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Beginner's Guide to Banking

Review Updated
David Chang, ChFC®, CLU®
By: The Ascent Staff and David Chang, ChFC®, CLU®

Our Banking Experts

Ashley Maready
Check IconFact Checked Ashley Maready
Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page. APY = Annual Percentage Yield

Most of us wouldn't feel very safe keeping all of our hard-earned cash under our pillows at night, so we open bank accounts and park our cash there instead. But picking the right bank or credit union account can be challenging, especially for those who are new to banking.

And what is a bank, even? What is a credit union? How do you compare banks, or know what savings account is the best savings account?

This guide can help you understand banks and credit unions, types of bank accounts, what to look for in a bank account, how to compare banks, and how to open a bank account and fund your account.

Jump to a section

Bank vs. credit union vs. online bank

When it comes to choosing a financial institution, the three most common options are banks, credit unions, and online banks. They each offer unique benefits that cater to different needs. Here are the main differences.

What is a bank?

Definition: A bank is an institution where anyone (approved by the bank) can deposit savings and take out loans. Banks are often seen as a convenient and secure way to store money, and some account types also earn interest. Most banks have both online and in-person services.

What is an online bank?

Definition: An online bank is a financial institution that takes deposits and makes loans online, without any physical branches.

What is a credit union?

Definition: A credit union is a nonprofit financial institution that exists to serve its members. Unlike banks, credit unions are owned and operated by their members, with a focus on providing affordable financial products and services.

What's the best bank?

That depends on who you are and what you need!

For a quick look at the banks we love, click a button below. You'll be taken to our list of up-to-date recommendations:

When you're deciding on a bank, start by deciding whether you want to open an account at a bank or a credit union. Then, ask the following questions. The more times you answer "Yes" to these questions about a bank you like, the more likely that bank fits your lifestyle:

  • Does it have FDIC or NCUA insurance?
    This keeps your money safe if the bank or credit union fails.
  • Is it convenient for you?
    This can mean a good location or a even good mobile app.
  • Does it have good customer service?
    Look at online reviews, as well as hours for the bank's call center and online chat services.
  • Does it offer other financial products you need, like mortgages or small business accounts?

Answering these questions should help you find the right bank for you.

What's the best bank account?

Once you've narrowed your list down to a couple banks, take a look at their accounts and ask the following questions.

  • Would it be free for you to use ATMs?
    Look for banks with a large ATM network, or accounts that offer ATM fee reimbursement for out-of-network ATMs.
  • Do any accounts have a high interest rate (APY)?
    This is how much money you'll earn in interest.
  • Do the accounts have low fees?
    To see all the fees associated with an account, you can ask for something called a "fee schedule."
  • Do the accounts have minimum balances you can maintain?
  • Do any of the accounts offer an attractive sign-up bonus?

Need a place to start? Here's a few places you can find our favorite bank accounts:

Types of bank accounts

There are four main types of bank accounts: checking accounts, savings accounts, CDs, and MMAs. We'll go over each one at a time below. You can also click the buttons below to skip to that account type.

Checking accounts

Best for: People who want a safe place to keep the money they use to pay bills.

Not for: People who want to earn a lot of interest on their money.

You should open a checking account for money you plan to use for everyday spending. You can withdraw money as often as you like, as long as you don't withdraw more money than you have. (There are restrictions on withdraws from savings accounts, CDs, and money market accounts.)

If you're struggling to find a checking account you like, you're not alone. There are so many options -- it can be hard to narrow down to just one! On top of making sure any account you choose is FDIC-insured, we recommend asking yourself these three questions when comparing checking accounts:

  1. What are the account fees? (Fewer is better)
  2. Is there a minimum deposit or balance?
  3. Does the account earn interest?

These three questions can help you get a better idea of how the checking account will fit into your everyday life.

Our recommendations: Checking accounts we love

We spent some time (okay, a lot of time) looking at what's on the market for checking accounts. Here are three accounts that stand out from the pack. For our full list of up-to-date recommendations, head to our list: Best Checking Accounts.

