What is a checking account?
And checking accounts can be powerful tools. Many allow you to automate some of your finances, helping you stay on a budget and meet your financial goals while giving you a safe space to keep your money until you need it.
What is a checking account?
A checking account is a type of bank account that you can use to receive money, deposit funds, and make payments or withdrawals. While a savings account is used to hold your money and help it grow over time, a checking account is designed to hold your money for a short period of time until you withdraw it or use it to pay a bill.
Where can I find a checking account?
Banks and credit unions often offer checking accounts. But there are also other sources, such as neobanks, which are online institutions that offer services similar to those of a bank. And of course, traditional banks often offer other products, such as money market accounts and certificates of deposit.
What is the difference between savings accounts and checking accounts?
Checking accounts and savings accounts have two fundamental differences.
Checking accounts are designed to be functional accounts in which money is temporarily stored for everyday transactions. You can use your checking account to write a check to pay your rent or mortgage, buy coffee in the morning with your debit card, or withdraw money from an ATM.
Instead, savings accounts are intended to store money for a longer time. And since many pay interest, they can also help you increase your funds.
Why do you need a checking account?
Here we share a couple of reasons to have a checking account.
Checking accounts make banking easier in several ways.
- Direct Deposit — By having your paychecks automatically deposited into your checking account, you eliminate the need to go to the bank to cash or deposit your check every time you get paid.
- ATMs — You can access your money anytime, anywhere using ATMs. Keep in mind that you may have to pay a fee if you use an out-of-network ATM, but sometimes banks or credit unions will waive those fees if you meet certain conditions, such as having direct deposit.
- Bill Pay Service — Many financial institutions allow you to set up bill pay so you can pay your bills electronically, directly from your checking account, a service also known as “bill pay.” You can do this by accessing your bank account online. The advantage: No more worrying about forgetting to write a check-in time to mail it, or about payments getting lost or late in the mail. And if you have the automatic bill payment option, you can set up the payment to be paid automatically, which means you won’t have to worry about forgetting to go online to make the payment.
- Debit Cards — Debit cards allow you to access money in your account by swiping the card and entering a personal identification number (or PIN). This makes it easy for you to shop or withdraw cash.
Protection and security
As we already mentioned, having money hidden under the mattress is not necessarily safe. Financial institutions can hold your money. And while opening a bank account means sharing your personal and financial information with a third party, financial institutions must be proactive in protecting your information.
Additionally, many banks are insured by the Federal Deposit Insurance Corporation, and many credit unions are insured by the National Credit Union Association. This means that if the financial institution goes bankrupt, the insurer will reimburse you up to a certain amount: up to $250,000 per depositor for each type of covered account at each insured institution.
Types of checking accounts
When choosing a checking account, you should shop around for fees, ATM networks, opening balance restrictions, and any other features that are important to you, like earning interest on your money. The following are some of the most common types of checking accounts.
Traditional checking account
Traditional checking accounts can be found at most traditional financial institutions. They are good if you want to be able to walk into a branch and get help. Features and surcharges may vary depending on the bank.
online checking account
If you don’t need to access a physical branch, online checking accounts may be a good option. They often offer higher interest rates for your money, fewer fees, and larger ATM networks.
high interest checking account
In a high-interest checking account, you can earn extra money and grow your account. But those accounts often have balance and transaction requirements.
student checking account
Some financial institutions offer student checking accounts, often waiving maintenance fees until a certain age is reached, typically 24.
Bank of America offers a checking account for students who are enrolled in high school, vocational school, or college, and who are under the age of 24. Bank of America will waive the monthly maintenance fee of $12 if the student meets these requirements.
Please note that if the student is under the age of 18, a joint account with a parent or guardian may be required.
Current account surcharges
While checking accounts can be convenient, they can come with some costs. Even free checking accounts that don’t charge monthly maintenance fees can leave you subject to third-party fees if, for example, you use an ATM outside of your bank’s network.
The following are some of the more common surcharges that you should be aware of.
Many checking accounts have monthly service or maintenance fees. Some financial institutions will waive the monthly fee if you meet certain criteria, such as having a minimum balance or owning more than one account at the bank. Be sure to read the fine print to understand all the requirements.
When you don’t have enough funds in your account to cover your transactions, you may be charged an overdraft fee.
You can link an additional checking, savings, or line of credit account to your account to avoid this fee. But keep in mind that while you can avoid an overdraft fee that way, some banks may charge a different fee for using this service (this is allowed as long as the bank informs you of the fee).
Some lenders let you set up alerts to notify you by text or email when your balance is low, making it easier to avoid fees. You can also set up account alerts through the bank by linking an online financial account to your account and setting your monitoring preferences.
Sometimes, financial institutions add additional surcharges. These fees may include additional statement fees, check order fees, money order fees, legal processing fees, and more. Read the fine print and make sure you fully understand all fees before opening an account.
If you’re ready to open a checking account, here’s what to do.
- Learn well about financial institutions. Prefer a local credit union? A large national bank with many branches? An online bank with good interest rates? Be sure to also check online customer reviews.
- Once you’ve narrowed down your list to a few institutions, check to see what kind of fees you’ll have to pay and what kind of benefits the account may have.
- Once you’ve selected your preferred bank, you’re ready to apply for a checking account. You will need to gather your personal documents and prepare your deposit.