Different Types of Bank Accounts Explained: From Personal Checking to Business

When it comes to managing your finances, choosing the right bank account type is crucial. With so many options available, it can be overwhelming to determine which type of account is best suited to your needs. Understanding the different types of bank accounts and their features can help you make an informed decision that will align with your financial goals.

Here’s a look at the various types of bank accounts you can own and how they work.

Most Common Types of Bank Accounts

Choosing the right type of bank account depends on your financial goals and needs. Whether you're looking to save for the future, earn interest on your balances or simply have a convenient place to manage your money, there is a bank account option that is right for you. Additionally, having different kinds of bank accounts can help you maximize the benefits of each, which can improve your financial standing. Review your options to see where you have gaps that a specific account type might help you fill.

1. Savings Account

When building an emergency fund or long-term savings for large purchases such as a new vehicle, a savings account is the safest place to keep it.

Basic savings accounts are specifically designed for storing funds while earning some interest . Interest rates are higher than those of checking accounts but lower than a certificate of deposit. The interest rate is calculated using an annual percentage yield (APY). Ideally, you want a savings account with a higher APY to help your money grow while it sits.

Because these accounts are designed for long-term savings, they have strict requirements for how many monthly withdrawals you can make and minimum balances. Failing to observe these rules can result in fees.

Most regular savings accounts don’t offer the option to write checks or open a debit card. Instead, you’ll want to open a checking account so you can transfer money between the accounts to withdraw funds.

You should not keep more than $250,000 in your bank account (or $500,000 for a joint account) because that is the maximum for Federal Deposit Insurance Corporation (FDIC) insurance protection.

2. Checking Account

Consumers use checking accounts for daily transactions such as paying bills, making purchases and withdrawing cash. These accounts offer fast access to your money with few limitations on how many transactions you can complete in a month or how much money you can move in and out of them.

Most checking accounts also offer the option to order checks and a debit card so you have various ways to pay for your transactions. Generally, the interest rates on these accounts are lower than account types that are designed to help you hold your money long-term.

Given the flexibility and unlimited transactions on these accounts, they are ideal for avoiding penalties and fees related to minimum balances or large transactions.

Most accounts still provide FDIC insurance, which protects your funds in case a bank falters. The insurance protects up to $250,000 per person, per bank.

3. Money Market Account

Money market accounts function a lot like savings accounts but often have a higher interest rate. You also might need more money to deposit to open a money market account to meet the minimum deposit requirements.

You might find your money market account allows for checks and a debit card, allowing you to withdraw funds more like a checking account. But find out how many transactions per month are permissible before you start using it as a primary account. Transferring funds to a checking account for transactions often makes more sense.

4. Certificate of Deposit (CD)

As you evaluate the benefits of different bank accounts, you’ll find that certificates of deposit (CDs) offer some of the highest interest rates to help your money grow. The hard part is, you won’t be able to touch your money for a set period.

Some CD accounts are short term, such as 15-18 months. Others require that you place your money there for up to 10 years. The most popular accounts require that you don’t touch your money for six months to five years.

The minimum deposit amount is also at least several hundred dollars, so you’ll have to be comfortable with parting with larger sums of money for many months. But the payoff is worth it if you can live without the funds.

One challenge CD accounts pose is that interest rates can go up between when you open the account and when the CD term ends. So you might open your account at 2% APY for 18 months and six months later, accounts are going for 4%, but you can’t move your money or get that higher interest rate because you’re locked in at the original terms for the full 18 months.

Consumers often use a strategy known as CD laddering to work with the challenge of interest rates changing. The strategy involves opening accounts with various lengths so you will still have access to the money but have options for where to place additional funds at various interest rates depending on how long you can stand to be without the funds.

Similar to a joint checking account, this account allows two or more people to save money together. Just like the checking account, all named parties on the account have equal control over the account to complete transactions and move the funds.

Other Types of Bank Accounts

Banking institutions offer a variety of account types beyond the traditional checking and savings options. These alternative accounts may come with unique features, benefits and requirements that can help you manage your funds more effectively.

High-Yield Savings Account

High-interest bank accounts offer higher interest rates than traditional savings accounts, often from online banks. Consumers enjoy this type of bank account because their money grow risk-free without opening a brokerage or other investment account. While investing in the stock market might provide greater yields, it is also much riskier because of market volatility.

High-yield savings accounts also benefit from FDIC insurance to protect the funds they hold.

