In recent years, there’s been a growing trend of people making a switch to online banking. These banks offer the same security and safety for your money as you would find in a bricks and mortar bank or credit union. They offer many accounts and their utility is variable depending upon the needs of the specific account holder.
Some accounts are designed for day-to-day use, others for long-term saving and some have a combination of both. There is no one-size-fits-all bank account, everyone has different requirements and an online or bricks and mortar bank offers similar products. The major difference is that online banks tend to have lower or no fees than banks with physical locations because their overheads are much lower.
The best way to evaluate bank accounts is to learn the differences between them and how they mesh with your requirements. It’s also important to realize that some accounts can complement each other and you’re likely to have more than one bank account to meet all your needs.
A Brief Overview of Bank Account Types
When you’re searching for a new bank account, there are a number of different types of accounts to consider.
Checking Accounts
This is the best known type of bank account that most of us already use on a daily basis to pay our bills. A checking account can be opened at a traditional bank, online bank or a credit union. Some non-banking institutions also have similar accounts for their customers.
This account is a great choice for those that need money to spend and pay regular bills. A checking account usually comes with a debit card to make purchases and cash withdrawals at an ATM.
Certain accounts could offer paper checks and they can be linked to other types of accounts for saving. A person can have more than one checking account to simplify their financial lives. For example you may have one account for personal spending, a second for a part-time gig, a third for household expenses and so on.
Savings Accounts
This is the second most recognizable type of bank account for most people and you may already have a savings account. Sadly, most people don’t have a savings account because they spend all the money they make and have nothing left over.
Some people have multiple savings accounts that are directed towards specific goals, such as a vacation, home remodel, car purchase or something else.
Setting up an emergency fund using a savings account is advisable because more interest can be earned. The optimal number and types of savings accounts that you choose to open wil be determined by your specific needs.
Some accounts give the user the capability to split their savings between different “pots” within the same account which can simplify saving. Managing multiple savings accounts can be a challenge and seeing all the savings growing together within the same account can be a great motivator.
Certificates of Deposit (CDs)
These are time-based bank accounts designed to meet long-term savings plans. The period that the CD account will last is set in advance when the account is opened. The account length is referred to as the maturity term and this is when the money held in the account will earn the most interest.
When CDs mature, the balance may be withdrawn and the funds will include the initial deposit and the earned interest. Savvy savers can then choose to roll that amount into a new CD account to earn even more interest.
This requires some long-term planning. Some CDs can last ten years or more to earn higher APY. There are shorter term CDS that can be 28 days, but the earning potential is much lower.
Withdrawing funds from a CD early is inadvisable because there are significant penalties and you may pay more than you’ve invested! This is why a CD would be a poor choice for an emergency fund because it’s not designed for quick access in a crisis.
Most CDs have a set interest, but some are “bump up” products that allow you to adjust the rate according to the market rates during the investment period. This is often used as part of the “CD Ladder” savings strategy where investors stagger multiple CD maturation dates for flexible access to their funds.
A solid strategy is to create multiple CDs that mature every 1-3 months to maximize returns and reduce the waiting time to access those funds. To keep the CD ladder going, you could keep some of the earnings and reinvest in another CD or move it all into a longer term CD to increase the earning potential. This flexibility is very attractive for savers, but you will need to be well organized to make the CD ladder strategy work for you.
High Yield Savings
This is a bank account designed for savings and it offers a higher rate of interest compared to a standard savings account. At first glance, they appear to be the same, but there are key differences to consider before you choose a high yield savings account for a typical savings account.
These types of accounts are offered by online banks, traditional banks and other financial institutions. Certain accounts may offer ten times the average APY than a standard savings account, so they look like a no brainer. The high yield savings account that you choose needs to be provided by a financial institution that has FDIC insurance with up to $250,000 to mitigate any risk. This ensures that in the event of some financial catastrophe you have a guarantee that you’re getting your money back.
The main drawback with these accounts is that withdrawals are typically limited to up to six times each month depending on the specific account. Withdrawing the funds beyond that maximum number will incur a significant penalty and that’s the tradeoff for the higher APY.
