Guide to the Most Common Types of Bank Accounts

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Banking is the foundation for many people’s financial planning, and you can choose between a variety of different types of bank accounts with a spectrum of features to match your needs. Each bank account type has unique features and potential fees you will want to watch out for before deciding where to put your money. Below is a list of the common types of bank accounts, their features and what to look out for when opening a bank account.

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Checking Accounts

A checking account is probably the most common type of bank account. It's where paychecks are usually deposited, where your cash comes from when using your debit card, and where you typically pay your bills from. Some people set up a checking account as their main source for day-to-day spending and cash flow, from ATM withdrawals and automatic payments for monthly bills to direct deposit paychecks from their employer.

Some of the most appealing features to look for when considering checking accounts include:

• Direct deposit
• Online banking
• No minimum balance requirement
• Debit card
• No ATM fees
• Free checks

What To Look Out for When Opening a Checking Account

Checking accounts are a great option for easy access to your money. Even though they’re convenient, there are a few things to watch out for, especially with bank account fees:

• Opening Bonuses: Consider taking advantage of opening a checking account with a bonus offer for new customers to make the most of the money you'll be putting into the account.
• Overdraft Fees: Swiping a debit card can be deceivingly easy but you can withdraw too much if you aren’t careful. Trying to take more out of your account than you have can result in overdraft fees.
• Bounced Check Fees: The tricky part with checks is that there may be a significant delay between the time you write the check and when the money comes out of your account. It does not get processed as a withdrawal until the payee cashes or deposits the check. This could potentially leave you with a bounced check or an overdraft in your account—both of which can result in penalties.
• Minimum Balance: Most checking accounts do not have a minimum balance and there are a number of free checking accounts available. But if you decide to open an account with a minimum requirement, make sure you can maintain that balance before signing up. If you dip below the specified amount, the bank will most likely charge a fee.
• Maintenance and ATM Fees: Some banks charge fees to even have a checking account as well as fees for ATM withdrawals. Be sure to factor that amount into your finances and budgeting when choosing which bank to set up an account with.
• Interest Rates: Many checking accounts do not offer interest on the money you deposit. However, there are some high-yield interesting checking accounts that are available if you're interested in earning some money on your balance.

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Savings Accounts

A savings account is a type of bank account that allows you to do just what the name suggests: Save your money. Savings accounts are sometimes paired with checking accounts to make it easier to separate and manage finances. You can deposit the money you want to save and, in the meantime, earn interest. Set up a personal budget and put a portion of your paycheck into your account to build up your savings.

This money could be saved for a specific reason like a vacation or a car, reserved for house maintenance, or put aside for an emergency fund. Whatever the reason, keeping some money in a separate account from the one you use for your day-to-day spending can help you save for when you need it without worrying about accidentally spending it.

Some of the features to look for in a savings account include:

• Online banking options with a linked checking account
• Competitive interest rates
• No monthly maintenance fees

What To Watch Out for in a Savings Account

Savings accounts seem fairly straightforward but there are a few things to keep in mind when opening an account:

• Taxable Interest: The interest your money earns while in your savings account is considered taxable. If you earn a considerable amount in interest, have a plan for it during tax time.
• Minimum Balance: Some banks require a minimum balance so you must be able to maintain this amount or face a penalty any time you drop below that threshold.
• Withdrawal Limits: By law, banks have a limit of six withdrawals or transfers from your savings account a month. If you need to access your money more frequently than that, you may consider putting those funds into a checking account instead.
• Interest Rates: Savings accounts will typically not yield a lot of money by way of interest, but can be a stable and safe place to store funds you'll need in the future. If you're interested in higher interest rates for savings accounts, check out high-yield savings accounts from online banks. 
• Multiple Savings Accounts: You can set up more than one account for each of your financial goals. There is no rule limiting you to a certain number of accounts. Set up an emergency fund, a vacation fund, or a house fund. Each is kept separate so you don’t accidentally spend money from the wrong account.
• No Debit Card or Checks: Since a savings account is not designed to be accessed daily, debit cards or checks are typically not provided. You would need to directly withdraw money from the account or transfer funds to a checking account to gain access to it.

Money Market Accounts

Money market accounts can be similar to savings accounts, but there are some notable differences between the two. Money Market Accounts (MMAs) combine the benefits of a checking and savings account into one. You can save your money and gain interest but also use your debit card or checks to easily access your funds. Since all your money is combined into one account, it is important to know how much you have and carefully plan how you want to spend it. Many times, people choose to open this type of account when they have a large payment coming up that they need to save for but also need easy access to, such as a down payment on a house or college tuition.

