Guide to checking accounts

If you’re looking for a place to keep your money safe over the long term, you’re likely considering opening a deposit account at a local bank or credit union. There are several different types of deposit accounts available depending on your needs, but for many people, opening a conventional checking account is the most convenient way to store money intended for daily transactions.?

Nowadays, having a checking account can save you an enormous amount of time and energy spent paying bills, managing money, and processing paychecks. Read on to learn more about the basics of checking accounts, how they work, and what you will need to open one.

What is a checking account?

A checking account allows you to deposit and withdraw money with few restrictions. Account holders can either withdraw the funds as cash or use a debit card for in-store and digital transactions. After each purchase, the amount of the transaction will be deducted from your account within a few days.?

When you open an account at a financial institution, you’ll usually be given the option of opening a checking account, savings account, or both. Checking accounts, often called “deposit accounts” or “spend accounts,” allow the owner of the account to move money in and out on a regular basis. Savings accounts allow money to be deposited, but with more limits on their outward transactions. They’re the better choice for money you want to save rather than spend.

Many employers today offer a direct deposit option for their employees, which allows employers to transfer funds electronically to their workers’ checking accounts on payday. The money is immediately available with no action required by the employee. Moving money digitally and automatically is often referred to as EFT, or Electronic Funds Transfer.

Checking accounts differ from savings accounts in several ways, and it’s helpful to understand the advantages of each. The main difference is that savings accounts often have withdrawal and deposit restrictions that make them less suitable for daily transactions. The money in a savings account is meant to accrue interest and slowly grow over several years or longer.?

Checking accounts have far fewer restrictions on their use, making them ideal for handling any number of deposits, withdrawals, or payments. Although checking accounts at banks or credit unions may pay some interest, the higher interest rates on most savings accounts are better for long-term savings.

Do you need a checking account?

A checking account makes it easier to track personal finances and pay for recurring transactions. It can be especially useful for paying crucial expenses, like rent, as most landlords will not accept a cash payment. Utility, phone, and internet bills paid online must be completed with either a debit card, credit card, or check.?

Without a checking account, most bills will likely need to be paid in person, with either a cashier’s check or money order. Money orders are issued in exchange for cash to facilitate a payment, and often max out at around $1,000.

Cashier’s checks serve a similar purpose, but they are issued only by banks, are more secure than money orders, and may be issued in higher dollar amounts. A money order, by contrast, almost always requires you to complete the transaction in person, usually at a financial institution during regular business hours, which is far less convenient than making a payment online directly from your checking account.

Most companies offer customers the option of setting up autopay for billing cycles, which can prevent problems with late fees. These can be made one payment at a time, or set up to be recurring, so you don't have to worry about missing the electric bill’s due date. When you sign up for autopay through a business like a phone or internet provider, monthly payments equal to the amount due will be withdrawn from your account and sent directly to the company or individual you need to pay.

If you decide to set up automatic payments for bills through your debit card, there are certain protections in place to ensure you can stop these pre-scheduled withdrawals from occurring at any time. You will also need to make sure any changes to your debit card information, like the billing ZIP code, get updated anywhere you use the card regularly for automated payments. Keeping track of where your card is being used is an important responsibility. When your debit card expires or is replaced, you will need to update the payment method with the changes to your debit card information.

To fee or not to fee

Many big-name banks charge a nominal fee for you to have a checking account with them, no matter how much you use your account. Some banks only charge you a monthly fee if you do not keep a certain amount of money, or a minimum balance, in your checking account. Others offer free checking or even reward checking accounts to new customers.

Free checking accounts cost no money to open, and there are typically no minimum deposit requirements or routine maintenance fees involved. It’s also important to note that a free checking account with a major bank may still charge ATM fees, foreign transaction fees, or overdraft fees.?

Fees may be charged to a checking account for many different reasons. If you withdraw cash from an ATM, especially one that is not at a branch of your bank, you will likely be charged a small convenience fee. A foreign transaction fee may occur if you purchase items overseas with your debit card in person or online, or when using the ATM (in addition to the ATM fee). Financial institutions may charge overdraft fees to customers who spend more money than they currently have in their bank balance. If this happens, the account holder will need to deposit sufficient funds to avoid additional fees and cover the cost of the original fee.

Those fees can add up, but most financial institutions can explain options and additional services to help prevent fees. This may include the ability to use ATMs within a network, even if it is not one of the branches of your bank or credit union. You can also get overdraft protection options if they’re offered, a service that will approve transactions higher than your current balance without hefty penalties attached. Ask for a list of fees when you are thinking about opening a checking account so you know what you can expect.