Breaking this rule frequently may even lead to the closure of the high yield savings account. The funds can be withdrawn at an ATM or via a transfer and the maintenance fees tend to be low. It’s easy to move money between accounts if you want to earn more interest on funds that you don’t need in your checking account.
Money Market Accounts (MMAs)
These are fairly obscure type of bank account that have slipped under the radar of most savers. They are a hybrid of a checking and savings account that usually have some type of minimum deposit requirement threshold to meet on a monthly basis.
An MMA tends to offer higher rates of interest than a savings account, but access is limited to a set number of checks each month. This is a great way to earn more interest on your money if you need greater access than a standard savings account.
Lesser-Known Types of Accounts
| Account Type | Key Features | Best For |
|---|---|---|
| Cash Management Account (CMA) | Combines checking, savings, and investment features; often offered by brokerage firms | Investors who want seamless access to cash and investments |
| Health Savings Account (HSA) | Tax-advantaged savings for medical expenses, available to those with high-deductible health plans (HDHPs) | Individuals looking to save for healthcare costs while reducing taxable income |
| Custodial Account (UGMA/UTMA) | Managed by an adult for a minor; funds transfer to the child at a certain age | Parents or guardians saving for a child’s future expenses |
| Trust Account | Managed by a trustee for a beneficiary; often used for estate planning | Individuals who want to protect assets and control distributions |
| Second-Chance Checking Account | Designed for those with past banking issues, usually has monthly fees and fewer features | People rebuilding their banking history after overdrafts or account closures |
| Foreign Currency Account | Holds multiple currencies, protects against exchange rate fluctuations | Frequent travelers, expatriates, or international business owners |
| Nonprofit or Charity Account | Special accounts for nonprofit organizations with lower fees and fundraising tools | Nonprofits, charities, and community organizations managing donations |
| Payable-on-Death (POD) Account | Allows account holder to name a beneficiary, avoiding probate upon death | Those looking for a simple estate planning tool to transfer funds quickly |
| Student Bank Account | Low or no fees, designed for students, may require proof of enrollment | Students managing personal expenses with limited fees |
| Business Bank Account | Special features for business transactions, tax reporting benefits | Entrepreneurs and small business owners |
| Joint Bank Account | Shared ownership, both parties can deposit and withdraw | Couples, family members, or business partners managing finances together |
How to Select a New Bank Account
Everyone has their own unique financial circumstances and it’s far beyond the scope of this article to offer advice that would suit every reader. One problem is that the financial landscape is constantly shifting, new accounts can offer more and the interest rates change constantly.
Your specific needs are the true determining factor, if you tend to use ATMs regularly you’re going to need an account with an extensive ATM network. Banks and other financial institutions can vary a great deal in the services and products they provide.
Let’s take a closer look at four factors that you may want to consider when you’re searching for your next bank account.
Evaluating Your Needs
The best place to start is to evaluate your needs and then compare them to the products and services offered by the bank account. Place your focus on the account types discussed above and then find one that meets your priorities and goals. There are several features that you may need in your bank account.
A Debit Card
We don’t yet live in a cashless society, but that seems to be the direction that society is going in and in the future cash may be harder to carry and use. Regardless of your opinions on this topic, it’s likely that for at least the foreseeable future you’re still going to need some cash on hand. But, access to a physical ATM may be impossible in certain situations or perhaps you don’t want to carry cash to make routine purchases? This is where a debit card comes in handy and according to the Federal Reserve around 30% of purchases are now made with debit cards. When you choose your bank account check for debit card availability and associated fees for using it.
Online Bill Pay
Every primary checking account should have online bill pay because most of us are not using physical checks anymore. Federal Reserve data shows that most people with physical check services have written a check since 2017!
Approximately 75% of users pay their bills online to avoid the hassle of writing and mailing a physical check. This is a convenient way to pay bills and avoid late payments because the process can be fully automated.
Mobile and Online Banking
The smartphone has overtaken laptops, tablets and other devices as the primary way that people communicate with the world. Most people have a smartphone in their pocket and there are banks providing accounts to meet this demand.
It’s easy to check your current financial situation at a glance from anywhere and many processes can be automated to avoid overdraft fees. The best online banks have easy to navigate interfaces to flatten the learning curve for non tech savvy users.
