Types of bank accounts

Americans are, by and large, banked: More than 95% of U.S. households have at least one, according to the Federal Deposit Insurance Corp. (FDIC).

And there are a bevy of banking options to choose from, including checking accounts, savings products and certificates of deposit (CDs). Moreover, you can access many of these accounts from a brick-and-mortar bank, an online bank or a credit union. (And perhaps even a brokerage firm.)

Each account has its own purpose and comes with its own tradeoffs. The key is knowing the limitations of each type and putting your money in the appropriate account.  

What are the most common types of bank accounts?

Checking accounts

Checking accounts offer easy access to your cash and keep it safe until you spend or transfer it.

Depending on the bank you choose, you could make deposits and withdrawals at traditional branches, ATMs, online and on your phone. Most come with a debit card that you can swipe any time. If you’re a fan of digital banking, mobile banking apps can offer even more convenience, such as mobile check deposits and streamlined bill pay and transfers.

There are specialized checking accounts. You can find:

• Interest checking. Most checking accounts don’t pay a high yield because your balance tends to change often with the flow of your income and spending. But there are some that offer interest on your checking account balance. 
• Teen, kids’ and student checking. These accounts allow parents to give their kids some hands-on experience with money management, while paying few fees and maintaining safeguards against overspending.
• Seniors’ checking. Free checkbooks anytime is a common feature of senior checking, but you may find some that also offer interest.
• Business checking. Whether you’re self employed or have a large business, business checking accounts can offer the tools and services you need to manage cash flow.

Whichever account you select, keep a sharp eye on fees.  In 2022, banks made nearly $8 billion in overdraft and non-sufficient fund fees. If managing your cash is a struggle, apply for a free checking account. 

Savings accounts

Savings accounts are designed to store money. By siphoning off some cash, you won’t be tempted to spend it in day-to-day life and can work towards a goal, such as saving for a new car or a vacation.

This is why some savings accounts don’t offer unfettered access like checking accounts. Many place a limit of six withdrawals per month and don’t come with an ATM or debit card. Though your cash is still plenty accessible via online transfers and there are no withdrawal penalties.

• Traditional savings. Your run-of-of-the-mill savings account offers a low interest rate and pairs with a checking account. 
• High-yield savings. Like the name implies, this is a traditional account that offers a competitive interest rate. Note that any interest earned is taxable.
• Teen, kids’ and student savings. The accounts allow young people to learn how to stave.  
• Health, medical and college savings. Flexible spending accounts (FSAs), health savings accounts (HSAs) and 529 college savings accounts all have tax benefits. 
• Business savings. This account can help you save up for new business tools or serve as a cash cushion in case of an emergency.
• Retirement savings. There are tons of retirement plans available, which you can take advantage of based on your goals and your age. 

While the rates of return on savings accounts are modest, your deposited cash is insured up to $250,000 at each covered institution. It’s a lot less risky and can serve as a financially conservative balance in your portfolio, as well as an emergency fund.

Money market accounts (MMAs)

Money market accounts are a hybrid of checking and savings accounts. By and large, they offer high interest rates like savings accounts plus convenient access via checks and a debit card.   

There may be greater account requirements, however, such as a high minimum deposit, and there’s typically a limit of six withdrawals a month, with fees if you go over.  

A MMA can be a great all-in-one option for your personal finances or your business if you don’t need to make frequent transactions and you can easily meet requirements. 

Certificates of deposit (CDs)

CDs lock in your cash at a specific interest rate, for a specific time period.

There are pros and cons to this. Getting a traditional CD is like putting your money in a safe and throwing away the key until the term is up. You can’t add more money, you can’t withdraw money (unless you pay a hefty fee) and the interest rate is set in stone.

This means that when you get a traditional CD, you have a guaranteed yield, no matter what the market does (as long as you don’t make an early withdrawal). 

CD terms can be as short as 28 days or as long as 10-years. 

• Best one-year CDs.
• Best two-year CDs. 
• Best three-year CDs.
• Best five-year CDs.
• Best ten-year CDs. 

Typically, the longer the term, the higher the interest rate; however, currently, you can find some of the highest rates on terms shorter than two years long. 

“In general, I recommend starting with a 12-month CD and adjusting the time based on individual goals or needs.” Said Jared Jones, partner and lead advisor at Omega Wealth Management in Arlington, Va.

“For instance, extending the time to 18 months could make sense if you have a solid emergency fund and know you won’t need the cash. Alternatively, if someone knows they will require the cash sooner than 12 months, I encourage them to explore high-yield savings accounts.” Jones said.

Other bank or credit union accounts to consider

Individual retirement accounts (IRAs)

Whether retirement is far away or around the corner, saving for your golden years can be smart. 

Having an IRA at your bank or credit union offers convenience (with your accounts in the same place) and security in the form of FDIC insurance (whereas the stock market has no guarantees).

Many financial institutions offer traditional IRA and Roth IRAs. With a traditional IRA, you can make contributions with pre-tax dollars (although you must eventually pay taxes on it when you make withdrawals); while in a Roth IRA, you make contributions with after-tax dollars (so you don’t have to pay taxes when you make withdrawals). 

Learn more: The types of IRAs. 

You can begin taking IRA withdrawals when you’re 59-and-a-half years-old.

Brokerage accounts

It’s common knowledge that brokerage accounts are for buying stocks, bonds and funds, but you can also use it to manage cash.

You can find brokerage checking and savings accounts for your uninvested cash. They usually have no minimum deposit requirements, no monthly fees, and come with all the access options you’d expect, including checks, a debit card, a mobile app and ATM access.

Many partner with banks as well, so you still receive FDIC insurance, but double check. “In brokerage accounts, if the cash is in a money market mutual fund [or] ETF, there is no FDIC protection,” said Nicholas Bunio, a certified financial planner (CFP) in Downingtown, Pa. 

Other potential cons include that interest rates on brokerage accounts are typically lower than what you’d get with a bank (with some exceptions) and customer service can be limited to business hours.  

What you’ll need to open a bank or credit union account

You can open all of the above accounts at a bank or credit union (save the brokerage account) and it’s relatively easy to do so.

When you apply online or at a physical bank or credit union location, bring these documents and data to the application table.

• Personal information: You’ll need to provide your name, date of birth and Social Security number. If you apply in person, you’ll need to show your driver’s license, passport, or state I.D. card.  
• Contact details: Your phone number, address and email address. 
• An initial deposit: Depending on the account you choose, you may have to meet a minimum deposit requirement. If so, be ready to deposit at least that amount. 

If you’re applying at a credit union, you may also need to show that you qualify for membership. This could be as easy as sharing your address (if it’s within the credit union’s service area) or making a one-time, nominal donation to a charity. 

Finding the bank account that works best for you

Whether you have a long-term savings goal or you’re after a checking account with no fees (or both), you can find the bank account that works best for you. 

• Fees. No one wants to pay fees. Monthly account maintenance fees, wire fees, overdraft fees can all add up. Before you select an account, be sure that you won’t be paying fees often and, if you do have to, that the cost is accessible. 
• Access. Are you fine with online-only banking or do you need to go into a branch and talk with a representative in person? Do you not need some of your cash for three years or do you need to be able to deposit and withdraw money any time?
• Perks. Do you want to earn the highest interest possible on your savings? Does the checking account offer cash back on your debit card? 

Your best bet is to combine different accounts (checking for your direct deposits, savings for your emergency fund) so that you’re well positioned to confront various financial challenges. 

Frequently asked questions (FAQs)