Individual Retirement Account (IRA)

There are many types of IRAs, including a traditional, Roth, payroll deduction, SEP, SIMPLE and SARSEP. Each has different use cases and benefits. Here’s a look at each.

• Traditional IRA: This type of plan allows individuals to make contributions, with some accounts offering tax deductions and others not.
• Roth IRA: You won’t get tax deductions on the contributions, but qualified distributions can be tax-free.
• Payroll deduction: Only an employer can set up this type of account. It allows employees to make contributions via payroll deduction and can function as a traditional or Roth IRA.
• SEP: SEP stands for Simplified Employee Pension, and employers manage it. An employee can make contributions to the account directly.
• SIMPLE: SIMPLE stands for Savings Incentive Match Plan for Employees of Small Employers and is employer managed. The employee manages their contributions and the employer matches those contributions.
• SARSEP: SARSEP stands for Salary Reduction Simplified Employee Pension Plan. They are no longer available to open, but employers might still have them from before 1997 when the accounts were allowable.

Some people choose to have both traditional and Roth IRAs to make tax-deductible contributions and have an account where they can withdraw funds during retirement tax-free.

401(k) Account

Employers have the option to establish 401(k) accounts for their employees. This enables employees to contribute a portion of their salary to the account either on a monthly basis or in lump sums. These contributions are tax-deductible, and account owners have the freedom to determine how and where to invest the funds to grow their retirement funds based on their proximity to retirement age.

Employers can also implement contribution matching programs to further motivate employees to contribute and assist them in building their retirement savings.

Joint Account

A joint account can be a checking or savings account but is in the name of multiple people, often couples or family members. Having this account type makes it easier to share expenses and manage the funds efficiently.

Parents can also open joint accounts for their children to help them manage their funds. Both owners named on the account have full control over the funds. Seniors also use these accounts to get help managing their finances.

These accounts allow for checks and debit cards to make transactions simple. Just know that both account holders can use these tools to withdraw funds without seeking approval from the other account owner.

Business Account

When you have business income, it’s a good idea to open a business account to keep personal and professional funds separate for simpler accounting. This allows you to process payments and manage business finances and business-related transactions easier, which can make accounting simpler.

To open a business bank account, you’ll need to have a business name and filing paperwork, which will allow you to complete transactions and deposit checks in your business name. Alternatively, online business accounts are much more convenient. Benzinga's Pick is Airwallex which utilizes borderless cards for business, which allow management when traveling or interacting with countries that use other currencies.

Student Account

Geared toward teens and college students, these accounts may have lower fees and minimum balance requirements. Opening these types of banking accounts helps young people establish good money habits and start saving. Some student accounts require a parent to be on the account while others do not once a young person reaches age 18.

Minimum deposit amounts tend to be low, such as $25 or $100, to make these accounts more attainable for young people starting out. It’s a good first step in helping young adults build financial independence.

Trust Account

Trust account is a more advanced account type designed to allow the grantor (or account holder) to allow a third party to manage assets on behalf of designated beneficiaries. Opening these bank account types allows you to protect your assets and ensure they are distributed how you designate.

While the beneficiaries are the ones who benefit from the account, they do not control the assets held in the account on their behalf. Consumers use these accounts for estate planning or managing funds for minors.

Custodial Account

Parents can open a custodial account and manage it for their minor children until they reach a designated age (often 18 or 21). The adult manages the account and has full control over it.

The custodian does not have to be a parent, just an adult who oversees the account for the beneficiary. The custodian must act in the best interests of the minor.

Foreign Currency Account

Frequent travelers and international businesspeople benefit from these accounts. They enable quick payments and offer real-time exchange rates. These accounts, also known as borderless accounts, can receive funds in different currencies from multiple countries. They can be onshore or offshore, making it easier to handle international finances and monitor bank transactions.

Health Savings Account (HSA)

Individuals with high-deductible health insurance plans may qualify for a health savings account (HSA). An HSA allows individuals to save pre-tax funds for qualified medical expenses like deductibles, copays, and coinsurance. This can help individuals save money on out-of-pocket healthcare expenses because the funds go in pre-tax and can be invested for future medical needs.

Maximize Banking Benefits With Multiple Types of Accounts

Few consumers have only one bank account. That’s because various account types offer different benefits. Having more than one bank account type can help you maximize your earnings.

Frequently Asked Questions