Personal Finance 101: Types of Personal Bank Accounts

By David Thompson

Nov 28, 2023 12:56 AM EST

Using an ATM - Hand pressing number(Eduardo Soares on Unsplash) (Credit: Getty Image)

Building good habits around one's finances is essential to maintaining good financial health. Aside from ensuring you have enough to take care of your essentials, these habits also serve as your foundation for better wealth management decisions.

Having and maintaining a bank account is an important part of your everyday finances. As of 2021, most of the United States population already has a bank account, with only a minority of 4.5 percent of households being unbanked.

While we're all likely aware of checking or chequing vs savings accounts, different kinds of bank accounts are available to the general public. Read below for a quick overview of your personal banking options.

Checking Accounts

A checking account is a bank account set up for everyday financial transactions. Aside from brick-and-mortar banking institutions, online banks, credit unions, and other non-bank financial institutions also offer checking accounts.

This type of account allows you to make deposits and withdrawals for everyday use easily. Since they are designed for regular transactions, they don't have high-interest rates like other account types.

Some key features of checking accounts include:

  • Deposits and withdrawals. You can easily deposit money into a checking account and withdraw it as needed.

  • Check writing. Checking accounts often come with checkbooks, allowing holders to write checks for goods and services.

  • Debit cards. Many checking accounts also offer debit cards that account holders can use to pay for online and in-person transactions.

  • Overdraft protection. Some checking accounts offer overdraft protection, which covers transactions that may exceed the current account balance. However, this service may involve fees or interest charges.

Savings Accounts

As the name suggests, a savings account aims to help individuals save money and earn interest on their deposits. This account type is designed for storing money you don't intend to spend immediately.

They often have higher interest rates than other types of bank accounts. These interest rates aim to support the account's primary purpose: saving and growing wealth. The interest rate can vary depending on the bank or financial institution and the type of savings account.

Aside from interest rates, here are some other features of savings accounts:

  • Security. Government agencies often insure funds stored in savings accounts. The Federal Deposit Insurance Corporation (FDIC) has insurance for these bank accounts against bank failure in the United States.

  • Limited withdrawals. Savings accounts may have withdrawal limits to discourage spending and encourage long-term saving.

  • Goal-oriented savings. Many banking institutions offer different types of savings accounts with varying interest rates. These goals include saving for emergency funds, a vacation, or preparing for significant purchases.

  • No check writing. Unlike checking accounts, savings accounts do not come with checkbooks and check-writing privileges.

Money Market Accounts

Money market accounts (MMAs) are a type of bank account that combines some features of savings and checking accounts. Funds stored in an MMA can gain interest while providing debit cards and check-writing privileges.

Many MMAs have higher initial deposits and maintaining balance requirements for account holders to enjoy their benefits. For example, MMAs might require an initial deposit of $1000, while savings accounts have little to no initial deposit requirements.

Here are some key features of money market accounts:

  • Interest earnings. Like savings accounts, money market accounts earn interest on the deposited funds. These interest rates are often higher than traditional savings accounts while lower than riskier investments.

  • Liquidity. Funds stored in MMAs offer a high level of liquidity compared to traditional savings accounts or other investment options. Account holders can easily access their money through checks, electronic transfers, or ATM withdrawals.

  • Check writing. MMAs allow account holders to write checks for everyday transactions.

  • Limited transactions. Like savings accounts, some banks may impose transaction limits to encourage saving instead of frequent spending.

Certificate of Deposit Accounts

A Certificate of deposit (CD) account is a type of time deposit offered by banks and other financial institutions. It is a relatively low-risk savings option offering higher interest rates than some savings or checking accounts.

Opening a CD account involves agreeing to leave these funds in place for a set time, called a maturity term. It is within this term that you will earn interest. You can only withdraw these funds at the end of the maturity period.

Here are some other key features of CD accounts:

  • Fixed term. Unlike savings and checking accounts, a CD has a fixed term or maturity period, ranging from a few months to several years. Withdrawals before the set maturity date may result in penalties.

  • High-interest rates. CD accounts generally offer higher interest rates compared to regular savings accounts. You usually get a fixed interest rate for the entire term, providing certainty about the return on investment.

  • FDIC insurance. Like savings accounts, CDs offered by banks in the United States often get insurance from the FDIC up to certain limits. This insurance protects account holders in the event of a bank failure.

Individuals have various options when it comes to setting up a bank account. Understanding each type can help you make appropriate choices that align with your financial needs. You can always set up multiple bank accounts to suit your preferences and financial goals.


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