Types of bank accounts: Checking, savings and more

Quick insights

• Many financial institutions offer deposit accounts (checking and savings), certificates of deposit (CDs) and money market accounts.
• Bank accounts generally help to manage expenses and savings goals.
• After understanding the differences, you can decide between various types of bank accounts.

The types of bank accounts offered by a financial institution may have different names and features. The name of a certain type may also vary depending on the country. However, there are similar features that distinguish several types of bank accounts.*

Checking accounts

A checking account is probably the most common type of bank account for everyday financial needs, including deposits and withdrawals. In addition, you can typically access cash, pay bills, make purchases and receive direct deposits from an employer.

Checking account features

• A debit card that is linked to the account may be issued for cash withdrawals and purchases online or in stores.
• Cash and checks can be deposited to the account.
• Money may be sent or paid from the account through online bill payments, wire transfers and checks.
• Money that goes in and out of the account—deposits, withdrawals, transfers and debits—change the account balance soon after the transaction.

Additional features may be available, sometimes with associated fees. Plus, some checking accounts may have features designed for individuals with specific needs, such as students.

Savings accounts

A savings account is usually designed to help store money for the near or distant future. Money can be deposited, withdrawn and transferred to or from the account. The frequency of withdrawals could be limited, and the financial institution might pay interest. This type of account is popularly used to plan for various needs and goals, such as emergency funds, down payments and vacations.

Savings account features

• Available transactions include deposits, withdrawals and transfers.
• The account may earn interest paid by the financial institution.
• An automatic savings feature may be available to transfer money from another bank account on a set basis.

Money market accounts

A money market account is similar to a savings account in that the balance may earn interest. The balance requirements and interest rate structure tend to be different from traditional savings accounts. However, the reasons people open savings accounts and money market accounts often center on earning interest.

Money market account features

• To avoid fees and earn interest, a certain balance may be needed that is high in comparison to traditional checking or savings accounts.
• The frequency of withdrawals may be limited.
• The interest rate structure is often more complex and might be higher than the Annual Percentage Yield (APY) of a traditional savings account.

Certificate of deposit (CD)

A certificate of deposit (CD) is often considered an alternative to a savings account. However, CDs are often suited to long-term savings goals. A CD is not an account for regular deposits, withdrawals and transfers. The principal balance and term length are customizable based on specific savings goals.

How CDs work

You buy a CD from a financial institution, and the CD earns a fixed interest rate over a set time period (the “term”). The length of the term can vary, but the money cannot be withdrawn without a penalty until the CD’s maturity date. Financial institutions offer different interest rates, but the rate on a single CD is often affected by the principal deposit and term length.

In conclusion: Choosing a type of bank account

Selecting bank accounts that fit your individual needs may help you to better meet your personal financial goals. Checking accounts are designed for everyday use and common financial needs. Money market accounts and CDs may be ideal when improving savings is a priority.

Here are several factors you may want to look for when deciding between bank accounts:

• Whether the accounts have minimum balance requirements and if those minimums fit your current financial situation.
• How the interest rates could grow your account balance.
• Which accounts and transactions have associated fees and whether those fees are avoidable.

Some bank accounts give you access to your funds for regular expenses, while others allow you to earn interest on your money while helping you plan for your financial future. Although understanding the types of bank account is a great financial tool, there’s another upside: you may have more than one bank account to meet your needs.

*Account terms and conditions vary by financial institution.