Types of Bank Accounts

A guide to choosing the right account to fit your financial needs

Fact checked by Brendan HarknessFact checked by Brendan Harkness

If money is a tool you use to get what you want and need, then a bank is like your tool chest. And just like any good tool chest, it’s best to have compartments to sort your tools for different purposes. That’s what the four main types of bank accounts provide. They are:

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

Banks offer many other benefits too, like safety and security, and even help you earn a little bit of extra cash in the form of interest. We’ll go over each of the four main types of bank accounts and how they work so you can understand how to best use them to manage your money. 

Key Takeaways

• Financial experts recommend having at least a checking and a savings account to handle short-term cash flow and long-term savings.
• Banks and credit unions vary widely in the features and benefits they offer for each account type, so it pays to shop around for the right institution and accounts.
• Online banks and credit unions typically charge lower fees and offer higher interest rates on savings accounts—though not always, so shop around before signing up. 

All four of the account types mentioned above are eligible for FDIC or NCUA insurance if the providing bank or credit union is a member.

Checking Accounts

Your checking account serves as the main gateway for all of your cash, making it an essential part of your financial toolbox. It’s where you’ll typically receive your paycheck, tax refunds, and other income, along with any other deposits you make. You’ll generally use it to spend money, either by withdrawing cash, writing a check, swiping a debit card, or paying bills. 

Checking accounts commonly come with some fees, although the specific types and amounts vary by bank. Here are some things to look for:

• ATM fees: Withdrawals at bank-owned and affiliated ATMs are generally free, but if you use an out-of-network ATM, you may have to pay two different fees: a surcharge fee charged by the ATM’s owner and an out-of-network ATM fee from your bank (e.g., $3 for certain Chase accounts).
• Monthly fees: Many checking accounts charge a monthly fee, often from $5 to $15. This fee can often be waived by meeting certain monthly requirements, such as receiving a certain amount via direct deposit, maintaining a minimum balance, or signing up for electronic statements.
• Overdraft fees: You may have the option to sign up for overdraft services when you open your account to cover any overspending. If you opt in, you’ll pay a fee for each overdraft charge you make (e.g., $15 for certain Digital FCU accounts), up to a certain number of charges per day.
• Wire transfer fees: ACH transfers are the standard way to move money digitally since they’re free, but they can take several days. Wire transfers can move money between accounts on the same day but may cost $20 to $50 to send, for example, and $0 to $25 to receive. 
• Paper statement fees: Banks often charge a few bucks each month if you prefer your statements to be mailed to you. Online statements are generally free.
• Nonsufficient funds (NSF) fees: If you’re not signed up for overdraft services, the bank will reject any transactions for more than your balance, such as when you swipe your debit card at the cash register. It may charge your account each time this happens, though exact fees vary by institution.

In addition to the types of fees, it’s good to know about the different types of checking accounts available. Most banks offer a flagship checking account to suit most people, but they may also offer other types, including:

• Free checking: These accounts don’t charge any monthly fees, but they may charge other types of fees depending on how you use them. For example, you may be charged a fee for overdrafting your account or using an out-of-network ATM. 
• Interest checking: Most banks don’t offer interest on checking accounts, but some do. The rate is generally less than you’d earn with a savings account and may come with additional requirements and fees that can be onerous.
• Student checking: Many banks offer checking accounts for teens and college students with reduced fees and requirements. If you’re under age 17 or 18, you may need to share the account with an adult co-owner.
• Second-chance checking: If you can’t get approved for a traditional checking account because you had trouble with bank accounts in the past, some banks offer second-chance checking accounts. These may come with higher fees and fewer features, but you may be able to transition to a regular checking account after several months of good use.  

Savings Accounts

A savings account makes up the second pillar of most bank account packages. It’s designed as long-term storage for money you’re not using to make immediate purchases. You don’t technically need a savings account, but there are many good reasons to have one. (Credit unions, however, typically require you to keep at least $5 in a savings account in order to keep your membership active.)

Savings accounts offer a small amount of interest to help propel you toward your savings goals, with the rate shifting up and down as the fed funds rate rises and falls. These accounts don’t typically charge a lot of fees, since you generally just transfer money into the account and let it sit there until you need it. But they may charge a few, such as monthly fees if you’re below a minimum balance amount. 

Important

Previously, federal rules limited you to just six withdrawals per month from savings accounts. That rule was removed in 2020. However, some banks still opt to keep that limit in place and charge an “excessive withdrawal fee” for going over six per month. 

Most of all, savings accounts offer a good way to separate your extra cash from your spending money. If you don’t see it available to use in your checking account, you may be less tempted to spend it. 

Many people open several savings accounts for different purposes, such as separate accounts for their emergency fund and general-purpose savings. Some banks, like Ally Bank, even offer “buckets” that let you compartmentalize your savings within the same account. 

