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Bank accounts are useful tools that can help you manage your finances. The varied types of accounts allow you to save and keep track of spending, and some will even earn you more money in the form of interest.
If you’re interested in opening a bank account, you must decide among several different kinds and familiarize yourself with the rules for each. By being informed, you can determine which accounts best meet your lifestyle and goals. Most banks offer four types of accounts.
- Checking accounts are best for access to your money at any time, albeit while earning minimal to no interest.
- Savings accounts are best when you don't need access to your money often and would like to leave it in a secure account that earns interest.
- Money market accounts are a mix between checking and savings accounts and allow for occasional access to funds.
- Certificates of deposit lock your money in for a specified amount of time and earn a fixed rate of interest.
A checking account provides easy access to your money for daily spending. Checking accounts are the most accessible type of bank account, since they allow you to deposit and withdraw money with few or no limits. Though checking accounts don’t traditionally earn any interest, some banks and credit unions do offer interest-bearing checking accounts. Checking accounts typically come with a debit card, which you can use to make purchases or withdraw cash from ATMs.
Some checking accounts charge fees for maintenance, ATM withdrawals and minimum balance violations. Comparing options can help you find a checking account with the lowest fees and best terms for you, such as whether an account refunds ATM fees, should you frequently need to withdraw cash.
- Everyday spending and bill payments.
- Frequent deposits, such as paychecks.
- Consumers who want to earn interest on their money.
- Spending more than what you have immediately available, since it may incur overdraft fees.
A savings account is a good place to park money that’s not to be spent immediately. Savings accounts earn interest on the funds you deposit, and they can help you build up an emergency fund or work toward a savings goal, like a down payment on a house. Some banks, especially online-only banks, offer high-yield savings accounts, which earn a much higher yield than a standard savings account.
Unlike checking accounts, savings accounts may impose restrictions on how many withdrawals or transfers you can make each month, typically six maximum. Most also don’t come with checks or a debit card.
Savings accounts vary in interest rates, method of compounding interest, service fees and minimum opening deposits.
- Emergency funds.
- Saving for a goal, like a down payment on a house or a car or a vacation.
- Consumers who are looking to curb spending by tucking some of their money away.
- Frequent and/or easy access to money.
- Making transactions or paying bills.
Money market accounts
At its core, a money market account (or MMA) is a combination of a checking and savings account. Money market accounts tend to have a higher interest rate than savings accounts, but they may also have a higher minimum balance requirement. Some money market accounts come with checks or debit cards, but the number of monthly withdrawals from the account is usually limited just like a savings account.
- Consumers looking to maintain a high account balance and earn interest on it.
- Unlimited access to money.
- Those who can’t meet the minimum balance requirements.
Certificates of deposit (CDs) allow you to invest money for a specified period at a fixed interest rate with minimal risk. Terms range from a few months to several years. CDs typically pay higher annual percentage yields (APYs) than other bank accounts, in exchange for a commitment to keep the money in the account for the entire term. Taking money out before the term ends can result in a lofty early withdrawal penalty, though some banks offer no-penalty CDs that forego early withdrawal fees in exchange for lower interest rates.
- Storing money away to save for a future goal.
- Those who want to earn more interest in exchange for locking up their funds for a while.
- Accessing funds without an early withdrawal penalty.
- Those who can’t afford to lock up the minimum balance requirement for a while.
Which bank account is right for me?
It’s common for people to have more than one bank account to fulfill their different financial needs. For example, you could have a savings account for money not needed right away and a checking account for daily spending. If you’re looking for a place to stash some extra cash away and grow your wealth, then you might also want to open a CD.
Consider these factors when deciding what combination of bank accounts you want to have:
- Financial goals
- Different accounts serve different purposes, such as saving for emergencies, long-term investments or daily transactions. Align your account combination with your goals.
- Emergency fund
- It's important to have an emergency fund as a buffer in case of an unexpected expense or loss of income. Typically, a savings account or money market account is best for an emergency fund.
- Interest rates
- Balance your need for liquidity with the desire for interest earnings. High-yield savings accounts, money market accounts and CDs tend to offer the best interest rates.
- Financial capacity
- Some accounts may have minimum balance requirements, and you'll need to be sure you have the funds to maintain each of these accounts without falling below those minimums.
Moreover, when choosing which bank account to open, there’s more to consider than just the type. It’s also important to make sure the fees are minimal or waivable, you can meet any minimum opening deposit requirements and the features offered suit your needs.
Remember that you can open more than one bank account to meet your various financial needs and goals. Many banks offer several types of bank accounts, so you can do all your banking with one institution, though finding the best deal may require opening accounts at separate financial institutions.
–Anna Baluch contributed to an earlier version of this article.