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Types of Bank Accounts

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Kailey Hagen has been writing about small businesses and finance for almost 10 years. Articles she's written for The Motley Fool have been syndicated to USA Today, MSN, and Yahoo! Finance. She specializes in personal and business bank accounts and software for small to medium-size businesses. She lives on what's almost a farm in northern Wisconsin with her husband and three dogs.

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Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures that our product ratings are not influenced by compensation. Terms may apply to offers listed on this page. APY = Annual Percentage Yield. APYs are subject to change at any time without notice.

Choosing the right bank for your money is only half the battle. Once you've settled on that, you have to decide which types of bank accounts you're going to use.

There are four main options you'll come across -- checking accounts, savings accounts, money market accounts, and certificates of deposit (CDs) -- and each of them are discussed in detail below.

Checking accounts

Checking accounts are the best accounts for everyday spending. This is for a few reasons:

  • They give you easy access to your money. Most checking accounts offer several ways for you to withdraw your money, including the ability to write checks and a debit card with ATM access.
  • They don't have deposit or withdrawal limits. Unlike some other accounts, you aren't usually restricted on how many times you can make a withdrawal from your checking account.

Some of the best checking accounts also enable you to earn interest on your funds. But these are rare -- and even those that do offer interest usually have a lower rate than what you'll find with the other types of bank accounts.

Checking accounts typically have FDIC insurance. This protects your money up to $250,000 per person, per bank, per ownership category, in the event of bank failure. All licensed U.S. banks have this on their deposit accounts. If you open a checking account through a credit union, you'll get National Credit Union Administration (NCUA) insurance. This is the same as FDIC insurance, except it's for credit unions.

Take a look at a few checking accounts available now:

Compare checking accounts

We recommend comparing checking accounts to make sure you're getting the best fit for you. Here's a list of our favorite accounts.

Account APY Promotion Next Steps
0%
Min. to earn: N/A
Earn 1% cash back on up to $3,000 in debit card purchases each month (see details when you click 'Open Account')
Open Account for Discover® Cashback Debit

On Discover Bank's Secure Website.

up to 1.10%
Min. to earn: $1
High APY when you complete 10 or more qualifying debit card purchases each month

Savings accounts

Savings accounts are intended to hold money you don't plan to spend immediately. It's a great place for your emergency fund or money you're saving for a near-term goal, like a home down payment.

Money you keep in a savings account earns interest over time. How much you get depends on how much money you keep in the account, as well as its annual percentage yield (APY). A higher APY means more money for you.

Rates vary from one savings account to another and over time, but here's a look at what some of the best savings accounts have to offer right now:

Compare savings rates

Make sure you're getting the best account for you by comparing savings rates and promotions. Here are some of our favorite high-yield savings accounts to consider.

Account APY Promotion Next Steps
3.80%
Rate info Circle with letter I in it. 3.80% annual percentage yield as of December 26, 2024. Terms apply.
Min. to earn: $0
N/A
Open Account for American Express® High Yield Savings

On American Express's Secure Website.

up to 4.00%²
Rate info Circle with letter I in it. You can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet.
Min. to earn: $0
New customers can earn up to a $300 bonus with qualifying direct deposits!¹
3.80%
Rate info Circle with letter I in it. See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening.
Min. to earn: $0
N/A

The downside to savings accounts is that you're often limited to a certain number of monthly withdrawals, and exceeding that can carry penalties.

A federal law known as Regulation D used to restrict all savings accounts to six monthly withdrawals. The government waived this at the start of the COVID-19 pandemic and has yet to reinstate it, but some banks still persist in charging fees for more than six monthly savings account withdrawals.

Savings accounts also rarely offer you any means of withdrawing money directly. Most don't have debit cards or check-writing capabilities, so you must transfer the money to a checking account before you can actually withdraw the funds.

Money market accounts

Money market accounts share some of the features of checking and savings accounts, which makes them a good place for your emergency fund. Like savings accounts, they earn interest, and sometimes money market account APYs can be higher than savings account APYs.

Many money market accounts also include checks and/or a debit card so you can directly withdraw funds from the account. You can also transfer funds to a checking account if you prefer.

Some money market accounts are subject to the same limits on monthly withdrawals as savings accounts, so consider this if you plan to move your money around a lot. Additionally, money market accounts often have higher minimum deposit requirements than savings accounts. This can make them less accessible to those with small balances.

Money market accounts are also protected by FDIC insurance, but just like checking and savings accounts, you don't want to keep more than $250,000 in one or you're putting yourself at risk of loss.

Compare a few money market accounts to get a better idea of current offerings:

Certificates of deposit (CDs)

Certificates of deposit (CDs) are a special type of savings account that enables you to earn a higher APY on your savings -- but only if you agree not to touch your money for a while. You also have to be willing to deposit at least a few hundred dollars, as CDs almost always have minimum balance requirements.

Every CD has a term, which can range from as little as few days to as long as 10 years or more. Most fall within the six-month to five-year range. This is how long you agree to leave your money untouched in the CD. If you fail to do so, you'll get slapped with early withdrawal penalties.

The best CD rates are even higher than savings account interest rates. Normally, your CD's APY is locked in for the full term, though this varies depending on the type of CD. That can pose a risk because, if you lock in a low rate and interest rates later rise, you're stuck with what you've got.

Some people get around this with a strategy known as CD laddering. This is where you open several CDs of different lengths -- for example, a 1-year CD, a 2-year CD, a 3-year CD, a 4-year CD, and a 5-year CD. You deposit equal amounts in each one, and then as each CD term ends, you reinvest the funds in a new 5-year CD. This enables you to take advantage of the higher interest rates on long-term CDs while still giving you regular access to some of your cash.

Because you're not supposed to take any money out of your CD before the term is up, you won't have access to any checks or debit cards from this account. But you get the same FDIC insurance as the other bank accounts described above.

Compare CD rates

Rates as of Dec. 18, 2024
Bank & CD Offer APY Term Min. Deposit Next Steps
APY: 4.00% Term: 1 Year Min. Deposit:  $0
Open Account for Discover® Bank CD

On Discover Bank's Secure Website.

Member FDIC.
APY: 4.25% Term: 10 Months Min. Deposit:  $2,500
Open Account for

On Secure Website.

Member FDIC.
APY: 4.25% Term: 6 Months Min. Deposit:  $500
Open Account for

On Secure Website.

Which bank account is right for me?

Each bank account described above has its pros and cons. If you're still not sure which types of bank accounts are right for you, ask yourself the following questions:

  • How often do I plan to withdraw money?
  • Do I want the option to directly withdraw funds from the account?
  • How much do I plan to keep in the account?

Your answers should guide you toward the type of account that's best for you. And feel free to open more than one if that suits you. You could open a checking account for everyday spending, a savings account for your emergency fund, and a CD for some of your other savings you don't plan to use for a while. Figure out the combination that works best for you and know you can always add, change, or remove accounts down the road.

FAQs

  • That depends on your situation. Checking accounts are best for everyday spending. Savings accounts, money market accounts, and certificates of deposit (CDs) are better places for your savings.

  • Checking accounts are meant to hold money for everyday spending. There's no restrictions on withdrawals and most include checks and a debit card. But you don't usually earn much (if any) interest on your funds. Savings accounts offer better interest rates, but it's often more difficult to withdraw funds without first transferring them to a checking account. Plus, savings accounts can carry penalties if you make too many monthly withdrawals.

  • There are four major types of bank accounts: checking accounts, savings accounts, money market accounts, and certificates of deposit (CDs).