Learn About the Different Types of Bank Accounts - MagnifyMoney

Different Types of Bank Accounts: The Ultimate Guide

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Banks and credit unions offer different types of bank accounts to help you manage your money. Want the convenience and safety of banking with a financial institution, but not sure what deposit account to choose? MagnifyMoney is here to help.

Choosing which type of bank account to use often depends on how often you’ll need your money. Checking accounts are designed for frequent, everyday purchases, while savings and money market accounts have some transaction limits. Those savings and money market balances earn a higher interest rate, though. Certificates of deposit (CDs), which are quite different from other types of bank accounts, are for long-term savings only.

Checking accounts

A checking account is the best alternative to using cash. It’s much easier and safer to use a checking account and debit card than to carry around a bunch of Benjamins. Transfers into and out of a checking account are generally unlimited and free, and many people use them for everyday purchases.

You can avoid cash entirely by having your employer use direct deposit to put paychecks directly into your checking account. But, if you do want to use cold hard cash, checking accounts allow you to withdraw and deposit money at an ATM. Just make sure you use an ATM available through your bank or credit union or a shared network to avoid fees.

MagnifyMoney reviewed the best checking accounts with good interest rates, cash back, low fees and ATM convenience.

Checking account pros and cons

Unlimited, free withdrawals and purchasesOften doesn’t earn interest on the balance
Debit card for convenient spendingPotential fees with some accounts

Different types of checking accounts

Banks and credit unions tend to offer multiple kinds of checking accounts. You might prefer a free checking account with no minimum requirements, or perhaps you’d like to earn interest on your checking balance.

Some checking accounts give a second chance to customers with a rocky banking or credit history. There are also banks that don’t charge overdraft fees if you spend more money than you have in your account.

Financial institutions also offer business checking accounts for everyday business transactions.

Checking accounts are best for…

They’re best for everyday banking: withdrawing and depositing cash, paying for things with your debit card and receiving paychecks and other electronic deposits.

Some banks offer sign-up bonuses for new checking accounts. MagnifyMoney researches the best bank bonus offers and lets you know how to get them.

Savings accounts

Chances are you’re trying to save money for something. Maybe it’s money for a down payment on a house or another big purchase. Maybe it’s money for retirement or toward your kids’ college funds. Maybe you just want to make sure you have enough money to cover an emergency.

No matter what you’re saving up for, a savings account is a good way to help your savings grow in a safe place. Banks and credit unions tend to pay you interest on your savings balance. Just make sure you don’t need to take money out very often. Many savings accounts only allow six free withdrawals per month before you run into fees.

If you’re looking for well-rounded savings accounts, MagnifyMoney found the best savings accounts with lower minimums, fewer fees, better rates and access to cash.

Savings account pros and cons

Good for emergency funds and long-term goalsLower deposit rates than money market accounts
Low minimum opening deposit requirementsSome withdrawal limits

Different types of savings accounts

With no brick and mortar costs, online banks can provide high-yield savings accounts with competitive rates. Some financial institutions also offer savings accounts for kids who are just getting started with money management.

If you run a business, you might consider a dedicated business savings account to help keep your personal finances separate from your business savings.

Savings accounts are best for…

They’re best for saving money you know you won’t need right away, building toward long-term financial goals and helping teach kids about banking.

Money market accounts

Money market accounts are basically an alternative to a savings account: they pay interest on the balance, often have some minimum balance requirements and are subject to the same monthly withdrawal limits. Only 4% of Americans keep their savings in a money market account, according to a 2021 MagnifyMoney survey.

Money market accounts have better rates than savings accounts, on average. Unlike many savings accounts, some money market accounts offer debit card access and check-writing capabilities.

MagnifyMoney determined the best money market accounts for different balance tiers, low fees and debit card use.

Money market account pros and cons

Higher deposit rates than savings accountsHigher minimum opening deposit requirements
Some check-writing privilegesSome withdrawal limits

Different types of money market accounts

While there might be some differences between money market accounts and savings accounts, they’re really similar. Not many banks or credit unions offer specialized versions of money market accounts, but account features could vary. Some financial institutions offer jumbo money market accounts with very high minimum balance requirements.

Money market accounts are best for…

They’re best if you want to save money and potentially find a better interest rate than a savings account might offer, as long as you meet account minimums to avoid fees.

Certificates of deposit (CDs)

Timed deposits are designed for long-term savings. When opening a CD, you agree to a fixed interest rate and a time period ranging from a few months to five years or more. In exchange for higher rates than other bank accounts and the ability to lock your rate in for the duration, you sacrifice liquidity — the ability to withdraw your money for free.

Unless you’re opening a no-penalty CD, you will have to pay an interest penalty if you want to take out some of your money or close your account before the CD reaches maturity at the end of the term. That’s a strong incentive to keep your money in the account, so be sure you won’t need the money during the term if you’re considering opening a CD account.

CD rates are rising, and MagnifyMoney regularly compiles the highest available CD rates for various terms with minimums of $10,000 or less.

CD pros and cons

Best available interest rates on depositsNo penalty-free withdrawals
Guaranteed yield over the termCould get locked into lower rate

Different types of CDs

Some CDs allow you to withdraw early with no fee, but they may have lower interest rates than traditional CDs. Other kinds of CDs, known as “bump-up CDs,” allow you to boost your interest rate once per term. Jumbo CDs have very high minimum balance requirements. Individual retirement account (IRA) CDs have tax advantages for deposits or withdrawals.

CDs are best for…

They’re best for long-term savings if you know you won’t need to touch the money for a while and want to get the best interest rates.

Which type of bank account should I choose?

With so many types of bank accounts to choose from, it comes down to why you need the account. If you need a bank account that lets you move money whenever you need to — for purchases, withdrawals, deposits and other transfers — a checking account would be best.

If you’d like to earn interest and can afford to keep your money in the account for a while, you have other options. Savings accounts and money market accounts are designed to hold money for a while, as opposed to checking accounts used for everyday banking. They do allow you to make penalty-free withdrawals, but they have some limits. CDs, on the other hand, often don’t let you take money out before maturity without penalty.

Once you’ve chosen the type of account you’d like to open, you’ll have to choose a bank or credit union and a specific account. Consider factors like ATM access, potential fees and interest rates when deciding where to open an account and which account to pick. Some may offer premium services with higher account minimums.

Make sure your financial institution has deposit insurance through the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA). You’d be protected in the event of a bank closure or other potential financial crisis.

Frequently asked questions

Deposit accounts, also known as bank accounts, are financial products offered by banks and credit unions for your banking needs. Checking accounts, savings accounts, money market accounts and CDs are all types of bank accounts.

Banks and credit unions offer deposit accounts. Some financial institutions have branches where you can bank in person, while others have a solely online presence.

Demand deposit accounts allow you to withdraw your money “on-demand” whenever you want. Checking accounts, savings accounts and money market accounts are demand deposits.

Time deposit accounts only allow you to withdraw money after a set time period if you want to avoid an interest penalty. CDs are time deposits.

Deposit insurance through the Federal Deposit Insurance Commission (FDIC) or National Credit Union Administration (NCUA) covers bank accounts up to $250,000.