Show Best Offers Available in

Rates as of Sep 28, 2023
Offer
 
 
 
Account
Rating
Rating image, 4.75 out of 5 stars.
Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor
4.75/5
Rating image, 4.25 out of 5 stars.
Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor
4.25/5
Rating image, 4.00 out of 5 stars.
Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor
4.00/5
APY up to 4.50% Rate info Circle with letter I in it. SoFi members with direct deposit can earn up to 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum direct deposit amount required to qualify for the 4.50% APY for savings. Members without direct deposit will earn up to 1.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 8/2/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet. You can earn the maximum APY either by making direct deposits into checking or savings, or by depositing $5,000 or more every 30 days. Learn more at https://support.sofi.com/hc/en-us/articles/4423866727949. up to 3.30% Rate info Circle with letter I in it. To earn the full APY, account holders must do all of the following: Receive monthly direct deposits totaling more than $1,500; make 10 transactions a month with your Axos debit card, or sign up for Axos's Personal Finance Manager; maintain an average daily balance of $2,500 per month in an Axos Invest Self Directed Trading Account; and use your Rewards Checking account to make your full monthly Axos Bank consumer mortgage, personal, or auto loan payment. up to 1.10%
Min. to earn APY $1 Monthly direct deposits totaling at least $1,500 $1
Next Steps

* Axos Bank Rewards Checking

To be eligible to earn all or a portion of the cash incentive as part of the "SUNNYBONUS" $300 promotion, an Axos Bank Rewards Checking account that includes the promotional code "SUNNYBONUS" must be opened between August 1, 2023, at 12:00 am PST and December 31, 2023, at 11:59 pm PST. Axos Bank reserves the right to limit each primary account holder to one (1) checking account promotional offer per year, and customers who have held primary ownership of an Axos Bank or Axos Bank for Nationwide checking account at any time in the past 12 months may be disqualified from the "SUNNYBONUS" offer. Promotional terms and conditions are subject to change or removal without notice. Bonus cash may be taxable and reported on IRS Form 1099-MISC. Consult your tax advisor. After meeting the initial requirements mentioned above, the amount of cash bonus earned will depend on meeting the additional requirements outlined below:

To earn up to a $300 bonus, you must be approved for your new Axos Bank Rewards Checking account, fund it within 30 days of account opening, and have qualifying direct deposits that total at least $5,000.00 each calendar month during the first seven (7) calendar months your account is open as well as maintain a minimum average daily balance of $7,000. The minimum balance must be achieved and maintained through the first seven (7) calendar months your account is open including the month in which your account was opened. A cash bonus of up to $300 can be earned in the following manner during the first seven (7) statement cycles. A statement cycle is a calendar month consisting of the days your account was open during that month. A maximum of six (6) payouts of $50 for each calendar month that the Rewards Checking account is receiving the direct deposit and maintain a minimum average daily balance of $7,000 can be earned during the seven (7) statement cycles, and the bonus will be deposited into your Axos Bank Rewards Checking account within 10 business days following the end of the statement cycle in which the direct deposit requirement was met. Your Axos Bank Rewards Checking account must be open and in good standing at the time the bonus is paid to be eligible to receive the bonus, and your Axos Bank Rewards Checking account must remain open for 210 days, or an early closure fee of up to $300 may apply, equal to the amount of the total bonus earned up to $300.

A direct deposit is an electronic deposit of your paycheck or government benefits, such as Social Security, Disability etc. Other deposits (i.e., online banking transfers, ATM and mobile check deposits, etc.) or person-to-person payments are not considered a direct deposit.

A statement cycle is defined as a period of time that starts on the first day of the calendar month and ends on the last day of the calendar month.

* Quontic High Interest Checking

10 debit card point of sale transactions of $10 or more per statement cycle required to earn the maximum APY. If the qualifying activity requirement is not fulfilled, the interest rate paid on the entire balance will be 0.01% APY.

