Banks make it easier and safer to store money and access it when you need to make purchases and pay bills. While banks offer several types of accounts, most people get started with a savings or checking account. A savings account is useful for money that you don’t plan to use for a long time, while a checking account is optimal for money that you plan on spending or transferring.
This guide will explore the different types of checking accounts, how they all work, and some features to look for in any account.
What’s a Checking Account and How Does It Work?
A checking account is a bank account that allows you to receive and send money. You can set up direct deposit with your employer to ensure payments arrive in your checking account. If you receive checks, you will have to designate a checking account for the check. Checking accounts are FDIC-insured and are the starting path for most people’s banking journeys.
Why Having a Checking Account is Important
These accounts allow you to receive money that you can digitally transfer to your other bank accounts or brokerage accounts. You can also use checking accounts to buy items through online marketplaces like Amazon.
While you can use a credit card instead of a checking account to make payments, you’ll need money to arrive in your checking account to pay off your credit card debt.
What is the Difference Between a Checking and Savings Account?
A checking account is for everyday purchases. There’s no limit to how many withdrawals you can make for this account. Most savings accounts limit you to six withdrawals per month, but they have higher APYs than checking accounts. Savings accounts are for the money you don’t plan on spending for a few months. While you can earn a higher return in the stock market, some people prefer the low-risk nature of a savings account.
Types of Checking Accounts
Banks offer several types of checking accounts. These are some of the available accounts.
Basic Checking Accounts
A basic checking account doesn’t have many perks. It’s good for getting started, as you can receive money and spend it as needed. However, you won’t be getting much, if any, interest from this account.
Interest-Bearing Checking Accounts
Some checking accounts reward their customers with interest, but the APY is minuscule for most accounts. According to the FDIC, the average APY for an interest-bearing checking account is 0.08%. You’ll have better luck if you find online banks that offer interest-bearing checking accounts. Some of those accounts can have APYs as high as 0.50%. However, savings accounts have higher rates.
Premium Checking Accounts
These bank accounts have relationship tiers based on the size of your balance. A higher balance will grant you additional perks, such as a higher APY and potentially a lower interest rate for your mortgage and auto loans. Premium checking accounts may have monthly fees, but you can avoid those fees by having a sufficient balance.
Student Checking Accounts
These checking accounts are a good introduction for students who want to learn more about money. A parent or guardian will have to assist their child or teen with opening a student checking account. These accounts tend to have fewer fees and perks. Some of them also include parental controls.
Business Checking Accounts
Business checking accounts allow companies to receive and send money from merchants and business partners. Opening a business checking account can build your business credit, which will make it easier to obtain business loans and lines of credit in the future.
Common Features of Checking Accounts
These are some of the features to consider when comparing checking accounts.
Minimum Balance Requirements
Some checking accounts require that you maintain a minimum balance to avoid a monthly fee. Other accounts do not have this requirement, giving you more flexibility with your money.
Overdraft Protection
Overdraft protection allows you to make purchases even if you do not have sufficient funds in your checking account. Some banks also give you a buffer of $50 to $100 so you can avoid overdraft fees.
Fees and Charges
Banks have several fees, such as monthly maintenance fees, ATM fees, and overdraft fees. You should review a bank’s fees and see what it would take to avoid them.
ATM Access and Fees
Many banks invest in ATM networks to minimize the fees their customers incur. Some banks offer customers access to 65,000 fee-free ATMs, while others reimburse ATM fees up to a limit each month.
Check Writing and Limits
Many checking accounts let you write checks so your cash is easier to access. Most banks let you write as many checks as you want as long as you have enough funds to cover each payment.
Mobile Check Deposit
You don’t have to visit a local branch to deposit your check anymore. Most banks have mobile apps that allow you to take a picture of a check. The app can read your check and deposit the funds into your bank account.
Security: Insurance and Fraud Protection
Most banks are FDIC-insured, and you should avoid working with banks that do not have that insurance. However, that’s not the only way banks protect your information. Many financial institutions invest in advanced cybersecurity to safeguard your data. Banks also have fraud protection features, such as the ability to freeze your account at any time in case something happens.
What are the Benefits of Having a Checking Account?
A checking account offers numerous advantages. These are some of the top perks.
Ease of Access
You can access a checking account from any device, such as a smartphone or a laptop. Easy access also makes it simple to pay bills and buy products and services.
Direct Deposit
Direct deposit allows paychecks from your employer to automatically go into your checking account. You won’t have to wait for a physical check to arrive in the mail.
Writing Checks
Many checking accounts come with check-writing privileges. Some banks give you a free checkbook when you open your account. You can also buy checks from your bank or from an online service if you are running out.
Debit Card Use
Debit cards make your checking account more accessible when you are on the road or making an online purchase. Some debit cards also come with reward programs, such as 2% cashback on all purchases.
Online Banking and Mobile Apps
Most banks invest in online banking and mobile apps that make it more convenient to access your checking account. Some banks are online-only without any physical branches, which typically results in higher APYs and fewer fees.
Financial Management Tools
It’s also common for banks to include financial management tools that assist with establishing budgets and determining what it would take to achieve your long-term financial goals. Spending insights can reveal ways to save money so you can grow your savings at a faster rate.
How to Open a Checking Account
It is a good idea for anyone to open a checking account. This is what the setup process looks like.
Required Documentation
You will have to provide a few necessary documents to open a checking account. Here’s what you’ll need:
- Government-issued ID
- Social Security number
- Proof of address
Steps to Open an Account
Opening a checking account is a straightforward process. These are the steps you’ll have to take:
Step 1: Compare checking accounts
Step 2: Gather the necessary documents
Step 3: Complete the application
Step 4: Create a username and password for your new account
Some accounts will also require that you deposit cash to fulfill a minimum deposit requirement. You can also set up Direct Deposit with your employers so future paychecks go to your checking account.
Online vs. In-Person Account Opening
It takes more time to open an account in person since you have to drive to your local bank and wait for a representative. However, a representative can personalize the experience and answer any questions in real time. It’s easier to open an account online. You will have to upload the necessary documents online instead of bringing physical copies of these documents to a local branch.
Conclusion: Choosing the Right Checking Account for You
A checking account is essential for money management. It allows you to receive and send money. While each checking account fulfills those basic objectives, some accounts have better features and perks than others. Reviewing several checking accounts will give you a better idea of what to expect. You’ll then be able to choose the right checking account for your financial goals.
FAQs About Checking Accounts
You can create a new checking account with a different bank. The switch is complete once you transfer funds from your old checking account to your new checking account.
You can open a checking account if you have bad credit. Your checking account’s opening and financial activity will not impact your credit score.
You can avoid fees by always keeping a positive balance and having enough cash in your bank account to avoid the monthly maintenance fee. Some banks make it easier to avoid fees than others, so it is good to compare each one.
