Key insights:
- Understanding the main types of bank accounts can help you choose the right tools for spending, saving and long-term goals
- Checking and savings accounts each serve different purposes depending on how often you need access to your money
- Using a mix of bank accounts can help you stay organized and manage your finances more effectively
With so many types of bank accounts available, it can be challenging to choose. The first step is understanding how each account works, so you can find ones that meet your needs.
Let’s explore the different types of bank accounts, from standard checking and savings accounts to certificates of deposit (CDs).
Checking accounts
A checking account is a bank account that lets you receive deposits and make payments. It can be a solid option for everyday transactions, from paying rent and buying groceries to receiving paychecks.
Typically, you can make payments from your checking account using a debit card, ACH, wire transfer or a check. You can also receive payments like direct deposits.
Checking accounts usually come with a debit card that allows you to make purchases and withdraw money from ATMs. In-network ATMs are often fee-free, while out-of-network ATMs can come with fees.
Checking accounts typically don’t earn interest, but some financial institutions may offer ones that do at low interest rates.
Best for: everyday transactions, accessing your money, sending money
Pros:
- Easy access to funds
- Unlimited withdrawals
- ATM withdrawals
- Debit cards
Cons:
- Low or no interest
- Potential fees, such as monthly service fees or fees for out-of-network ATM use
Savings accounts
A traditional savings account is a bank account that lets you store and grow your money. Interest rates are generally variable and may be low compared to options like a high-yield savings account. Still, most savings accounts earn compound interest. That means you can earn interest on your deposits as well as on the earned interest as it becomes part of the principal over time.
Your funds are still generally accessible in a personal savings account. That means they can work for both short- and medium-term savings goals, like buying a car or building an emergency fund. However, some banks may limit the number of withdrawals and transfers you can make per month.
Best for: Building an emergency fund or saving for a short-term goal, like a vacation
Pros:
- Can earn interest
- Allows you to separate savings from money needed for everyday transactions
- Funds are generally accessible
Cons:
- Interest rates can be low
- Withdrawals may be limited
Money market accounts (MMAs)
MMAs are essentially the same as savings accounts. They may offer check-writing privileges or a debit card. They provide a dedicated account for your savings. MMAs typically also have a variable interest rate that compounds. Notably, though, the rates can be higher than those offered by traditional savings accounts.
There can be important limitations with these types of accounts. While some MMAs may have unlimited withdrawals and transfers, some may have limits. You may have to meet a minimum deposit or balance requirement, too.
Best for: Saving for emergencies or medium-term goals, such as a home down payment
Pros:
- Earn interest
- APYs may be higher than traditional savings accounts
- May allow you to write checks
- Easy access to your money
Cons:
- May require a minimum deposit
- May come with monthly fees
- Withdrawals and transfers may be limited
Certificates of deposit (CDs)
A traditional CD is a savings vehicle that requires you to deposit funds for a set period, usually a few months to a few years. You earn interest (which generally compounds) on your deposit over your chosen term. Once the term ends, you can usually withdraw the money during the grace period, which lasts a few days, or let the CD automatically renew for a similar term at the current rate. Rates are typically fixed and withdrawing money early can result in an early withdrawal penalty.
There are many types of CDs, from fixed rate CDs (which offer a consistent rate) and step up CDs (which increase the APY after a certain time) to no penalty CDs (which don’t charge early withdrawal penalties). Offerings depend on the bank.
Best for: Earning a fixed interest rate on long-term savings goals
Pros:
- May earn a higher interest rate than a traditional savings account
- Earns a consistent APY, depending on the type of CD
Cons:
- May not be able to withdraw early without a penalty
- If rates go up after your term starts, you may not benefit
Business bank accounts
Business bank accounts are designed to accommodate business needs. There are many different types of business bank accounts, including business checking and savings accounts, as well as business MMAs and CDs. Business bank accounts often provide features tailored to businesses. For example, a business checking account may offer debit cards for employees or free wire transfers.
Business bank accounts can provide a convenient way to separate business and personal finances.
Joint accounts
Joint bank accounts let you share account ownership with another person. Each account owner has equal access to the account. For instance, you and your partner or teen may have a joint checking or savings account. Apart from allowing multiple account holders, these accounts are typically the same as their single-ownership counterparts.
How to choose the right type of bank account
Choosing between different types of bank accounts depends on how you plan to use your money.
Here are a few factors to consider:
- Purpose: Everyday spending, saving or long-term growth
- Access: How often you need to withdraw or transfer money
- APY: Higher rates can help your savings grow faster
- Fees and requirements: Minimum balances or monthly charges
- Features: Debit cards, transfers or business tools
Many people use multiple types of bank accounts together. For example, you might use a checking account for daily expenses and a savings account for your emergency fund.
Why understanding types of bank accounts matters
Choosing the right mix of bank accounts can help you stay organized, manage spending and work toward your financial goals more effectively.
By understanding the different types of bank accounts available, you can build a setup that supports both your day-to-day needs and your long-term plans.
Types of bank accounts: FAQs
What are the main types of bank accounts?
The most common types of bank accounts include checking accounts, savings accounts, money market accounts, certificates of deposit (CDs), business bank accounts and joint accounts. Each type is designed for a different financial purpose, from daily spending to long-term saving.
What type of bank account is best for everyday use?
A checking account is typically best for everyday use. It allows you to pay bills, make purchases, withdraw cash and receive direct deposits with easy access to your money.
What type of bank account is best for saving money?
A savings account is one of the best options for saving money, offering interest earnings and easy access to funds when needed.
What is the $10,000 bank rule?
The $10,000 bank rule refers to a federal reporting requirement for banks.
When you deposit, withdraw or transfer more than $10,000 in cash, banks are required to report the transaction to the IRS by filing a Currency Transaction Report (CTR).
Disclosure: This article is for general educational purposes. It is not intended to provide financial advice. It also is not intended to completely describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products.
