Your guide to opening and using a bank account

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Visit your local bank and open an account.

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One way to keep your money safe and make it easier to manage your personal finances is to open a bank account. However, there are different types of accounts, each with its own rules, purposes, and interest rates. Here’s a breakdown of various bank accounts and how they can help you reach your money goals.

It might seem unnecessary to open a bank account these days—particularly one at your local brick-and-mortar institution. There are online-only banks that might fit your needs. Plus, there are many other payment options—including direct payment systems such as PayPal, Venmo, and Square, and even crypto accounts—that can offer many legacy bank payment functions.

However, it’s important to note that a bank account comes with protections that alternatives might not. The biggest difference is that most national, regional, and local banks pay into the Federal Deposit Insurance Corporation (FDIC). This is an insurance fund backed by the full faith and credit of the U.S. government, and it’s designed to protect your money if the bank fails.

If your bank account number or debit card is stolen, you’re entitled to get your money back, up to $250,000 per account, according to FDIC rules. Conversely, for funds held in crypto or a non-FDIC-insured institution, you could lose your money in the event of a failure, bankruptcy, or even a hack of the platform where your money is held.

It’s the same issue with cash held in your safe or under the mattress. If you lose your cash or it’s stolen, there’s almost no way to recover the money. Keeping your money in a bank allows you to handle a variety of transactions easily, with embedded layers of protection for your funds.

When deciding which type of bank account to open, it’s important to take a step back and consider your financial needs.

For many people, opening a bank checking account is necessary because it allows you to:

Your bank checking account allows you to manage your everyday expenses while keeping your money in a safe place. Setting up automatic bill pay allows you to avoid late fees and can help ensure everything is paid on time, even when you travel.

When opening a checking account, pay attention to potential fees. Many banks offer fee-free accounts, but you have to look for them.

You also need to be aware of overdraft fees. If you spend more money than you have in your account, the bank might let the transaction go through, but it will charge you a hefty fee.

Opening a bank savings account is also a good idea, as it allows you to accumulate money for specific short- and long-term goals. Plus, many bank savings accounts pay at least a modest amount of interest as an enticement for you to keep money on deposit. The bank then uses your money to make loans to others.

But these days, when digital bank transfers are typically simple and free, there’s no need to keep a savings account at the same bank as your checking account. If you like the checking account at your local bank, but you see an online bank paying much higher interest on savings accounts, you can shift your savings.

Just make sure you plan ahead, should you need to transfer money between checking and savings. Sometimes it takes a day or two.

For those who want a potentially higher yield but some flexibility in transactions, a bank money market account can be a good choice. Note that these accounts generally come with minimum balance requirements if you want to avoid fees and earn the highest possible interest yield.

A bank money market account can be ideal for someone who wants to earn more on their money and plans to keep it for long-term goals, but also recognizes that a short-term emergency could require quick access.

Make sure you read the fine print. Although bank money markets are quite safe, not all are FDIC insured. Make sure you know what you’re getting when you open a money market account.

A CD is a type of time deposit. This bank account typically yields a higher interest rate, but you must agree to keep your money locked up for a longer period of time, or else face a stiff early withdrawal penalty. CDs are designed for those who can afford to reduce how much money they access regularly in exchange for a higher yield.

If you open a CD, you likely don’t expect to need the money for several years, or you might want to keep savings safe for a specific medium- to long-term goal.

The right bank can be a key proponent in helping you manage your money. Many banks also offer budgeting tools that can help you track and categorize your income and expenses. Plus, once you have a relationship with a bank, you’re more likely to get better deals on loans and other financial products.