With free checking accounts at credit unions, many fees are waived or reimbursed at the end of the month, such as ATM fees. There are a variety of fees that might still be charged to your checking account for one-time special withdrawals or other account activity.?

So, how do you know what kind of fees to expect with a checking account? All accounts are required to include a list of the policies, or terms and conditions, of the checking account when you open it, and these checking account policies at banks or credit unions may vary widely. Understanding what fees you may be charged is a tricky but important part of choosing where to open a checking account.

Finding the right place to open a checking account

You could determine where you want to open a checking account based on your location. Many community financial institutions maintain brick-and-mortar locations, or branches, where you can walk in or drive through to deposit and withdraw money.

There’s also a growing field of online-only accounts, typically offered from neobanks, which have lower overhead costs and can often offer more attractive incentives for new account holders, at the cost of having physical branches or being able to easily speak to a real customer service representative.

Finding a good checking account can take a little shopping around, but the best options usually provide various incentives for individuals based upon their needs. Benefits can include safeguards, such as overdraft protection. Additional perks offered by financial institutions include cashback programs and useful online services, such as a mobile app or website. Those online services might also include links to money-movement services, such as Zelle^®, or Popmoney^®, which allows account holders to transfer money to individuals who bank at other financial institutions (for a fee, of course).

How checking accounts work

After you open a personal checking account and make an initial deposit, the financial institution will provide you with a debit card that facilitates the use of those funds. Any payments made with the card either in person or online are then deducted from your account balance. You can also use your debit card to make an ATM withdrawal if you need cash.

To pay for things online, you can link your checking account or debit card to digital services like your online utilities accounts, or to money transfer apps like PayPal, or Venmo. Most checking accounts also provide a mobile banking app that allows you to check your account balance on the go, submit a mobile deposit, or review your e-statements.

Account holders can request physical checks as well, though they often take longer to process than debit card payments, and not all merchants accept checks. Some merchants may also require you to present a photo ID when you pay by check for security purposes.

Once the recipient cashes the check, the check is sent from the retailer to the retailer’s bank, and then back to your bank or credit union, where the money is withdrawn. Your checking account balance will be updated accordingly, but because this process can take many days, it's a good idea to record how much you spent and keep track of what your balance is minus the check amount to make sure you don’t accidentally spend the money on something else. That’s a common way people get dinged with overdraft fees.

Using direct deposit to get your paycheck sent directly to your checking account has become so commonplace, many employers do not offer an option to be paid by check. Once direct deposit is set up, it remains in place until you change accounts or change employers. To start receiving your paycheck via direct deposit, simply provide a voided check to your employer, and they will add your paycheck to your checking balance on your scheduled pay date. If you don’t have physical checks to provide as a sample, your employer will have you fill out a document with the necessary information, including your bank’s name and routing number, and the account number connected to your checking account. You’ll receive all this information when you open your checking account, but you can also ask for a direct deposit form from your bank or credit union that includes all the information your employer will need.

Checking accounts for everyone

To recap: a checking account works like a digital logbook that tracks your available funds, minus any withdrawals, and plus any deposits you or your employer have made. Money movement can be arranged daily, and even throughout the day, which is one of the highlights and conveniences of a checking account.

There are numerous types of checking accounts available through banks and credit unions, each offering its own advantages. Most financial institutions will have more than one type to offer you. Some of the most common forms of checking accounts you will want to consider depend on your specific needs and goals.

Traditional checking account

For the average adult, a traditional checking account is the default. It’s not unusual for these checking accounts to charge a monthly fee for their services, although some banks will waive these fees if certain conditions are met. Traditional checking accounts are ideal if you simply want to use a debit card, write checks, or receive payment. Many financial institutions may label these accounts with brand names unique to the bank or credit union, but they're usually simple accounts without many frills.

Senior checking account

Age has its privileges. If you’re over 55, a senior checking account can offer several perks, such as free checks, minimal maintenance fees, and lower minimum balance requirements. In addition, some banks offer senior checking accounts that pay up to 0.10% or more in interest annually. Other incentives, like no ATM fees or free money orders, are also standard with many senior checking accounts.

