TIP - Should I use a Domain Account OR a Local System Account for SQL Server services?
I wanted to post this quick blog to answer a very common question - domain vs local system account for SQL Server services.
All this information is out there at Books Online. So I will just put references here.
Local System Account is a very privileged account and you should avoid using a Local System account for SQL Server services.
Your best option is to create an account specifically for SQL Server services (or separate accounts for each service) and grant this account ONLY the requisite permissions that it need.
Note that this startup account doesn't have to be an administrative account. Refer to my blog on this to learn which specific permission does an account require to complete all SQL Server functionalities.
Also, a domain account is a must if you are using Replication, SQL Mail etc. For more information on the features for which a domain account is a requisite, refer to https://msdn2.microsoft.com/en-US/library/ms143504.aspx
The above link also talks about when to use Network Service and Local Service accounts and when to avoid them.
Hope this helps give all the information in one consolidated format.