The main types of bank accounts and what they're for

A checking account is designed for money you spend regularly. You get a debit card and checks, deposits clear quickly, and you can withdraw cash anytime. Most checking accounts charge no monthly fee if you keep a minimum balance or set up direct deposit.

A savings account holds money you're not spending right now and pays you interest on the balance. Withdrawals are limited by federal rules — you can make only six per month before fees kick in, though this rule is enforced unevenly. Interest rates vary widely by bank and change monthly.

A money market account combines features of both: it pays higher interest than savings but requires a larger minimum balance, usually $2,500 to $10,000. You get limited check-writing and debit card access, but fewer withdrawal restrictions than a savings account.

A certificate of deposit (CD) locks your money away for a set period — three months, one year, five years — in exchange for a may provide interest rate. If you withdraw early, you pay a penalty. CDs pay more interest than savings accounts because the bank knows exactly how long it has your money.

Key Takeaways

  • Checking accounts are for regular spending and bill payments, while savings accounts are for money you want to keep and grow through interest.
  • Money market accounts pay higher interest than savings but require larger minimum balances and limit how often you can withdraw.
  • CDs lock your money for a fixed period in exchange for a may provide interest rate that's higher than savings accounts offer.
  • Interest rates, minimum balances, and monthly fees vary by bank and change over time, so comparing banks before opening an account saves money.
  • Your bank's FDIC insurance covers up to $250,000 per account type per person, so splitting money across account types protects larger balances.

Checking accounts: everyday spending and bills

A checking account is where your paycheck lands and where you pay your rent, utilities, and groceries. The bank gives you a debit card that works like a credit card but pulls money directly from your account. You can also write checks, though fewer businesses accept them now.

Deposits clear within one to two business days for checks and when ready for direct deposit. Withdrawals at ATMs are when ready. Most banks offer checking accounts with no monthly fee if you either keep a minimum balance (often $500 to $1,500) or receive direct deposit. Some banks waive the minimum for customers under 25 or over 65.

Overdraft protection is optional. If you turn it on and spend more than you have, the bank covers the difference and charges you a fee — usually $25 to $35 per overdraft. If you turn it off, transactions straightforward decline. Many people turn it off to avoid surprise fees.

Savings accounts: building a balance and earning interest

A savings account holds money you're setting aside and pays you interest on what sits there. The interest rate changes monthly and varies by bank — currently ranging from nearly 0% at large national banks to 4% to 5% at online banks, though these rates shift as the Federal Reserve changes its rates.

Federal rules limit you to six withdrawals per month before the bank can charge a fee or close the account. This rule applies to transfers to other accounts and checks written from savings, not just ATM withdrawals. In practice, many banks stopped enforcing this strictly after 2020, but the rule is still on the books and fees can still explore.

Savings accounts require a minimum opening deposit, usually $0 to $100, and a minimum balance to avoid monthly fees, usually $300 to $500. Online banks often have lower minimums and higher interest rates because they have fewer physical branches to maintain.

Money market accounts: higher interest with limited access

A money market account pays more interest than a savings account — currently 4% to 5% at competitive banks — but requires you to keep a larger balance, typically $2,500 to $10,000. If your balance drops below the minimum, you lose the higher rate or pay a monthly fee.

You get a debit card and can write checks, unlike with a regular savings account. However, federal rules still limit you to six withdrawals per month. Money market accounts are useful if you have a lump sum you want to grow — an emergency fund, a down payment you're saving for, or a bonus you're not spending when ready.

The tradeoff is that your money is less accessible than in a checking account. If you need to spend it regularly, a checking account makes more sense. If you need it within a few months, a money market account's higher interest might not be worth the access restrictions.

Certificates of deposit: may provide rates for locked-in money

A CD is a contract between you and the bank. You give them a sum of money for a fixed period — 3 months, 6 months, 1 year, 3 years, 5 years — and they may provide you a specific interest rate for that entire time. Current CD rates range from 4% to 5.5% depending on the term, though rates change daily.

When the term ends, the bank returns your money plus interest. You can then withdraw it, spend it, or roll it into a new CD. If you withdraw before the term ends, you pay an early withdrawal penalty — usually three to six months of interest, though it varies by bank and term length.

CDs are useful if you know you won't need the money for a specific period and want to lock in a rate before rates drop. They're also useful for large sums you want to protect from yourself — if you're saving for a house down payment and the closing is in two years, a two-year CD keeps you from spending it.

How FDIC insurance protects your money across accounts

The Federal Deposit Insurance Corporation (FDIC) insures deposits at banks up to $250,000 per depositor, per bank, per account type. This means if your bank fails, the FDIC returns your money up to that limit.

The key phrase is "per account type." A checking account, a savings account, and a CD at the same bank are insured separately. So if you have $200,000 in checking, $200,000 in savings, and $200,000 in a CD at the same bank, all $600,000 is covered — each account type gets its own $250,000 limit.

If you have more than $250,000 to keep safe at one bank, you can split it across account types. If you have more than $250,000 in one account type, you need to use multiple banks — each bank's FDIC coverage is separate. Joint accounts (accounts held with another person) get their own $250,000 limit, so a joint checking account and an individual checking account at the same bank are both fully covered.

Comparing banks: what actually changes the cost

Monthly fees vary by bank and account type. A checking account might cost $0 to $15 per month depending on whether you meet the minimum balance or direct deposit requirement. A savings account might cost $0 to $5 per month. Money market accounts often cost $0 to $25 per month if the balance drops below the minimum.

Interest rates are where the biggest differences appear. A large national bank might pay 0.01% on savings; an online bank might pay 4.5%. On a $10,000 balance, that's $1 per year versus $450 per year — a difference of $449. Over five years, it's $2,245 in lost interest by staying with the low-rate bank.

ATM fees also add up. Some banks charge $3 to $4 per out-of-network ATM withdrawal. If you use ATMs twice a week, that's $312 to $416 per year. Banks with large ATM networks (like Bank of America or Wells Fargo) or banks that reimburse out-of-network fees (like Charles Schwab Bank) can save you money if you travel or live far from branches.

Frequently Asked Questions

Can I have multiple checking accounts at the same bank?

Yes. Many people keep one checking account for regular bills and another for a specific goal — a vacation fund, a car repair fund, or a business account. Each account is insured separately up to $250,000. The bank may charge a monthly fee for each account or waive fees if you meet requirements on the combined balance.

What's the difference between a savings account and a money market account?

A money market account pays higher interest and gives you a debit card and check-writing, but requires a larger minimum balance and still limits withdrawals to six per month. A savings account has lower minimums and fewer restrictions but pays less interest. Choose a money market account if you have at least $2,500 to $5,000 sitting idle; choose savings if you have less or need more frequent access.

Should I put all my money in a CD?

No. CDs lock your money away, so if you need it before the term ends, you pay a penalty. Keep three to six months of expenses in a checking or savings account for emergencies. Use CDs for money you know you won't need — a down payment due in two years, a bonus you're saving for retirement, or a lump sum from an inheritance.

Do I need a savings account if I have a checking account?

Not required, but useful. A checking account is designed for spending; a savings account separates money you're keeping from money you're spending, earns interest, and makes it slightly harder to spend on impulse. If you struggle to save, the separation helps. If you're disciplined, one account works fine.

Why do online banks pay more interest than big banks?

Online banks have no physical branches, so they spend less on buildings, staff, and ATM networks. They pass those savings to customers through higher interest rates and lower fees. The tradeoff is that you can't walk into a branch to deposit cash or talk to someone in person — everything happens online or by mail.