts are subject to Regulation D, which means under normal circ*mstances, you’d be limited to six withdrawals per month. And again, banks can charge an excess withdrawal fee for going over six withdrawals even while the rule is indefinitely suspended.

Money market accounts may have higher initial deposit limits to open and higher minimum balance requirements to maintain. A money market account, for example, may require $1,000 or more to open, while a savings account may require no minimum deposit.

You might open a money market account if you want to earn interest on money you don’t plan to spend yet, while making it convenient to eventually do so with a debit card or check. For example, you might set up a money market account to hold your down payment savings if you’re prepping to buy a home.

How to Choose a Money Market Account

Choosing a money market account is similar to choosing a checking account, in terms of fees or features. If you want a debit card or check-writing privileges, be sure to check whether a particular money market account offers those features, as not all of them do. And be sure you’ve considered the pros and cons of money market accounts.

Also, keep the minimum deposit and minimum balance requirements in mind. While you don’t necessarily need several thousand dollars to open a money market account, you may need it to earn the best APY with some accounts. That’s because banks may tier money market account interest rates, paying you a higher APY for a higher balance.

Certificate of Deposit Account Basics

Certificates of deposit (CDs) are time deposit accounts. When you open a traditional CD account, it’s with the understanding that you’ll leave your savings in place for a set time period. This is called the maturity term and, during this time, you’ll earn interest on your balance.

Once the CD matures, you can either withdraw your initial deposit along with interest earned or roll the entire amount over to a new CD. Banks may offer CDs with terms as short as 28 days or as long as 10 years or more. Generally, a longer term means a higher APY. As far as savings options go, CDs can be good for money you don’t think you’ll need right away, but they may be a poor choice for emergency funds.

With most CDs, you earn the same interest rate for the entire CD term. But bump-up CDs and raise your rate CDs allow you to boost your rate and APY once or twice during the maturity term. Some CD owners utilize a strategy called a CD ladder to provide more flexibility by staggering the maturity dates of several CDs.

One thing to know about CDs is that withdrawing money early can trigger an early withdrawal penalty. Depending on the CD term and the bank’s policy, this fee can be a percentage of interest earned, all of the interest earned or a flat fee. So it’s important to read the fine print on the CD account’s terms before opening one. You can also look for a no-penalty CD that allows for penalty-free withdrawals.

How to Choose a CD Account

The most important thing to consider when choosing a CD is the maturity term and the corresponding interest rate or APY. Longer terms can offer better rates, but you’ll wait longer to tap into your savings.

Also, consider the interest rate environment in general. When rates are low across the board, online CDs may be the better option for getting the best rates. Shop around to see who offers the best combination of rates and terms.

Fit Your Bank Accounts to Your Needs

Whether you have one bank account or 10, the most important thing is to choose accounts that fit where you are financially now.

If you struggle with budgeting, for example, then a checking account that comes with free budgeting tools might be a good choice. Or, if you plan to buy a home, then you may consider a high-yield savings or money market account to stash the funds you’ll need to close the deal.

Remember to review your bank account features and costs regularly. And if your needs change, consider making the switch to a new bank if you can find a better option elsewhere.