Student checking account

Youth has its perks, too. Student checking accounts are best for younger individuals who are just beginning to learn about managing their finances. Student checking accounts rarely charge a monthly maintenance fee, and most do not require you to maintain a minimum daily balance. Some banks may even offer a signup bonus to new account holders. These accounts require an adult to be included on the account if the student is under 18 years old.?

Rewards checking account

If you’re looking for more than just a place to put your money, a rewards checking account may be the right option. These checking accounts offer attractive incentives to join, like cash back on qualifying purchases, ATM fee refunds, and discounts when buying products from select retailers, like Apple Music. The best rewards checking accounts also charge no monthly maintenance fees. These accounts are a good choice for frequent shoppers interested in saving a little extra money every month.

Interest-bearing checking account

With a high-interest checking account, you will earn a small sum of money every year based on your account balance. While the interest rate on these checking accounts is much lower than typical savings accounts, you won’t have to worry about restricting the number of transactions you make each month. The interest rate on these checking accounts range between 1% and 5%, but many banks have a limit on the total amount you can keep in the account. Before signing up for high yield checking, be sure to ask about the minimum deposit requirement, annual percentage yield, and if there is a fee for the account. (Hint: The Kasasa Cash^® account might be a good choice if you want to consider this option, and it does not charge a monthly maintenance fee.)?

Second-chance checking account

This type of account is made specifically for people who would not otherwise qualify for a traditional checking account. There are numerous reasons why a checking account application would be denied, including recurring overdrafts, possible fraudulent use of a previous account, or owing too much money to another financial institution. Too many negative events like these can result in a negative report to nationwide banking systems that evaluate your prior banking history to determine eligibility for a new checking or savings account. In some cases, mistakes are made when collecting this information, and it’s possible to dispute any inaccuracies contained in your report. Second-chance checking accounts are ideal for individuals who need to rebuild their credit score.

Business checking account

These types of checking accounts are for people who own a business or are self-employed. Business checking accounts make it easier to keep track of income, payroll, and overhead expenses by facilitating all the transactions needed to keep operations running smoothly. Terms and conditions for opening a business bank account differ widely, so it’s a good idea to consider several options before making a decision.

How to choose a checking account

Finding the right checking account for your needs may take some time and research. Your age, income, employment status, and purchasing habits should all be considered when weighing your options. If you’re retired or live on a fixed income, it may be best to avoid checking accounts that don’t offer overdraft fee protection or require higher minimum account balances. Other important factors to consider include the fees different checking accounts charge and the level of security provided by the bank or credit union.

You’ll also want to think about the type of bank or credit union you choose for your checking account. While it may seem like a good idea to partner with a major national bank, many megabanks charge higher fees for their services and don’t provide the same level of personalized care as community financial institutions. It might be worthwhile to explore opening a checking account with a trusted local bank or credit union that can take the time to build a relationship with you.

Another option is to open a checking account with an online bank, or neobank. Unlike a traditional bank, online checking accounts usually do not charge a monthly maintenance fee, have no minimum balance requirements, and tend to provide more incentives than major banks or credit unions. The reason for this is that online banking providers don’t need to worry about the overhead expenses of maintaining a building, allowing them to pass on the savings to their customers through cashback programs, rewards, and other helpful benefits. If you need more personal service, however, you might have to rely on a toll-free number or online chat for any questions. You can’t just swing by a branch.

If you’re having a little trouble choosing a checking account, it may help to contact different banks and credit unions directly to discuss their conditions for opening an account. They should be able to walk you through the details of the checking options they offer and any associated fees or costs. If you prefer, you can also check them out online as almost every bank or credit union includes online services and information. After speaking with a few banks and credit unions, you’ll have a better idea of which type of checking account is best for your everyday needs.

What you need to open your new checking account

To open a checking account in the United States, you’re required by law to provide some documentation to the credit union or bank. The necessary items to bring with you are:

a valid driver’s license or government-issued ID
Social Security card
a document proving your current address, like a utility bill

Financial institutions require this documentation to prove your identity and protect themselves from fraud.

Traditionally, you would present these documents in person at a bank or credit union, but today it’s possible to open an online checking account without visiting a branch. After taking photos of your ID, social security card, and proof of residence, you’ll need to send this information to the financial institution, usually through a secure online portal. After the bank or credit union receives your information, it may take a few days for them to approve your checking account. Even documents that need to be signed can be sent to you via email — again using a secure third-party service.

Checking accounts provide every service you need to move money, spend money, receive money, and keep your money safe. Get started today and find a new home for that hard-earned dough.

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