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Key takeaways
- Checking accounts give you everyday access to your money for spending and paying bills, but they earn minimal interest.
- Savings accounts help you build toward your goals while earning interest, though they might come with some withdrawal restrictions.
- Money market accounts may offer higher interest rates than savings with limited checking features, but they typically require larger minimum balances.
- Certificates of deposit lock in fixed rates for set terms and work best when you won’t need the money before maturity.
Understanding the different types of bank accounts helps you manage your money with confidence. The four main account types are checking, savings, money market accounts, and certificates of deposit, or CDs. Each serves a different purpose in your financial life.
Here’s a quick snapshot to help you compare:
| Account type | Best for |
|---|---|
| Checking account | Everyday transactions and easy access to your money |
| Savings account | Building an emergency fund or saving for a specific goal |
| Money market account | Earning higher interest rates while maintaining access to your money |
| Certificate of deposit (CD) | Earning higher interest rates on a fixed sum of money over a set period |
Here’s a closer look at each type of bank account, along with its pros and cons.
Checking account
A checking account is a deposit account you use for everyday spending and bill payments. You can access your money through a debit card, checks, or electronic transfers, making it work like digital cash. Your funds are insured for up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) at banks or National Credit Union Administration (NCUA) at credit unions.
Here are the main pros and cons of a checking account:
| Pros | Cons |
|---|---|
| Convenient access to your money | Low (or no) interest earnings |
| Ability to make purchases and withdraw cash at ATMs | May come with fees |
| Ability to set up automatic bill payments | May have minimum balance requirements |
| May come with a checkbook |
There are several different types of checking accounts to choose from, including traditional, premium, teen, student, senior, business, rewards, and second-chance bank accounts.
A note about insurance: All four account types discussed in this article are insured up to $250,000 by the FDIC or NCUA. This insurance means your money is protected in the event of a bank failure.
How to choose the right checking account
Ask yourself these questions as you compare your options and choose a bank:
- Does the account charge fees? Look out for monthly maintenance fees, out-of-network ATM fees, overdraft fees, and foreign transaction fees.
- Are there minimum balance requirements? Some accounts require you to maintain a certain balance to avoid fees, while no-fee checking accounts skip this requirement.
- Is there widespread ATM access? Check how many ATMs are available and where they’re located.
- What about overdraft protection? If you’re concerned about overdrawing, look for accounts that offer this service.
- Does the account offer rewards? Some accounts come with cash back or other benefits.
Savings account
Savings account
A savings account helps you set money aside while earning interest over time. The interest rate varies by financial institution, but the goal is the same: grow your savings for emergency funds or specific goals like a car down payment or vacation.
Interest is expressed as an annual percentage yield, or APY. This figure includes compound interest, which helps your money grow faster.
Here are some of the main pros and cons of a savings account:
| Pros | Cons |
|---|---|
| Higher interest rate than checking accounts | Typically has monthly withdrawal limits |
| Ideal for building long-term savings | May have minimum balance requirements |
| May come with extra benefits, like automatic savings or spending round-ups | May have lower interest rates than money market accounts, CDs, or investment accounts |
The most common types of savings accounts are online savings accounts, traditional savings accounts, and high-yield savings accounts. Some banks also offer savings accounts specifically for students, teens, or seniors.
How to choose a savings account
When it comes to choosing a savings account, asking these questions can help guide your decision.
- What’s the interest rate? Traditional savings accounts average only 0.39% APY, but high-yield accounts can offer much higher APYs.
- Are there minimum balance requirements? Some accounts require a minimum balance to earn the highest rate or avoid fees.
- How easy is it to access funds? Check whether you can transfer money online, use ATMs, or need to visit a branch.
- What extra features are included? Look for budgeting tools, sub-accounts for different goals, or automatic savings features.
Money market account (MMA)
A money market account, or MMA, blends features from checking and savings accounts. You can earn interest like a savings account while accessing your money through a debit card or checks.
MMAs typically offer higher interest rates than traditional savings accounts but may involve high minimum balances.
Here are the main pros and cons of a money market account:
| Pros | Cons |
|---|---|
| Typically higher interest rates | Higher initial deposit requirements |
| May include check-writing privileges | Higher minimum account balance requirements |
| May include debit card access | Limited withdrawals per month |
Money market accounts can be a good place to stash long-term savings and earn slightly more interest while keeping your money accessible.
How to choose a money market account
Here are some questions to ask when selecting a money market account.
- What’s the minimum balance requirement? MMAs typically require a higher minimum balance than standard savings accounts.
- What fees apply? Look for accounts with no monthly maintenance fees or low transaction fees.
- Does it include check-writing and a debit card? Not all MMAs offer these features, so confirm whether the account does if they matter to you.
- Are there transaction limits? Check the monthly limits on withdrawals or transfers.
Certificate of deposit (CD)
A certificate of deposit, or CD, locks your money in for a set period in exchange for a fixed interest rate. These terms typically range from one month to five years. They work well for specific savings goals like a house down payment or college fund, with rates typically ranging from 0.21% to 1.52%.
Here are the main pros and cons of a certificate of deposit:
| Pros | Cons |
|---|---|
| Fixed interest rate | May have early withdrawal penalties |
| Set term length | No access to money during the CD term |
How to choose a certificate of deposit
Find answers to these questions to choose the best CD for you.
- What’s the interest rate? Compare rates across banks and credit unions to find the most competitive option.
- What term length works for your goals? Longer terms typically offer higher rates but lock up your money for more time.
- What are the early withdrawal penalties? Understand the fees before committing, since you may pay a penalty if you need your money before the CD’s maturity date.
Finding the right account mix for you
Each account type serves a different purpose, and many people use a combination to manage daily spending, build savings, and work toward financial goals. If you’re ready to open your first account or add to your existing setup, start with the account type that matches your most immediate need.
Having trouble getting approved for a checking account? Learn about second-chance banking to see if it’s right for you.
Frequently asked questions
What are the 4 main types of bank accounts?
The four main types of bank accounts serve different needs: checking accounts are for everyday spending, savings accounts help you build toward goals, money market accounts offer higher interest with some access, and certificates of deposit (CDs) provide fixed-rate, long-term savings.
What is the best type of bank account to open first?
Start with a checking account since it handles everyday transactions and bill payments. Once that’s set up, you can add a savings account for emergency funds and other financial goals.
Can you have more than one type of bank account?
Yes, many people use multiple accounts for different purposes. A common setup includes a checking account for daily spending, a savings account for emergencies, and a CD for longer-term goals.
How do checking and savings accounts work together?
Your checking account handles daily spending while your savings account grows your future fund. Set up automatic transfers from checking to savings on payday to build your savings effortlessly.
What happens if I can't qualify for a traditional bank account?
Some financial institutions offer second-chance checking accounts designed for people rebuilding their banking history. These accounts may have limitations but can help you get back on track.