Types of Bank Accounts

Navigating the Most Common Bank Account Options

Bank with ample free parking
••• CSA Images/Mod Art Collection / Getty Images

When deciding what kind of bank account you want to put your money into, you have options. Here's a brief overview of five different kinds of accounts, including the benefits and drawbacks of each one..


Savings accounts are often the first official bank account held by consumers. Children may open an account with a parent to begin a pattern of saving. Teenagers open accounts to stash cash earned from a first job or household chores.

The majority of Americans use a savings account to park emergency cash. Opening a savings account also serves as a way to establish a working relationship with a financial institution.

Good For: Your first bank account, kids, adults looking for a place to park savings or extra cash.

Drawbacks: Savings accounts typically yield a low interest rate in comparison to money market accounts and CDs. Typically, they do not come with a debit card for purchases, and the number of withdrawals per month is limited.


Checking accounts provide the consumer with a basic account to deposit checks, make withdrawals, and pay bills. Paper checks, though slowly losing popularity, are issued from checking accounts. More recently, the debit card (or check card) has taken over as a primary form of payment from checking accounts. Most banks now offer online bill pay services through checking accounts, helping to streamline payments.

Good For: Anyone who needs a place to deposit a paycheck or cash and maintains a balance under $5,000, people who enjoy convenience of a check card.

Drawbacks: Checking accounts are subject to a variety of fees, which can become expensive quickly. Many checking accounts charge a maintenance fee or require a minimum balance.

Options vary widely from bank to bank.

Money Market

A money market account earns more interest than either a savings or checking account, but combines features of both. For those who tend to carry higher balances in checking accounts, these can be a great option to park cash. The higher rates mean the cash is working for you and earning interest.

Good For: People who hold average balances in their account of $5,000 or more and want to earn higher interest rates.

Drawbacks: Most money market accounts have significant minimum balance requirements ranging from $5,000 to $10,000. Interest rates may be low, and fees can still be charged on money market accounts. Withdrawals are often limited to a certain number per month.

Certificate of Deposit (CD)

A CD account usually allows you to earn more than any of the accounts listed above. What's the catch? You have to commit to keeping your money in the CD for a certain amount of time. For example, you might use a 6 month CD or an 18 month CD, which means you have to keep your funds on deposit for 6 or 18 months. Learn more about how CDs work and how to use them.

Good For: Money that you don't need to spend anytime soon. You'll earn more by locking it up for a while.

Drawbacks: If you want to pull your funds out early, you'll have to pay a penalty. That penalty might wipe out everything you earned, and even go into your initial deposit. In rare cases, banks refuse to honor early withdrawal requests and you have to wait until the term ends.

Retirement Accounts

Retirement accounts offer tax advantages. In very general terms, you get to avoid paying income tax on interest you earn from a savings account or CD. You may have to pay the interest at a later date, but keeping your money sheltered from taxes may help you over the long term. Most banks offer IRAs (both Traditional IRAs and Roth IRAs), and they may also offer retirement accounts for small businesses.

Good For: Saving for your future. Retirement accounts can make it easier (by easing your tax burden) to save money, and they might result in larger account balances over the long-term.

Drawbacks: Any tax benefit you get comes with strings attached. Read up on your account agreement and ask your banker about the rules (including rules for eligibility). You might have to wait a while before you can access your money. If you withdraw early, you may have to pay taxes and steep penalties.