Most banks offer at least one basic savings account. They may also offer additional types, including:

• High-yield savings: You can earn a far higher interest rate with a high-yield account, often beyond what some banks offer on some CDs. In return, they may come with higher minimum deposit requirements. 
• Kids’ savings: Children, teens, and students can often open savings accounts with an adult joint account owner as a sort of training-wheels account to learn to manage their own money. 
• Club savings: A sort of forced savings plan, this type of account lets you deposit money throughout the year. The catch is that you can’t withdraw it except at a specific time, depending on the purpose of the account, such as summer vacations or holiday shopping. A popular example of club savings is a Christmas Club account.

Money Market Accounts (MMAs)

Money market accounts are less common than checking and savings accounts. They’re a sort of hybrid between those two types of bank accounts and typically come with higher minimum deposit requirements. They tend to feature the higher interest rates that savings accounts provide, but also allow you to write a limited number of checks per month (often six or fewer). 

For that reason, they’re not a great substitute for a checking account. But if you’re looking for a bit more access to your cash than a savings account provides and also want to earn more interest, a money market account may be a good option. 

Warning

A money market account is different from a money market mutual fund, which is actually an investment that isn’t protected by FDIC or NCUA insurance. 

Certificate of Deposit Accounts (CDs)

Certificates of deposit, also known as “share certificates” at credit unions, are a type of timed deposit account. You open the account with one deposit that you can’t access until the CD matures at the end of its term length, which is typically between one month and five years (or longer). At the end of the term, you can withdraw the funds penalty-free (plus the accrued interest) or let the CD auto-renew.

Most banks offer their highest interest rates on CDs, especially CDs with longer terms. The only fee involved is an early withdrawal penalty if you withdraw before maturity, which is typically charged as a certain number of days’ worth of interest based on your original term length. For example, if you withdraw the money in a one-year CD early, Capital One may charge you three months’ worth of interest. 

A CD is generally a good choice if you want to make sure your money is locked away and earning a good rate, especially when the fed funds rate is dropping or if you know when you’ll need the funds. For example, if you plan to start looking to buy a home in three years, consider a three-year CD. Alternatively, you could consider opening several CDs at once with a staggered “CD ladder” approach, allowing you to earn a great rate while still getting frequent access to your money. 

Other Types of Accounts

There are many other types of accounts that banks and other financial institutions frequently offer. These can take the form of investment accounts, tax-advantaged accounts, debts, and other financial tools:

• Credit cards: A line of credit attached to a physical card that you can use to make everyday purchases and sometimes earn rewards on your spending. 
• IRAs and 401(k)s: Tax-advantaged retirement accounts that you can open as a savings account or an investment account with a brokerage firm or bank. Your employer generally chooses where your 401(k) is held. 
• Prepaid debit cards: You can load money onto prepaid debit cards and spend it just like you would with a regular debit card tied to a checking account, but only up to the amount on the card. They’re often used as alternatives to traditional checking accounts for people unable to get approved at regular banks, and they may come with high fees.
• Brokerage accounts: A brokerage account at an investment firm acts as a holding tank for your money as you buy and sell different investments, like stocks, bonds, and crypto.
• Health savings accounts (HSAs): People with high-deductible healthcare plans may be eligible to open a tax-advantaged HSA at banks and investment firms.
• Education savings accounts: Coverdell accounts and 529 plans are two examples of education savings accounts that banks sometimes offer, although you can also open them at investment firms.

Frequently Asked Questions (FAQs)

What Kind of Property Is a Bank Account?

A bank account is considered intangible personal property because it’s owned by a person (or multiple people, if it’s a joint account), and it isn’t something you can physically touch, although it does have value. 

What Do You Need to Open a Bank Account?

You’ll need to bring documents to prove your identity, such as your driver’s license or passport. You’ll also need to fill out an application and deposit the minimum opening deposit amount (if required). 

What Are the Most Common Types of Bank Accounts?

Most banks offer checking and savings accounts, which are the two accounts most financial experts recommend everyone have. Money market accounts and CDs are also very common options.

What Is the Easiest Bank Account to Get?

Second-chance checking accounts are designed to be accessible for people with past banking issues. They may come with steeper fees and fewer features, but you can often upgrade to a regular checking account after you’ve shown you can manage your account well for a period of time.

Are All Bank Accounts Interest-Bearing?

No, not all bank accounts are interest-bearing. Checking accounts generally don’t offer interest unless they’re specifically marketed as an “interest checking account.” However, other types of bank accounts like savings accounts, CDs, and money market accounts generally do always offer interest.

The Bottom Line

Choosing which types of bank accounts to open is a personal decision. Most financial experts recommend that you have at least a checking and a savings account to separate your short-term cash flow from long-term savings—but after that, it’s up to you to choose how many accounts you open and at which banks or credit unions.

Take some time to consider what’s important to you when it comes to banking, such as in-person vs. online service, higher interest rates, lower fees, ATM access, etc. You don’t have to go with the bank down the street from your home, and identifying your priorities in advance can help you get the most from your banking experience.

Read the original article on Investopedia.