Mobile Check Deposit
This feature allows you to take a picture of a check with your smartphone, tap the screen and automatically deposit it into your account. This is a great way to avoid waiting in line at the teller window or visiting the ATM in person. This convenient feature can increase the time that the check is held by some banks if deposits are made via a mobile device.
Email and Text Alerts
These are a useful feature when you need to schedule automatic bill payments that give you a heads up when actions occur. Perhaps you have an alert when new transactions are posted to the account or if the balance dips below a certain threshold? This is useful information to know if you have concerns about ID theft and earlier warnings about fraudulent charges and you want to avoid overdraft fees.
Improved Security
Speaking of ID theft, this has become an increasingly worrying problem for many bank account customers for good reasons. So, you will need an account with improved security in place to mitigate the risk. There should be an on/off switch for credit and debit cards and fraud monitoring to detect any unusual behaviour on your bank account.
Accessibility
Accessibility to your bank account may seem like a non-issue if you’re banking entirely online and you don’t have much use for physical cash. But, for many people there is still a need for ATMs, in-person investment services and more.
Having access to your account at all times via a banking app is useful, but many of us would benefit from access to at least one brick and mortar branch in our area.
Again, it’s important to assess your own needs and ensure that the bank account you choose can meet them.
The Terms and Conditions
When most of us are presented with the terms and conditions for a bank account, insurance and other key pieces of paperwork, it’s all too easy to ignore them. Reading the fine print can feel like a real chore and many people simply don’t have the time or inclination to fully understand the terms and conditions.
Unfortunately this is a key error and many critical details can be found lurking in these paragraphs. The most pertinent details for each bank account offered by a financial institution can typically be found on the bank website. Beyond this there should be disclosure that you can read to make sure that you’re not going to be charged somewhere downline with hidden fees.
Each bank account should be accompanied by an account agreement. This agreement should explain how the account holder can waive any monthly service fees if they keep their account in good standing. What good standing means can vary a little depending on the specific bank and the account they are offering. So, it makes sense to take some time to read the terms and conditions and fully understand them before you open a bank account.
You will need to know if your bank has ATM charges for out of network use and whether you can claim a refund for erroneous charges. When you choose a bank, make sure that it’s federally insured by the Federal Deposit Insurance Corp (FDIC) or National Credit Unions Administration for credit union users.
This will give you some financial protection if the bank closes unexpectedly. It’s also important to note that you can sign up for a bank account using a promotion deal that offers favorable rates. But, when that promotional deal expires you could have less favorable rates. This should be factored into your decision making when you make direct comparisons between different bank accounts.
Assessing Fees
Certain financial institutions may charge low or even no fees to run your account. Let’s face it, most of us don’t want to pay any fees if we can possibly avoid it and we would prefer that money to stay in our bank accounts.
Some online banks offer lower fees because they have no or very few brick and mortar branches to run. When you consider the costs of real estate, utilities and other taxes, it’s only fair that these savings are passed on to some extent to the bank’s customers. Having access to an ATM network with no-fee withdrawals for an online bank cardholder is an absolute must. Despite the slow shift to a cashless society, there are still times when it’s necessary to get your hands on physical money.
The maintenance and overdraft fees associated with ATM use can be a sticking point with many online and traditional bank accounts. A study conducted by Bankrate found that $26.61 is the average overdraft fee at this time. If you need overdraft protection to cover purchases that cannot be funded, it can be an expensive mistake.
Certain banks such as Citibank and others have reduced overdraft fees or eliminated them entirely from their business model. So, it should be relatively easy to find a bank that has or is planning to move in this direction in the near future.
Which Bank Account is Ideal for Your Needs?
When you find your ideal bank account, there are three steps to take that can help you to avoid paying fees. First, set up a direct deposit with a minimum daily balance and many banks will waive the fees.
Next, when you’re opening an account sign up for text or email alerts using the website or bank app to get an overdrawn warning. Finally, link the checking account to a second bank account to allow the bank to pull funds into your checking account to cover any transactions that could cause you to become overdrawn. This service can incur a small fee, but this will typically cost less than an overdraft fee.
