The basic account types and how they differ

Banks offer a handful of core account types, and the main difference between them is what you can do with the money and how much the bank pays you for keeping it there. A checking account is built for spending—you get a debit card and checks, and you can withdraw money whenever you want with no penalty. A savings account is built for holding money—the bank pays you interest (a small percentage of your balance each month), but you face limits on how many times per month you can withdraw. A money market account sits between the two: it pays more interest than a savings account, but also limits your withdrawals and usually requires a higher opening balance. A certificate of deposit (CD) is a locked account where you agree to leave your money untouched for a set period—three months, one year, five years—in exchange for a higher interest rate.

The account type you choose depends on what you plan to do with the money. If you need to pay bills and buy groceries, a checking account is the right tool. If you are saving for something months or years away and do not need to touch the money, a savings account or CD will earn you interest. Most people open both a checking and a savings account at the same bank so they can move money between them easily.

Key Takeaways

  • Checking accounts let you spend money freely with a debit card or checks, but earn little or no interest.
  • Savings accounts pay interest on your balance but limit how many times per month you can withdraw without a fee.
  • Money market accounts pay higher interest than savings accounts but require a larger opening deposit and stricter withdrawal limits.
  • Certificates of deposit lock your money away for a fixed period in exchange for the highest interest rates, and penalize you if you withdraw early.
  • Most people use a checking account for daily spending and a savings account for money they want to set aside and grow.

Checking accounts: built for everyday spending

A checking account is designed so you can access your money whenever you need it. You get a debit card that works like a credit card at stores and ATMs, and you can write checks to pay bills or people. There are no limits on how many times you can withdraw or spend from a checking account in a month. The tradeoff is that most checking accounts pay zero interest—your balance just sits there and does not grow.

Some banks offer checking accounts that do pay a small amount of interest, usually called interest-bearing checking accounts or NOW accounts (negotiable order of withdrawal). These accounts typically require you to keep a higher minimum balance—sometimes $500 or $1,000 or more—and the interest rate is still quite low. They make sense if you keep a large amount of money in checking anyway and want to earn something on it, but most people use checking just for the money they need to spend that month.

Checking accounts often come with monthly maintenance fees, though many banks waive the fee if you meet certain conditions—like keeping a minimum balance, setting up direct deposit, or using the bank's mobile app. Some checking accounts are free with no strings attached.

Savings accounts: built for money you want to keep growing

A savings account pays you interest—a percentage of your balance that the bank adds to your account each month. The interest rate varies by bank and changes over time. When interest rates are higher in the economy, banks pay more on savings accounts. When rates are lower, they pay less. You can check what rate a bank is currently offering before you open an account.

The main limitation on a savings account is the number of withdrawals. Federal rules historically limited you to six withdrawals per month, though those rules have loosened in recent years. Many banks now allow unlimited withdrawals, but some still charge a fee if you withdraw more than a certain number of times—often three to six times—in a month. The idea is to discourage you from using a savings account like a checking account and to keep the money in the bank so they can lend it out and earn money on it.

Savings accounts have no minimum balance requirement at many banks, though some require you to keep $100 or $500 to earn interest. If your balance drops below the minimum, the bank stops paying interest until you bring it back up. Savings accounts also rarely have monthly fees, though some banks charge a small fee if your balance falls below a certain level.

Money market accounts: higher interest with more restrictions

A money market account is a hybrid between a checking and savings account. It pays more interest than a regular savings account—sometimes significantly more—but it comes with stricter rules. Most money market accounts limit you to three to six withdrawals per month and charge a fee if you exceed that limit. Some also require you to write checks or use a debit card, which makes them feel more like a checking account.

The catch is the opening deposit. Money market accounts typically require you to deposit $2,500, $5,000, or even $10,000 to open one, depending on the bank. If your balance drops below that minimum, you lose the higher interest rate and may pay a monthly fee. This makes money market accounts most useful for people who have a larger amount of money they want to earn interest on but might need to access occasionally.

Money market accounts make sense if you are saving for something specific—a down payment on a house, a car, a vacation—that you might need in one to three years. The higher interest rate helps your money grow faster than a regular savings account, and the occasional withdrawal limit is not a problem if you are not touching the money often.

