What Is a Bank Account?

Quick Answer

A bank account is a place for you to deposit and withdraw funds, make payments, transfer money to another person or institution, pay bills electronically and more.

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A bank account is a financial tool that allows you to safely store your money and access it when you need it. Bank accounts enable you to spend without cash on hand and get direct deposits from employers or other institutions.

If you don't have a bank account, opening one can feel overwhelming. While getting an account does take some initial legwork, you'll likely find that banking is far more convenient in the long run. Read on to learn about how bank accounts work, plus steps you can follow to open one.

What Is a Bank Account?

A bank account is a place for you to deposit and withdraw funds. Beyond the ability to store and access money, bank accounts may offer a number of other features:

  • A debit card
  • Mobile banking options
  • Access to deposits and withdrawals at ATMs
  • Online bill pay
  • Money transfers to other people and institutions
  • Potential interest on your deposits

Some bank accounts offer additional perks. For instance, you may be able to apply for home, auto or personal loans from your bank.

Types of Bank Accounts

There are banks to suit almost every taste and need. For example, if you want to open an account but don't want to deal with the hassle of in-person visits, then an online bank account might be a good fit for you. If you want to bank with an institution that aligns with your values and focuses on helping your community, you might consider choosing a local credit union.

Beyond traditional banks, online banks and credit unions, there are different types of bank accounts available that serve different needs for account holders:

Checking Account

A checking account is a type of bank account made for handling everyday financial transactions. You can think of your checking account as your money's home base. You can easily deposit your wages, salary and other funds into a checking account and use that money to pay bills, buy things or withdraw cash as needed.

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Savings Account

A savings account is a place for you to keep your money longer term. Savings accounts aren't intended to be used for everyday spending, but rather as a place to keep your emergency fund or savings for specific financial goals.

Some savings accounts earn higher rates than others. For example, a high-yield savings account (HYSA) can offer a better rate of return than an average savings account, and many HYSAs don't charge any fees. That can make them a great choice for savings you want to keep fairly liquid.

Certificate of Deposit (CD)

A certificate of deposit is a type of savings account that offers a higher rate of interest in exchange for agreeing to leave your money deposited for a longer period of time. For that reason, CDs work best for long-term saving goals; pulling your deposit out of a CD before its maturity often means paying an early withdrawal penalty.

Money Market Account (MMA)

A money market account is a type of account that offers the ability to earn interest on your deposits without sacrificing access to your money. You'll typically earn a higher rate of interest than you would on a savings account, and you'll also have the ability to make a limited number of debit transactions per month.

4 Reasons Why You Should Have a Bank Account

There aren't really any downsides to opening a bank account, so wherever you are on your financial journey, opening an account makes good financial sense. Here are some of the core benefits of having a bank account.

1. You Have More Payment Options

One of the most popular features of a bank account is the ability to have and use a debit card, which can be helpful when you don't want to carry cash for every purchase. You can also write checks if you have an account, which can come in handy for situations like paying rent.

Without a bank account, you may be limited to paying cash or relying on alternative methods, such as prepaid cards. These payment options can sometimes come with high fees.

2. You Can Sign Up for Direct Deposit

Direct deposit is convenient because you can get your money the same day it's disbursed. This is helpful when you're trying to pay bills and budgeting for ongoing expenses.

Most employers provide the option to enroll in direct deposit, and some government assistance programs use direct deposit to distribute benefits too.

3. You Can Pay Your Bills Online

Having an account allows you to pay bills online and use payment apps, which can be a lifesaver when it comes to things like managing utilities, phone payments and other regular expenses.

4. You Have a Paper Trail

Bank accounts provide a record of your spending, which can help you stick to a budget or catch identity theft or fraudulent purchases. You can also link your bank account to a budgeting app to automatically sort your transactions into spending categories.

Also, a bank account can be useful when you're seeking a loan for big purchases, such as a home, because it can help you prove a history of your income and spending.

How Do Banks Protect Your Money?

Banks protect your money by offering deposit insurance through the Federal Deposit Insurance Corp. (FDIC). Money that you put into your bank account is insured by the FDIC for up to $250,000 per account owner and category. Not all bank accounts are FDIC-insured, so always confirm whether a specific bank is insured.

If you choose to bank with a credit union, your deposits may be insured by the National Credit Union Administration (NCUA), which also insures up to $250,000 per account owner and category for each institution.

How to Open a Bank Account

Before choosing a bank, there are two main things to consider: the type of account and the fees associated with that account. Make sure to talk to a bank representative if you have any questions, especially regarding potential fees and charges associated with the account.

1. Decide on a Bank Account

There's no shortage of account options out there, so take some time to compare bank accounts and come up with a short list of top contenders.

To narrow down your options, consider whether you want the convenience of an in-person branch or if you're all right with an online-only bank account. From there, look for other account features that appeal to you, such as introductory bonuses or helpful money management tools.

2. Check for Fees

Before you settle on a given bank account, check what types of fees they charge. One major fee to look out for is a monthly maintenance fee. Some bank accounts charge additional fees for not maintaining a minimum balance or for not enrolling in direct deposit. Keep in mind that, all in all, online banks tend to charge lower fees.

3. Gather Your Information

Next, you'll need to make sure you have the required documents and information needed to open the bank account. The main items you'll need are:

  • Official identification, like a driver's license, passport, state ID or military ID
  • A Social Security number or Taxpayer Identification Number
  • Proof of your current address, such as a utility bill or mortgage statement in your name
  • Money for an initial deposit. Some banks require an initial deposit to open a checking account, but others don't. The deposits are usually relatively small, but check with a bank rep to confirm before beginning the process.

Once you've picked a bank account and gathered your application materials, follow the bank's instructions to apply for an account.

The Bottom Line

Having a bank or credit union account can help set you up for financial success by protecting your balance, providing easy access to your money and connecting you with other financial services. Whether you decide to use an online bank, a credit union or a traditional bank, the convenience and security of bank accounts are hard to beat. Make time to explore your options to find the best fit for your financial needs.

If you're thinking about opening a new checking account, the Experian Smart Money™ Digital Checking Account & Debit Card can help you build credit without debt by automatically linking to Experian Boost®ø, which gives you credit for eligible bill payments after three months of payments. You'll also pay no monthly fees for Experian Smart Money, have access to more than 55,000 fee-free ATMs worldwide** and could receive your paychecks up to two days early when you enroll in direct deposit. You can get an Experian Smart Money Account through a free or paid Experian membership, which also gives you access to your FICO® Score , Experian credit report and more. See terms at experian.com/legal.