Some of the features most money market accounts offer include:

• Debit card
• Checks
• ATM withdrawals
• Higher interest rates than typical savings accounts

What To Watch Out for in a Money Market Account

Money market accounts do have some positive features, such as higher interest and easy access to your money, but they also have a few limitations you may want to keep in mind:

• Limited Withdrawals: Most MMAs provide you with a debit card or checks to access your money but they may have withdrawal limitations similar to those of savings accounts. You typically can only take out money or transfer up to six times a month.
• High Opening and Minimum Balance: MMAs often require you to open with and maintain a minimum balance. There are accounts that offer low-minimum deposits if you do your research.
• Taxable Interest: You may earn a bit higher interest than a typical savings account, but that interest is also taxable. 

Make sure you choose the best money market account based on the features that are right for you.

Certificate of Deposit (CD)

A Certificate of Deposit (CD) account is a type of savings account that will earn you a bit more interest—but with a few stipulations. The main catch of a CD is that you are essentially loaning your money to the bank for a specified amount of time, during which you cannot touch your money. If you do, you will get charged a penalty fee. The bank secures your money, and you are guaranteed to earn whatever interest they have set on your account.

A few features of CDs include:

• Variety of maturity timeframes
• Higher interest rates than typical savings accounts
• Funds are locked in at an interest rate for a specified period of time
• Flexible rate CDs available

What To Watch Out for in Certificate of Deposits

Certificate of deposit accounts are a good option for people that want to save money, earn interest, and who won’t need to access their money for a long time. With that in mind, there are a few things to consider when looking into CDs:

• Maturity terms: A CD account is essentially a locked savings account that you agree not to access in order to earn a higher return than you would with a typical savings account. The maturity timeframe varies. Some banks offer CDs as short as 28 days and as long as 10 years or more.
• Early withdrawal fees: If you decide you must access the money in your CD before its maturity date, you will get charged a hefty fee from your bank. You should consider whether you are prepared to give up that money for the agreed-upon amount of time before setting up your account.
• Higher interest for longer time periods: The longer you leave your money in the hands of the bank, the higher your interest rates will likely be. Make sure to check out the rates for each timeframe to find the best account for your needs.

Brokerage Accounts

Brokerage accounts are ideal for someone that wants a traditional bank account with easy access to the stock market. You can deposit money, withdraw what you need, and even use a debit card with your brokerage account. The additional feature of this type of bank account is that you can also use those same funds to directly buy investment securities, such as bonds, stocks, ETFs and mutual funds.

Some of the standout features of a brokerage account can include:

• Directly invest money in the stock market
• Debit card access
• Invest with as little as $1

What To Watch Out for in a Brokerage Account

A brokerage account is an excellent option for someone interested in streamlining their investments, but consider a few caveats when thinking about opening one:

• Investments Come with Risk: As with all investments, there is the chance of losing money. By connecting your investments directly with your bank account, you’re risking your money, so you may consider keeping emergency funds in a separate account.
• Commission Fees: Some brokerages charge a commission fee on money earned through your brokerage account, or some charge fees on every transaction. Make sure you research all the fees before choosing a brokerage.
• High Earning Potential: If you have the funds to take the risk, investments could earn you a lot of money over time.

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Retirement Accounts

Retirement accounts are a great way to plan for long-term savings. Individual retirement savings (IRAs) and Roth IRAs are two common types of retirement accounts. You or your spouse can also contribute money to your retirement account through a 401(k) if your employer offers one. These types of bank accounts are specifically built for long-term savings so you will be adding to the balance over time without a plan of withdrawal until after you reach retirement age. 

Retirement accounts can vary, but some general features include:

• If you use a traditional IRA, contributions are tax-deferred
• If you use a Roth IRA, earnings grow tax-free
• If you have a 401(k) plan, your employer may match your contributions
• Retirement contributions are capped yearly by law

What To Watch for in Retirement Accounts

Retirement accounts are a solid option for people concerned about saving for their future. Someone just starting in the job market can begin investing in their IRA and experience benefits long after they retire, depending on how they have their funds disbursed. A few things to consider when choosing your IRA include:

• Taxes: Traditional IRAs reduce your taxable income upfront, but then you pay those taxes once you withdraw your money. Roth IRAs are funded after taxes are paid on your income, so you don’t pay them again when you withdraw. 
• Early Withdrawal Fees: If you withdraw funds from your IRA before retirement age, you will be subject to a penalty fee.
• Contribute After Retirement: You can continue to contribute as long as you are under the required age limit and you are contributing income you earned from a job.

Bank Account FAQs

• How many bank accounts can you have?

  There is no limit to the number of bank accounts you can have. You can decide which accounts and how many you need to successfully navigate your financial needs.

• What do you need to open a bank account?

  The requirements vary for each bank and type of bank account you’re opening but some of the typical requirements include:

  -A valid government-issued photo ID.
  -Your personal information including birthdate, social security number or taxpayer-identification number, phone number, etc.
  -Initial deposit
  -A utility bill or something else you can use as evidence of your home address.

• Do you need a minimum to open a bank account?

  The amount you need to open an account depends on the bank and the type of account you’re opening. Some don’t have a minimum deposit requirement at all. You can contact your bank before opening your account to get familiar with their specific requirements.