Savings accounts

Best for: Those who want a low-risk way to grow their money.

Not for: Those who plan to withdraw money frequently from their account.

A savings account is a low-risk account where you can earn interest on your money. It's a great place to save for an emergency fund, a vacation, or a down payment on a home. However, you can only withdraw money from a savings account account a handful of times every month -- so it's not great for paying bills. Checking accounts are better for bills.

Looking for a savings account can be time-consuming and overwhelming. To narrow down your options, ask these three key questions when searching for the best savings account:

  1. What's the interest rate? (Higher is better)
  2. Is there a minimum deposit or balance?
  3. Does the account offer a sign-up bonus?

Also make sure any savings account you're considering is FDIC-insured (that makes sure your money is protected in case of bank failure, up to $250,000).

Our recommendations: Savings accounts we love

We're a little obsessed with finance (okay, a lot obsessed). Great savings accounts excite us -- for real, you should hear us at a family reunion. Here are three savings accounts that have the sparkle we look for. For our full list of up-to-date recommendations, head to our list: Best Savings Accounts.

Show Best Offers Available in

Rates as of Sep 28, 2023
Offer
 
 
 
Account
Rating
Rating image, 4.75 out of 5 stars.
Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor
4.75/5
Rating image, 4.00 out of 5 stars.
Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor
4.00/5
Rating image, 4.75 out of 5 stars.
Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor
4.75/5
APY up to 4.50% Rate info Circle with letter I in it. SoFi members with direct deposit can earn up to 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum direct deposit amount required to qualify for the 4.50% APY for savings. Members without direct deposit will earn up to 1.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 8/2/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet. You can earn the maximum APY either by making direct deposits into checking or savings, or by depositing $5,000 or more every 30 days. Learn more at https://support.sofi.com/hc/en-us/articles/4423866727949. 4.30% Rate info Circle with letter I in it. 4.30% as of September 30, 2023 4.30%
Min. to earn APY $1 $1 $0
Next Steps

* Discover Online Savings

Bonus offer details from Discover: "To get your $150 or $200 Bonus: What to do: Apply for your first Discover Online Savings Account, online, in the Discover App or by phone. Enter Offer Code TMF923 when applying. Deposit into your account a total of at least $15,000 to earn a $150 Bonus or deposit a total of at least $25,000 to earn a $200 Bonus. Deposit must be posted to account within 30 days of account open date. Maximum bonus eligibility is $200.

What to know: Offer not valid for existing or prior Discover savings customers or existing or prior customers with savings accounts that are co-branded, or affinity accounts provided by Discover. Eligibility is based on primary account owner. Account must be open when bonus is credited. Bonus will be credited to the account within 60 days of the account qualifying for the bonus. Bonus is interest and subject to reporting on Form 1099-INT. Offer ends 12/14/2023, 11:59 PM ET. Offer may be modified or withdrawn without notice."

Money market accounts (MMAs)

Best for: Those who want to earn a high interest rate without sacrificing easy access to their money.

Not for: Those with a small amount of savings who cannot meet the minimum balance requirements.

If checking and savings accounts had a baby, that baby would be a money market account (MMA). MMAs often come with checks or debit cards, like a checking account. They also have high interest rates -- like savings accounts. However, they usually have high minimum balances. You'll have to be able to keep a hefty chunk of cash in the bank at all times if you want to have an MMA.

There's lots of MMAs on the market. If you're looking for the best money market account for the first time, it can be hard to know what to compare. Here are three things we recommend comparing between money market accounts when looking for one that fits you:

  1. What's the interest rate? (Higher is better)
  2. What's the minimum balance?
  3. What are the fees on the account?

Also make sure you look for an account that's FDIC-insured -- that makes sure your money is protected, up to $250,000.

Our recommendations: Money market accounts we love

We spend our days looking at bank accounts (and their close relatives -- credit cards, mortgages, and others). Here are a few money market accounts we really like. For the full up-to-date list of our recommendations, head to our main page: Best Money Market Accounts.

