A bank account is a record the bank keeps of your money

A bank account is an agreement between you and a bank. You give the bank your money to hold. The bank keeps track of how much you have, lets you add more, and lets you take money out when you need it. The bank also pays you a small amount of interest on some types of accounts — that is money the bank gives you just for letting them use your money.

When you open an account, the bank assigns it a number. Every deposit you make, every withdrawal, and every payment you set up gets recorded under that number. Your account is separate from everyone else's, and the bank is legally required to keep your money separate from its own money and from other customers' money.

You access your account through a debit card, a checkbook, online banking, or by visiting a branch in person. The bank sends you a statement — either on paper or online — that shows every transaction and your current balance.

Key Takeaways

  • A bank account is a contract where you deposit money and the bank holds it, tracks it, and lets you withdraw it on demand.
  • The bank keeps your money separate from its own and from other customers' accounts, protected by federal insurance up to $250,000 per account type.
  • Different account types serve different purposes: checking accounts for frequent spending, savings accounts for money you want to keep, and money market accounts for larger balances earning higher interest.
  • You can access your money through a debit card, checks, ATM, online transfer, or in-person withdrawal, depending on the account type.
  • The bank may charge monthly fees, require a minimum balance, or limit the number of withdrawals you can make, depending on the account.

Checking accounts for everyday spending

A checking account is designed for money you use regularly. You can write checks, use a debit card, set up automatic bill payments, and transfer money online as many times as you want. Most checking accounts do not pay interest, or pay so little it is nearly zero.

Banks may charge a monthly fee for a checking account, though many waive the fee if you keep a minimum balance or set up direct deposit of your paycheck. Some banks charge per transaction — for example, per check written or per ATM withdrawal outside their network.

Checking accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. That means if the bank fails, the government guarantees you get your money back up to that limit.

Savings accounts for money you want to keep

A savings account is meant for money you are building up and do not need to spend right away. Savings accounts pay interest — usually more than checking accounts, though the rate varies by bank and changes over time. The interest is added to your balance automatically, so your money grows without you doing anything.

Savings accounts have fewer ways to access your money. You cannot write checks or use a debit card. You can withdraw money in person, by phone, or online, but some banks limit you to a certain number of withdrawals per month. If you exceed the limit, the bank may charge a fee or close the account.

Savings accounts are also FDIC-insured up to $250,000. If you have more than $250,000, you can open a second savings account at a different bank and both are covered.

Money market accounts for larger balances

A money market account is a hybrid between checking and savings. It pays interest like a savings account, usually at a higher rate than regular savings accounts. It also gives you limited check-writing ability and a debit card, like a checking account.

Money market accounts typically require a higher minimum balance to open — often $2,500 or more, though this varies by bank. They also limit the number of withdrawals you can make per month. If you need frequent access to your money, a regular checking or savings account is usually a better fit.

Money market accounts are FDIC-insured up to $250,000, the same as checking and savings accounts.

How interest works on your account

Interest is money the bank pays you for letting them use your deposits. The bank lends your money to other customers and businesses, charges them interest, and shares a portion of that with you. The amount you earn depends on the interest rate the bank offers and how much money you have in the account.

Interest rates change frequently — sometimes weekly — based on what the Federal Reserve does and what other banks are offering. A savings account that pays 4.5 percent one month might pay 4.25 percent the next. The bank must tell you the current rate before you open the account, but you should check your statement or log into online banking to see what you are actually earning.

Interest is calculated daily but usually added to your account monthly. That means if you have $1,000 in an account earning 4 percent annual interest, you earn roughly $3.33 per month (though the exact amount depends on how many days are in the month).

Fees and minimums to watch for

Banks charge fees for different reasons. A monthly maintenance fee is charged just for having the account open — usually $5 to $15, though many banks waive it if you meet certain conditions. An overdraft fee is charged if you try to withdraw more money than you have in the account. An ATM fee is charged if you use an ATM that does not belong to your bank's network.

Some accounts require a minimum balance — the smallest amount you must keep in the account at all times. If your balance drops below the minimum, the bank charges a fee or closes the account. Minimums range from $0 to several thousand dollars depending on the bank and account type.

Read the account agreement before you open an account. Banks are required to give you a document called the Deposit Account Agreement or Truth in Savings Act disclosure that lists all fees and terms. This document tells you exactly what you will and will not be charged for.

FDIC insurance protects your money if the bank fails

The Federal Deposit Insurance Corporation (FDIC) is a government agency that insures deposits at member banks. If a bank fails, the FDIC pays depositors back up to $250,000 per account type, per bank. That means if you have $100,000 in a checking account and $100,000 in a savings account at the same bank, both are fully covered because they are different account types.

If you have more than $250,000 at one bank, you can open accounts at other banks and each bank's accounts are insured separately. For example, $250,000 at Bank A and $250,000 at Bank B are both fully insured.

FDIC insurance is automatic — you do not have to do anything to get it. Nearly all banks are FDIC members. If you are unsure whether your bank is insured, you can search the FDIC's bank database on their website.

Frequently Asked Questions

What is the difference between a debit card and a credit card?

A debit card takes money directly from your bank account when you use it. A credit card borrows money from the credit card company, and you pay them back later. Debit cards do not build credit history; credit cards do.

Can I have more than one bank account?

Yes. You can have multiple accounts at the same bank or at different banks. Some people keep one checking account for bills and one savings account for emergencies. Each account is insured separately up to $250,000 by the FDIC.

What happens if I overdraw my account?

If you spend more money than you have, the bank may either decline the transaction or allow it and charge you an overdraft fee — usually $25 to $35 per overdraft. Some banks allow you to link a savings account so overdrafts are covered automatically without a fee.

How do I know if my bank is safe?

Check whether your bank is FDIC-insured by searching the FDIC's bank database on their website. If it is insured, your deposits up to $250,000 per account type are protected by the federal government, even if the bank fails.

Can the bank take money out of my account without permission?

A bank can only take money from your account if you have authorized it — for example, through a standing bill payment you set up, or to cover an overdraft fee. The bank cannot take money for any other reason without your written permission.