A bank account is a record the bank keeps of your money

A bank account is an agreement between you and a bank. You give the bank your money to hold, and the bank keeps track of how much you have, lets you add more, and lets you take money out when you need it. The bank does not lock your money away — it is yours, and you can access it.

Think of it like a safe deposit box that the bank manages for you, except the bank also moves your money around when you ask. You might put cash in, write a check to pay someone, or use a card to buy something. The bank records all of this and tells you your balance — the amount you have left.

The bank makes money by lending out some of the money customers deposit, and it pays you a small amount called interest for letting them use it. In return, the bank keeps your money safe, insured against theft or loss, and accessible to you whenever you need it.

Key Takeaways

  • A bank account is a place to store your money safely, and the bank keeps a record of how much you have.
  • You can add money to your account by depositing cash or checks, and you can take money out using a debit card, check, or withdrawal at a branch.
  • The bank insures your money up to a certain amount (usually $250,000) so you do not lose it if the bank fails.
  • Most bank accounts charge no monthly fee if you keep a minimum balance or meet other straightforward requirements.
  • Interest rates on savings accounts are very small but add up over time, while checking accounts usually pay no interest.

The two main types: checking and savings

Most people have two accounts at the same bank: a checking account and a savings account. They work differently and are meant for different purposes.

A checking account is for money you use regularly. You can write checks, use a debit card, set up automatic bill payments, and withdraw cash from an ATM as many times as you want. The bank does not pay you interest on checking account money because you are moving it in and out constantly.

A savings account is for money you want to keep and grow. You can still withdraw it whenever you need to, but the bank pays you a small amount of interest each month. The interest rate is low — often less than 1 percent per year — but it adds up if you leave the money alone. Some savings accounts limit how many times per month you can withdraw without a penalty, though this rule has become less common.

How you put money in and take it out

You can add money to your account in several ways. You can walk into a branch and hand the teller cash or a check — this is called a deposit. You can also mail a check to the bank, or use your phone or computer to transfer money from another account you own. Many employers can deposit your paycheck directly into your account, which is called direct deposit.

To take money out, you have several options. You can use a debit card — a card that looks like a credit card but pulls money straight from your account — to buy things or withdraw cash from an ATM. You can write a check, which is a piece of paper that tells the bank to send money to whoever you name on it. You can also go to a branch and ask the teller to withdraw cash for you, or transfer money to another account online.

Each of these methods is recorded by the bank. Every time you use your debit card, write a check, or withdraw cash, the bank subtracts that amount from your balance. Every time you deposit money, the bank adds it. You can see all of this activity in your statement — a record the bank sends you each month showing every transaction.

Why banks keep your money safe

One reason people use banks instead of keeping cash at home is safety. If your house is robbed, the cash is gone. If your bank is robbed, your money is protected by federal insurance.

The Federal Deposit Insurance Corporation, or FDIC, is a government agency that insures bank deposits. If a bank fails and closes, the FDIC pays back depositors up to $250,000 per account. This means if you have $50,000 in a checking account and $100,000 in a savings account at the same bank, both are fully covered. If you have $300,000 in one account, only $250,000 is insured — the rest is at risk if the bank fails.

This insurance is automatic. You do not have to do anything to get it. As long as your bank is FDIC-insured (nearly all banks are), your money is protected up to the limit.

What the bank charges you

Many banks charge a monthly maintenance fee to keep an account open, usually between $5 and $15. However, most banks waive this fee if you meet one of these conditions: keeping a minimum balance (often $500 to $1,500), setting up direct deposit, or using your debit card a certain number of times per month.

Banks may also charge you for specific actions. If you overdraw your account — meaning you try to spend more money than you have — the bank charges an overdraft fee, usually $25 to $35 per transaction. If you use an ATM that does not belong to your bank, you may pay a small fee ($2 to $3). If you ask the bank to stop a check you wrote, that costs money too.

Before opening an account, ask the bank what fees explore and what you have to do to avoid them. Many banks, especially online banks and credit unions, charge no monthly fee at all.

How interest works on your account

If you keep money in a savings account, the bank pays you interest — a small percentage of your balance each month. The rate varies depending on the bank and the type of account. Right now, savings accounts at most banks pay less than 1 percent per year, though some online banks pay higher rates.

Interest is calculated on your average daily balance. If you have $1,000 in your account for a whole month and the interest rate is 0.5 percent per year, the bank adds about $0.42 to your account that month. It does not sound like much, but if you leave $1,000 in the account for a year, you earn about $5. If you have $10,000, you earn about $50 per year.

Checking accounts almost never pay interest. The bank uses the money in checking accounts to make loans, and in return, it lets you use the account for free (or nearly free) instead of paying you interest.

What information you need to open an account

To open a bank account, you will need to prove who you are and provide some basic information. Most banks ask for a government-issued ID (a driver's license or passport), your Social Security number, your address, and a phone number. Some banks also ask about your employment or income, though this is less common for basic checking and savings accounts.

You will also need to decide how much money to deposit to open the account. Some banks require a minimum opening deposit of $25 to $100, while others let you open an account with no money and deposit later. A few banks have no minimum at all.

The whole process usually takes 15 to 30 minutes in a branch, or 10 to 15 minutes online. Once your account is open, the bank gives you a debit card (which arrives in the mail in a few days), a checkbook if you requested one, and access to online banking so you can check your balance and move money anytime.

Frequently Asked Questions

Can I have more than one account at the same bank?

Yes. Most people have both a checking and a savings account at the same bank. You can also have multiple checking accounts or multiple savings accounts if you want to organize your money in different ways. Each account is separate, and the FDIC insures each one up to $250,000.

What happens if I lose my debit card?

Call your bank when ready and tell them your card is lost. The bank will cancel it so no one else can use it, and they will mail you a new one, usually within 5 to 10 business days. If someone used your card before you reported it lost, the bank's fraud protection covers most of the charges, though you may have to pay a small amount depending on how quickly you reported it.

Do I need a bank account to get paid?

No, but it makes things much easier. Your employer can pay you by check or cash, but direct deposit (which requires a bank account) is faster and safer. Many employers now require direct deposit, so having an account is practical if you work.

What is the difference between a bank and a credit union?

A credit union is similar to a bank but is owned by its members rather than shareholders. Credit unions often charge lower fees and pay higher interest on savings accounts. They are also insured by a government agency (the NCUA instead of the FDIC), and the coverage is the same: up to $250,000 per account.

Can I access my account from my phone?

Yes. Nearly all banks offer a mobile app or a website where you can check your balance, transfer money, pay bills, and deposit checks by taking a photo. You can do most banking tasks from your phone without visiting a branch.