Checking Account

What is a Checking Account?

A demand deposit account that is subject to withdrawal of funds by check.

What is a Check?

A check is a written order instructing a financial institution to pay immediately on demand a specified amount of money from the check writer’s account to the person named on the check or, if a specific person is not named, to whoever bears the check to the institution for payment.

Checking Accounts Explained

Checking accounts are a type of bank account (and are called “share drafts” at credit unions or spending accounts with neo-banks) used for day-to-day financial transactions. Think of them as an effective way to deposit and withdraw money. With checking accounts, you can access your money with a debit card, money transfers, or manually write a check.

A checking or spending account is used for daily needs and is a financial tool where you can easily access your cash to pay bills and expenses. It is also a convenient way to electronically deposit paychecks or make other money transfers, such as linking Cash App, Venmo, or Paypal.

Having a checking account is essential to proper money management. However, not all checking accounts are created equal, and some are better than others.

Who Offers Checking Accounts

Banks, credit unions, and the growing number of fintechs (hybrid financial services companies) offer these accounts. Some online brokerages offer cash management accounts that operate similar to checking accounts. The benefits and features vary based on the financial services company you choose.

What’s the Difference Between a Checking and a Savings Account?

Checking accounts are meant for daily use and have no limits on how much you can withdraw. They come with a debit card that is used to purchase goods and services online and offline. You also have the ability to withdraw or deposit money using ATMs.

This is unlike savings accounts, money markets, and CDs, which have restrictions on how or when you can access your cash.

But you’ll also discover that checking accounts aren’t meant to grow your money. Sure, some accounts are interest-bearing, but the primary objective is the inflow and outflow of cash. Basically, you store money in savings accounts and use money in checking accounts.

Common Fees

Checking accounts might come with fees, so it’s best to find the right financial institution and account that serves you.

Make a better decision and look for these common fees:

  • Minimum balance fees require you to have a specific balance to avoid a fee. Avoid the fee by choosing a zero-minimum account offered by many financial institutions.
  • Monthly maintenance fees for simply having an account. Find an account without this fee.
  • Statement fees for having your statements printed and mailed to you. It’s best to choose electronic statements.
  • Overdraft fees when you overdraw your account. This can be avoided with certain accounts that won’t let you overdraw your account.
  • ATM surcharge fees when using an unaffiliated ATM network. Only withdraw money within the network to avoid surcharges.

You can avoid many of these fees by choosing the right financial institution. Many credit unions offer better options than Big Banks. Many online-only banks and neo-banks offer highly competitive, fee-free options.

When is it okay to pay an account fee? Assess the features and benefits. Free checking accounts aren’t necessarily the best option for everyone. An account that helps you achieve your financial goals may be worth $1 or more.

How to Open a Checking Account?

Before opening a new checking account, it’s important to understand your needs. This will help you choose the right account.

For example, a community bank or credit union may be your best choice if you depend on local access. If you’re frustrated with the fees charged in your current spending account, then it’s time to open a free account elsewhere.

The process of opening a checking account locally and online has differences. The following are the general steps:

  1. Have your identification. You’ll need a government-issued ID and may need your Social Security Card too.
  2. Proof of residence. You may need a utility bill or credit card statement as additional proof of address.
  3. Complete the application and sign the agreement. The bank or credit union may run a Chexsystems report on you, but this may not be the case for neo-banks.
  4. Make your initial deposit. You can deposit cash or a check (which may be subject to a longer hold timeframe) or electronically transfer money from an existing account into your new checking account.
  5. Please note your numbers. This includes your account number and routing number that you’ll need to direct deposit your paycheck.
  6. Wait for your debit card to arrive. Once you get it, activate it. This is also a good time to review how to access cash through fee-free ATMs.

Take Advantage of Your New Account

Get familiar with all the features such as direct deposit, automation, alerts, the ability to link to savings accounts, and more.