A checking account is a safe place to keep your spending money and easily access it when you need to pay bills or make purchases. In this guide, we’ll cover the basics of checking accounts, features and fees to look out for, how these accounts are different from savings accounts and more.
Key Takeaways
- A checking account is a place to safely keep the money you need regular access to.
- There are multiple ways to deposit money into and withdraw money from a checking account.
- You might encounter checking account fees for monthly maintenance, overdrafts and out-of-network ATM usage.
- There are different types of checking accounts, including student accounts, rewards accounts and second-chance checking accounts.
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What Is a Checking Account Used For?
A checking account is used to hold money for everyday spending. Instead of keeping all of your cash in a wallet that could be stolen, you keep it in an account where it’s kept safe and available for you to access at any time.
How Does a Checking Account Work?
A checking account lets you add, use and take out money in a few different ways. Here are the most common methods for using, depositing, withdrawing and transferring money.
Debit Card
A debit card lets you spend the money in your checking account. You can use this card at the grocery store, when you’re shopping for new clothes or pretty much anywhere else you make purchases. It’s useful to have a debit card so you don’t have to carry too much cash around.
If you need cash, however, you can also use your debit card to withdraw cash from ATMs.
Cash Deposits
If you have physical cash that you want to deposit into your checking account, you can do so via an ATM or by going to a bank branch and handing the cash to a teller. You can use these same methods to withdraw cash, too.
Check Deposits
Checks made out to you can be deposited into your checking account, either by going to a bank branch or finding an ATM that lets you deposit checks.
You can also write a check to send money to someone else using the funds in your account.
Direct Deposit
Direct deposit is an electronic payment method that transfers money from a payer directly into the recipient’s bank account. This method is usually used by employers or government agencies to send payments.
Mobile Check Deposit
If you have a check but you don’t want to go to a bank branch or ATM to deposit it, you can use mobile check deposit. This lets you use a bank’s app to take photos of your check and deposit it electronically.
Funds Transfer
Money can be transferred from one account to another, often through the ACH network. This means you can receive money into your account or send money to another account electronically. You can do this between two of your own accounts or between you and another person.
Person-to-Person Transfer
Services like Venmo, PayPal and Zelle let individuals easily send money to each other. To use them, you usually have to connect your bank account so that money can be moved to and from the account.
Wire Transfer
A wire transfer is another way to electronically transfer money. They usually have associated fees, but they allow you to send or receive money securely.
What Are the Benefits of a Checking Account?
These are the main reasons you should consider opening a checking account:
Keep Your Money Safe
If you keep all of your cash in your wallet or your home, there’s always a risk of losing it. Having a checking account gives you a secure place to hold your money. And because of protections like FDIC and NCUA insurance, the money in your account is safe even if the bank fails. As long as you bank at an FDIC- or NCUA-insured institution, your money is protected up to $250,000 per account type, per institution.
Easily Access Cash
Unlike some other types of bank accounts, checking accounts let you access your money virtually any time you need it. You can use a debit card to spend the money you have, go to an ATM or bank branch to withdraw funds or transfer money to a different account electronically.
Monitor Your Spending
You can look through your bank statements to track your spending and transfers, making it much easier to budget than if you relied on keeping your cash at home.
Pay Bills
You can pay bills from your checking account, either by transferring funds every time you need to or setting up recurring payments.
Earn Interest
Some, though not all, checking accounts pay interest on your balance. That means you can earn a little extra cash just for keeping your money in the account.
Does a Checking Account Have Fees?
There are often checking account fees for certain account-related services. These are the most common ones.
Monthly maintenance. This is a monthly fee you might pay to keep your account open. Sometimes, this fee is waived if you meet certain requirements, like having a certain amount of money in your account. The best checking accounts don’t charge this fee at all, however, so you should seek out an account with no maintenance fees.
Overdrafts. If you spend more money than you have in your account, the bank might charge you an overdraft fee for covering the expense. These can be costly, so make sure to find out about overdraft policies before signing up for an account.
Non-sufficient funds. Similar to an overdraft fee, a non-sufficient funds fee might be charged if you try to spend more than the amount in your account and the bank rejects the transaction.
Out-of-network ATMs. Banks usually have their own free ATMs or are part of a network of fee-free ATMs. If you use an ATM that’s outside of the bank’s network, you’ll likely have to pay a fee each time.
Wire transfers. You’ll usually be charged for sending and/or receiving wire transfers. If you plan to use this service frequently, review the account’s fee schedule before signing up.
Different Types of Checking Accounts
In addition to standard checking accounts, financial institutions often offer other types of checking accounts that provide different benefits. These include:
- Student checking: For high school and college students, usually with low fees
- Rewards checking: Include cash-back or other perks when you use your debit card
- High-yield checking: Pays interest on balances
- Second-chance checking: Designed for those with poor or limited banking histories
How Do You Choose the Right Checking Account?
Ask yourself these questions to find the best checking account for you:
- What kind of checking account makes the most sense for me, a standard account, or one of the types listed above?
- How important are fees to me? Do I want an account with no monthly fees?
- Is the bank or credit union I’m considering insured by the FDIC or the NCUA?
- Is there a minimum deposit requirement to open the account? If so, does it work for me?
- Will I need in-person assistance? If so, are there branches in my area?
- Does the financial institution have fee-free ATMs near me?
- Is it important for me to earn interest on my checking balance?
- Is there a mobile app to manage my account, and how is it rated?
- Do I want a debit card that offers cash-back or other rewards?
- Are any of the accounts I’m considering currently offering a sign-on bonus?
- What do current customers say about the bank?
- Is customer service easy to reach?
How To Open a Checking Account
The exact process to open a checking account will depend on the account and financial institution, but generally, you’ll have to follow similar steps. Usually, you can open an account in a branch or online. To open a checking account online, the process will look something like this:
- Go to the financial institution’s website and find the page for the specific account. Click on the prompt to open the account.
- Complete the application by providing the requested information. This usually includes your legal name, contact information, driver’s license or state ID number and Social Security number or ITIN.
- If there’s a minimum deposit requirement, add the funds to your account.
- Receive confirmation about your account opening and begin using your account.
Checking vs. Savings Accounts
Checking and savings accounts are two of the most common types of bank accounts, but there are important differences between them. Savings accounts are designed to store money you don’t need for everyday expenses—and while you keep your money in the account, you can earn interest on your balance.
| ACCOUNT FEATURES | CHECKING | SAVINGS |
|---|---|---|
Utility | Paying for day-to-day expenses | Storing money for short- or medium-term savings goals |
Interest Bearing | Usually no or low interest | Yes, with high-yield options available |
Accessibility | Designed for easy access to funds | Withdrawal restrictions are common |
Debit Card Access | Yes | Rarely |
ATM Access | Yes | Rarely |
Check-writing Capabilities | Yes | No |
Federally Insured | Yes | Yes |
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Frequently Asked Questions (FAQs)
What is required when opening a checking account?
Usually, you’ll need a form of identification, your SSN or ITIN and contact information to open a checking account. If the account requires a certain opening deposit, you’ll need that money on hand as well.
How much money should I have in a checking account?
There’s no set amount of money you should have in a checking account. Instead, think about your financial situation, lifestyle and goals. Your checking account balance should ideally be enough to cover a couple of months of living expenses, with extra cash kept in a high-yield savings account.
What is a high-yield checking account?
A high-yield checking account is one that offers a high interest rate, usually listed as its annual percentage yield or APY. The primary purpose of checking accounts isn’t to earn interest, but some accounts do pay interest on balances.
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