Importance of Different Types of Bank Accounts

Do you remember your first bank account? You probably had just one to start with; this account was where you deposited your earnings and withdrew cash. You may have used tools like a debit card and even billpay to make purchases and pay monthly bills.

As you got older, though, you may have realized that you actually needed more than one bank account to manage your finances successfully. And you’re not alone! These days, the average consumer actually has 5.3 bank accounts to their name, each with its own benefits and purposes. Here’s a look at how many different types of bank accounts you might actually need, and the importance of each one. 

Types of Bank Accounts

Depending on your needs and how you prefer to manage your money, there are a few different types of bank accounts to consider. Luckily, you are able to hold each of these at the same time (and even more than one, if it makes sense for your financial situation!).

The most common types of bank accounts are:

• Checking accounts — transactional accounts where your earnings are deposited and from which regular daily spending is debited

• Savings account — long- or short-term, this account is designed to hold funds that are earmarked for specific purposes in the future

• Money market account (MMA) — a type of higher-yield savings account that earns competitive interest but may have limited access options

• Certificate of deposit (CD) — a high-yield savings vehicle with a defined savings period; as long as your funds remain in the account until its maturity date, you’ll receive a guaranteed return

Checking accounts are usually what you think of when you talk about “everyday” bank accounts. It’s probably where your paycheck is cashed and it’s where money is withdrawn from when you spend with your debit card. If you need to pay bills or transfer funds, it’s likely to come out of this account. These accounts can charge fees or be fee-free, may earn interest (or not), usually include a debit card and ATM access, and may even be designated for kids or investors.

Savings accounts are where you put your money that you don’t intend to spend today. Whether you need to tuck away cash for an emergency or are saving up for a specific occasion (such as a vacation or buying a home), a savings account can help. These accounts may or may not have monthly transaction limits and often earn interest — usually with a higher annual percentage yield (APY) than checking accounts. 

MMAs are similar to savings accounts, though they may offer higher interest rates from some financial institutions. And while the typical savings account doesn’t provide you with checks or a debit card, an MMA may offer one (or both). 

Lastly, CDs are a savings vehicle designed to maximize returns on the funds you don’t plan to touch for a while. If you know for certain that you won’t need that money for the next six months or longer, locking it into a CD can be a great way to maximize your interest earned.

What to Look for When Choosing a Bank Account

Even if you know what type of bank account you want, here are some things to look for when shopping around.

A Bank Account With Local Access

While the traditional banking model has been disrupted in recent years by the introduction (and subsequent popularity) of online banking institutions, there is still a lot of value to be found with local banks. Even if you simply opt for a national chain that has local brick-and-mortar branches, you’ll reap many of these benefits. 

When opening a checking, savings, or money market account at a bank with local access, you’ll enjoy:

• In-person teller services

• The ability to easily deposit cash

• In-person withdrawals without ATM limits (which can sometimes be just a few hundred dollars a day)

• Personal relationships with tellers and bank managers, which can come in handy if you ever need to borrow money or request hand underwriting

• Other in-person services such as coin exchange and money orders or cashier’s checks

All of this can make it easier to access your funds, save money on fees, and develop valuable relationships, compared to an online-only institution.

A Bank Account With Online Access and Features

With that said, online banks — or even just national banks with cutting-edge online and mobile tech features — also hold a lot of value. These mobile and web banking features make it easier to:

• Transfer funds between accounts digitally

• Deposit checks on the go

• Locate in-network ATMs and services

• Lock debit cards, order new checks, or dispute charges

• Track and manage account activity

Online banking institutions are also known for offering a higher APY on savings accounts on average, compared to traditional banking chains. If you are able to snag an account with one of these competitive interest rates, you’ll amplify the returns on your savings.

A Bank Account Without Fees

Not all bank accounts include fees, but those that do can eat away at your reserves each and every month. Finding a bank account that either doesn’t charge fees or allows you to have those fees waived can be a great way to snag the account you want without paying anything extra for it.

Monthly maintenance fees can often be waived by:

• Maintaining a minimum daily or monthly average balance

• Initiating a minimum number of transactions from the account each month

• Holding another type of account (such as a mortgage loan) with that same institution

• Receiving a minimum number (or dollar amount) of direct deposits into the account each month

If you can’t find the perfect fee-free account, finding one that’s waivable is the next best option.

Bottom Line

There are many different types of bank accounts to choose from today, each with its own benefits and features. In many cases, you may want to open and use more than one to meet your financial needs, whether you’re looking to track you spending, save for a rainy day, or access your cash on the go. No matter which accounts and banking institutions you choose, focus on limiting your fees and maximizing your returns.