Understanding the 5 different types of bank accounts
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Most of us open a bank account without thinking too hard about it, but knowing how the different types of accounts work can make a difference in how you manage (and grow) your money.
Whether you’re handling your family’s day-to-day spending or setting up your child’s first savings account, it helps to know what different types of accounts are used for. Some help with everyday spending, others are better for building savings, and a few can even grow with your child as they get older.
Here are the five main types of bank accounts, how they work, and how to pick the right one for your family.
1. Checking accounts
A checking account is your money’s home base. Paychecks land here, and everyday purchases flow out. Because you can move cash in and out, it’s perfect for day-to-day living. Most accounts come with a debit card, ATM access, and an app so you can see where your dollars went. A handful pay a smidge of interest, but that’s not the primary purpose. Checking accounts are primarily for spending money vs. savings.
What you need to know about checking accounts
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They house money for the daily stuff: groceries, gas, subscriptions, or whatever pops up.
You have instant access with a swipe, tap, or quick ATM stop.
Watch for monthly fees or minimum-balance rules (they vary by bank).
Interest (if any) is tiny, so don’t stash long-term cash here.
They’re a great practice ground if your teen is ready to learn real-life budgeting.
2. Savings accounts
A savings account is where you park cash you don’t need right away so it can quietly accumulate interest (as indicated by the APY line on your statement). Add a little every payday and the balance grows, even if it’s slow. But banks may limit how many times you can dip into the account each month, so it’s best to treat it as “hands off” money.
What you need to know about savings accounts
They’re built for gradual growth rather than daily spending.
You can earn interest, so the balance increases on its own.
Most banks allow only a handful of withdrawals each month.
Savings works best when you set up automatic transfers that move money without you having to think about it.
They’re perfect for things like a future vacation or a rainy-day fund.
3. Money market accounts (MMAs)
Think of an MMA as a combination of savings and checking. You get a higher rate than a basic savings account, but the bank typically requires something in return. This might mean a bigger opening deposit or keeping a minimum balance to avoid monthly fees. Many MMAs still give you a debit card or checks, so your cash isn’t totally out of reach.
What you need to know about money market accounts
They have a higher interest rate than most regular savings accounts, so your balance grows a bit faster.
Banks sometimes require a larger minimum deposit or balance to keep the account free.
Many MMAs include check-writing capabilities or a debit card option.
They’re best for medium- to long-term goals, like a new car, college costs, or growing an emergency fund.
4. Certificates of deposit (CDs)
A CD is like putting your money in a sealed envelope for a set period (six months or a couple of years), and giving it to the bank to hold. While that envelope stays sealed, the bank promises a better interest rate than you’d get in an everyday savings account. The trade-off is that you can’t open it early without paying a penalty. So only lock up dollars you know you won’t need until the calendar says “time’s up.”
Because of that trade-off, CDs are best when you have a specific date circled on the calendar, like next semester’s tuition, a wedding, or the down payment on a first car.
What you need to know about CDs
They have a fixed term. You pick the timeline (usually a few months to a few years).
Early withdrawals trigger penalties, so only lock away funds you won’t need soon.
The interest rate is higher (and guaranteed) compared with most checking or savings accounts.
They’re best for goals that have a deadline and no immediate need for access to funds.
5. Custodial accounts
Custodial accounts let you have money in your child’s name while you manage the account. Under the UGMA or UTMA rules, you can deposit cash or investments and then manage everything until your child reaches adulthood (18 or 21, depending on the state). In the meantime, your child can peek over your shoulder and see how deposits, interest, or market swings add up. It’s an easy on-ramp to bigger lessons about having patience and setting money goals.
What you need to know about custodial accounts
Everything inside is earmarked for your child; once they reach the “age of majority,” they can keep or spend it.
A parent or guardian typically runs the show until the child is a legal adult.
Works for both plain savings and investment options.
After the hand-off, the funds legally belong to your child; there are no take-backs.
They’re a solid teaching tool for long-term thinking and smart money habits.
How to pick the right type of bank account for your family
Consider what the money is for and how soon you need it. If it’s day-to-day cash (weekly groceries, paying for gas, or lunchtime splurges), a checking account keeps things simple. Saving for a bigger purchase, like next summer’s beach trip? A regular savings account (or even a money market account) earns a bit of interest while your balance grows.
If you’re planning for the future, such as college costs, a first car, or teaching your child patience, CDs, or a custodial account may be a good choice. CDs trade flexibility for a better rate, while custodial accounts let you plan long-term in your child’s name. The right pick aligns with your timeline, goals, and the level of hands-on involvement you want your kids to have in the process.
Many families find that using more than one account type is most effective. You might keep spending money in checking, while building an emergency fund in savings, and slowly growing long-term goals in a money market or CD. The best account is the one that supports your habits and your hopes.
Greenlight can help pull money lessons together, offering a debit card for kids with parent-controlled Spend, Save, and Grow buckets. They can even get savings rewards up to 6%*. Greenlight helps kids practice money habits in real life while you keep the training wheels on with safety and parental controls.
Want to budget as a family? Teach your kids essential budgeting skills with Greenlight’s award-winning educational money app. Try Greenlight, one month, risk-free.†
By: Alyssa Andreadis
Alyssa Andreadis is a writer with more than 25 years of marketing experience and is passionate about helping families feel confident with money. She’s written hundreds of articles on personal finance, parenting, and financial literacy. A single mom raising three money-smart teens, Alyssa brings a real-life perspective to her work. She lives in Pennsylvania and always has a knitting project in progress.
*Greenlight Core families can earn 2% per annum, Greenlight Max families can earn 3% per annum, Greenlight Infinity families can earn 5% per annum, and Greenlight Family Shield families can earn 6% per annum on an average daily savings balance of up to $5,000 per family. To qualify, the Primary Account must be in Good Standing and have a verified ACH funding account. See Greenlight Terms of Service for details. Subject to change at any time.
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