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Key takeaways
- Checking accounts are designed for everyday spending and quick access to your money, though they typically earn little interest and may include fees.
- Savings accounts help you set aside money for goals and earn interest, often with withdrawal limits and no debit card for daily use.
- Money market deposit accounts blend limited checking features with higher interest than standard savings, but usually require higher minimum balances.
- Certificates of deposit (CDs) offer fixed rates for set terms and charge penalties for early withdrawals, making them best for funds you won’t need immediately.
Understanding the different types of bank accounts is the first step to managing your money with confidence, and though choosing where to keep your money can feel like a big decision, it doesn’t have to be complicated.
So, what are the different types of bank accounts? The short answer is checking, savings, money market accounts, and certificates of deposit (CDs). This guide will walk you through the four types of bank accounts to help you find the right fit for your spending habits and savings goals.
Here’s a snapshot of the various types of bank accounts:
| 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 |
1. Checking account
Best for: Everyday transactions and easy access to your money
Choose a checking account to deposit paychecks, pay bills, and store funds for quick access. This type of account works like cash, except you use a debit card or checks to make transactions. Your money is insured for up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).1,2
Here are the main pros and cons of a checking account:
| Pros | Cons |
|---|---|
| Convenient access to your money | Low (or no) interest rates |
| 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 | |
| Insured up to $250,000 by NCUA or FDIC |
There are several different types of checking accounts to choose from, including traditional, premium, teen, student, senior, business, rewards, and second-chance bank accounts.
How to choose the right checking account
Ready to open a checking account? Here are the top questions to ask as you research your options:
- Does the bank charge fees? Some of the most common include monthly maintenance fees, out-of-network ATM fees, overdraft fees, and foreign transaction fees.
- Are there minimum balance requirements? Some banks require you to keep a certain amount of money in your account. If you can’t meet these requirements, you may be charged a fee.
- Is there widespread ATM access? If ATM access is important to you, find out how many are available with the account you’re considering and their locations.
- What about overdraft protection? Some checking accounts offer overdraft protection, while others don’t. If you’re concerned about overdrawing your account, look for an account that offers this service.
- Does the account offer rewards? Some checking accounts come with rewards programs, like earning cash back or other benefits tied to the account.
Learn how to choose a bank that you can stick with for the long term.
2. Savings account
Best for: Building an emergency fund or saving for a specific goal
A savings account lets you save money while earning interest. When you open a savings account, you deposit money and earn a small amount of interest on that balance over time. The exact amount you earn depends on the financial institution you choose.
Interest on a savings account is expressed as an annual percentage yield (APY), which measures your earnings based on how often your interest rate compounds. Compound interest allows you to earn interest on your deposits as well as on the interest already earned, which maximizes your return on investment.
Savings accounts are ideal for building an emergency fund or working toward a specific savings goal, like a car down payment, a vacation, or a home improvement project. Like checking accounts, savings accounts are insured by the FDIC or NCUA.1,2
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 |
| Insured up to $250,000 by NCUA or FDIC |
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
Consider the following when choosing a savings account:
- What are you saving for? If you’re saving for a specific purpose and want to keep the money separate from your other accounts, look for a savings account that allows you to create and label sub-accounts.
- What is the interest rate? The average interest rate for a traditional savings account is 0.40%,3 while high-yield savings accounts (HYSAs) may offer up to 5% APY.4
- Are there minimum balance requirements? Some savings accounts require a minimum balance to earn the maximum APY.
- How easy is it to access funds? Different accounts may offer different access levels through online transfers, ATM withdrawals, or visits to a branch.
- Are there any extra features? Some savings accounts may offer budgeting tools, mobile banking, or linked checking accounts to simplify your life.
Explore the various types of savings accounts to find one that aligns with your specific financial goals.
3. Money market account (MMA)
Best for: Earning higher interest rates while maintaining access to your money
A money market account (MMA) combines the benefits of a checking account and a high-yield savings account. Like a checking account, MMAs may come with a debit card, and like a savings account, they allow you to earn interest on your deposit.
MMAs typically offer higher interest rates than traditional savings accounts, primarily due to their higher minimum balance requirements. They can also provide you with easier access to your funds than a traditional savings account – though checking accounts still offer the easiest access to your money. MMAs are NCUA or FDIC-insured up to $250,000.1,2
Here are the main pros and cons of a money market account:
| Pros | Cons |
|---|---|
| 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 |
| Insured up to $250,000 by NCUA or FDIC |
Generally, money market accounts are a place to stash long-term savings and earn slightly more interest on your funds while keeping your money accessible.
How to choose a money market account
If you think an MMA is a good place for your money, consider the following when researching your options:
- Are there minimum balance requirements? Many financial institutions require a higher minimum balance for MMAs than for other types of savings accounts.
- What fees might you be charged? Consider any maintenance or transaction fees, or look for a money market account with no monthly fee.
- Does the account offer check-writing and a debit card? Check whether an MMA offers this feature if it’s essential to you.
- Are there transaction limits? Determine the limit for debit card or check transactions and ensure it aligns with your needs.
A money market account may be a good choice if you want a low-risk investment option with easy access to your funds. However, if you need more flexibility in your savings or want higher returns, consider exploring other investment options, like mutual funds or stocks.
Certificate of deposit (CD)
Best for: Earning higher interest rates on a fixed sum of money over a set period
A certificate of deposit (CD) lets you deposit funds for a specified period, typically from one month to five years. You earn a fixed interest rate over time in return for storing your funds.
CDs are useful tools if you’re saving for a specific upcoming purchase, like a house down payment or a child’s college education. They typically offer higher interest rates than traditional savings accounts, ranging from 0.23% to 1.70%.3 The FDIC and NCUA insure CDs up to $250,000.1,2
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 |
| Insured up to $250,000 by NCUA or FDIC |
A fixed interest rate means you’ll know up front how much interest you’ll earn on your deposit. Once the term ends (known as the “maturity date”), you can either withdraw the money or roll it into a new CD to continue saving. You’ll typically be charged a penalty if you withdraw money from a CD before the maturity date.
How to choose a certificate of deposit
Here’s what to consider when looking for a CD:
- What is the interest rate? Look for a competitive CD that will help your savings grow faster. Shop around to compare rates at different banks or credit unions to ensure you get the best deal.
- What are the term length options? Determine the best term for your financial goals and find a CD to match. Longer-term CDs typically offer higher interest rates but require a longer commitment.
- Are there penalties for early withdrawal? Research the penalties for early withdrawal in case you need to access your funds before the CD term ends. Some CDs may charge a fee or reduce interest rates if you withdraw money before the maturity date.
A CD is a low-risk way to save while maximizing your interest earnings. Just ensure you’re comfortable with the fact that your money will be inaccessible for the CD term and that you understand the penalties for early withdrawal.
Finding the right bank account mix for you
The different types of bank accounts serve different purposes for your personal finance priorities. Ultimately, the best approach is to find the combination of accounts that works for you. By understanding these different types of bank accounts, you can make informed choices that support your financial life.
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 are:
- Checking accounts for daily spending
- Savings accounts for reaching financial goals
- Money market accounts for higher interest rates
- Certificates of deposit (CDs) for fixed-term savings
What is the best type of bank account to open first?
A checking account is usually the best place to start, as it’s designed for everyday needs such as paying bills and making purchases.
Can you have more than one type of bank account?
Absolutely! Using a combination of accounts, such as a checking and a savings account, is a smart strategy for managing your money effectively.