Certificates of deposit: the highest interest for locked-away money

A certificate of deposit (CD) is an account where you agree to leave your money untouched for a set period of time—called the term—in exchange for a higher interest rate. Common terms are three months, six months, one year, two years, and five years. The longer the term, the higher the interest rate the bank usually offers. A five-year CD might pay twice as much interest as a one-year CD.

When your CD term ends—called the maturity date—the bank gives you your original deposit plus all the interest you earned. At that point you can withdraw the money, open a new CD with the same bank, or move the money elsewhere. If you withdraw the money before the maturity date, you pay an early withdrawal penalty, which is usually a few months' worth of interest. Some banks charge a larger penalty for longer-term CDs.

CDs have no monthly fees and no minimum balance requirements beyond the initial deposit. The opening deposit can be as small as $500 at some banks or as large as $10,000 at others. CDs are useful if you have money you definitely will not need for a specific period—for example, a bonus you received that you want to save for a house down payment two years from now. The may provide higher interest rate makes your money grow predictably.

Specialty accounts: student, senior, and no-frills options

Many banks offer checking or savings accounts designed for specific groups. Student checking accounts are free or low-cost accounts with no minimum balance, aimed at people in school. Senior accounts offer reduced fees and sometimes higher interest rates for people over 55 or 62. No-frills accounts or basic banking accounts are stripped-down checking accounts with no debit card, no checks, and no monthly fee—you can only withdraw cash at the teller or ATM. These accounts exist for people who want the simplest possible banking experience.

Some banks also offer high-yield savings accounts, which are regular savings accounts that pay significantly more interest than standard accounts. These accounts are usually offered by online banks or online divisions of traditional banks, which have lower costs and pass the savings to you in the form of higher interest rates. High-yield savings accounts work exactly like regular savings accounts—same withdrawal limits, same rules—but the interest rate is much better. If you are comparing savings accounts, always check whether a bank offers a high-yield version.

How to choose the right account for your situation

Start by thinking about what you need the account for. If you are paying bills, buying groceries, and spending money regularly, you need a checking account. If you have money left over each month that you want to set aside and grow, you need a savings account. If you have a larger lump sum—a tax refund, a bonus, an inheritance—that you want to earn interest on but might need in one to five years, a money market account or CD makes sense.

Next, compare what banks are offering. Check the interest rate on savings accounts and money market accounts—this changes frequently, so look at current rates, not what you remember from last year. Check the monthly fees and what you have to do to avoid them. Check the minimum balance requirements. Check the withdrawal limits on savings accounts. Some banks offer better rates but have higher minimums or more restrictions. Others offer lower rates but are simpler and cheaper to use.

You do not have to use the same bank for all your accounts. Many people keep a checking account at a local bank where they can deposit cash and visit a branch, and a high-yield savings account at an online bank where the interest rate is better. As long as you can transfer money between them (which takes one to three business days), this setup works fine.

Frequently Asked Questions

Can I have more than one checking account?

Yes. Some people keep checking accounts at two different banks for convenience—one near home and one near work. You can also have multiple accounts at the same bank. Each account is separate, so you manage them individually. Just keep track of which account has which money so you do not overdraw.

What happens if I withdraw from my savings account more times than allowed?

The bank charges you a fee, usually $5 to $10 per excess withdrawal. Some banks charge one fee per month if you go over the limit; others charge a fee for each withdrawal over the limit. Check your account agreement to see how your bank handles it. Many banks now allow unlimited withdrawals, so this may not apply to you.

Is my money safe in a bank account?

Yes, up to a limit. The Federal Deposit Insurance Corporation (FDIC) insures deposits at most banks up to $250,000 per account type per bank. This means if the bank fails, the government reimburses you. If you have more than $250,000, spread it across multiple banks or account types to stay fully covered.

Can I move money from a CD before it matures?

Yes, but you will pay an early withdrawal penalty. The penalty is usually three to six months of interest, though it varies by bank and by the CD's term. If you think you might need the money sooner, choose a shorter-term CD or use a savings account instead, where you can withdraw anytime without penalty.

Which account type earns the most interest?

CDs earn the most interest, followed by money market accounts, then high-yield savings accounts, then regular savings accounts. Checking accounts earn almost nothing. The tradeoff is that accounts with higher interest have more restrictions on when and how often you can withdraw.