Show Best Offers Available in

Rates as of Sep 28, 2023
Offer
 
 
 
Account
Rating
Rating image, 5.00 out of 5 stars.
Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor
5.00/5
Rating image, 4.75 out of 5 stars.
Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor
4.75/5
Rating image, 4.50 out of 5 stars.
Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor
4.50/5
APY 4.40% 5.02% 5.00%
Min. to earn APY $1 $0 $100
Next Steps

Certificates of deposit (CDs)

Best for: Those who want to earn a higher interest rate on their savings and don't need to spend that money anytime soon.

Not for: Those who think they'll need to withdraw their money before the CD's maturity date.

A certificate of deposit (CD), also known as a share certificate if you're using a credit union, is a special type of savings account that offers a higher interest rate -- but there's a catch. When you put the money into a CD, you're agreeing that you won't touch it for the length of the CD term. This can be anywhere from a few months to several years. Usually, the longer the loan term, the higher the interest rate. The best CDs can offer APYs of around 5%.

When you're looking at CDs, there are a few important factors to keep an eye out for. Picking the right CD is important because you have to commit to it for a period of months or years. You're not married to it, but you're definitely at the "moving in together" stage of bank accounts.

That said, here are the three things we look for when looking at certificates of deposit:

  1. What's the interest rate (APY)? (Higher is better)
  2. What's the minimum deposit to open the account?
  3. What's the term?

It's also important to make sure any CD you're considering is FDIC-insured. This ensures your money is protected (up to $250,000) if the bank fails.

Our recommendations: CDs we love

If you know any of us in person, you know we like to talk about finances even when we're not working. That said, here are some of the CDs the team at the Ascent would recommend to friends and family. For the full list of our current recommendations, head to our main page: Best CD Rates.

How to open a bank account

When you've finally selected the best bank or credit union account for you, the next step is to open the account. Follow these three steps:

  1. Gather paperwork proving your identity, including your name, address, date of birth, and social security number.
  2. Fill out an application online or in-person.
  3. Deposit money into your new account.

And that's it! Opening a bank account might feel intimidating, but it shouldn't take longer than an hour or so. Once you're done, you'll have a shiny new account to fill with your hard-earned money.

Next steps

Here are a few additional resources we've created to help you navigate the world of banking:

FAQs

  • Banks, both large and small, are usually for-profit organizations that offer a wide range of products and services. Credit unions, on the other hand, are not-for-profit institutions that are owned by their members and offer a more personal touch. Online banks have emerged in recent years as an alternative to traditional brick-and-mortar banks and provide the convenience of banking from anywhere, anytime.

  • While both types of accounts are offered by banks, they serve very different purposes. A checking account is primarily used for everyday transactions, such as paying bills, writing checks, and withdrawing cash. On the other hand, a savings account is designed to help you save money over time, and these often offer higher interest rates than checking accounts.

  • Online-only banks have been growing in popularity due to their convenience and competitive interest rates. Online-only banks are required to meet the same safety regulations and standards as traditional banks, including having FDIC insurance for up to $250,000 per depositor. Additionally, online-only banks are often equipped with advanced security measures, such as two-factor authentication and biometric identification, to protect against fraudulent activities.

  • No -- but that doesn't mean you're not protected. Rather than being backed by the Federal Deposit Insurance Corporation, credit unions are insured by the National Credit Union Administration (NCUA). This means they offer the same level of financial protection and security as traditional banks.

  • With the recent failures of regional banks, it's natural to feel concerned about the safety of your own bank. However, there are ways to ease your worries and ensure your money is secure. First, check if your bank or credit union is insured by the FDIC or NCUA. This guarantees up to $250,000 of your deposits are protected, even if your financial institution were to fail. Additionally, research your financial institution's financial health, such as its liquidity and investment portfolio. Reliable sources such as Moody's or Fitch can provide insight into a bank's stability. It's also important to keep an eye on any news regarding your bank.

Our Banking Experts