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A checking account is a type of deposit account from banks or credit unions, made for everyday financial transactions. Unlike a savings account, it lets you make unlimited withdrawals using debit cards, ATMs, online bill payments, and checks. Once you start earning a regular income, having a reliable and secure way to manage your money becomes essential. While money apps can be convenient, they may not offer the same level of security as a traditional checking account from a bank or credit union.
How Do Checking Accounts Work?
The way a checking account works is straightforward. You deposit money into the account and then use those funds as needed to pay for things.
Checking accounts at one time could only provide bank withdrawals and check writing as a way to access your money. Now account holders can access funds in several different ways, including:
- Writing checks
- Making purchases with a debit card
- Withdrawing cash from an ATM
- Transferring money to other accounts
- Scheduling and paying bills online
You can complete any of the above transactions as long as you have deposited enough money in your account to cover the purchase, payment, transfer or withdrawal.
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- Fee free overdraft protection
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- eWallet compatible (Apple, Google, Samsung)
- Mobile check deposit
- Online bill pay
Choosing a Checking Account
Discover the perfect checking account for you and avoid surprise fees! Different checking account types and banks or credit unions may offer unique features and fees. To make an informed decision, it's essential to understand the range of options available to you.
One vital factor to consider is selecting a federally insured financial institution. By choosing an FDIC-insured bank or an NCUA-insured credit union, your funds will be protected up to a certain amount in case of any unforeseen circumstances.
While money apps may seem convenient, not all of them provide the same level of security. It's crucial to note that some money apps are not FDIC insured, leaving your money vulnerable if the company goes bankrupt.
Choose wisely and ensure the safety of your hard-earned money by selecting the right checking account and financial institution.
Checking Account Features
Checking accounts may provide some or all of the following features, and you should determine which you require in a checking account when choosing an account:
- Paper checks
- Direct deposit
- Mobile banking
- A debit card that can be linked to a digital wallet
- Free ATM withdraws
- Online bill payment
- Automatic money transfers, such as into a savings account
- Free access to Zelle, the peer-to-peer money transfer service
- Overdraft protection
As you open the account, make sure to utilize all the products and services that are of interest to you. One popular service to help make sure your earned money makes it regularly into your account is to set up direct deposit for your pay checks.
Checking Account Fees
Most checking accounts come with fees. However, you can often avoid these fees by meeting specific account requirements and avoiding account overdrafts. The following fees are standard with many checking accounts:
- Monthly Service Fee: This fee is also commonly known as a monthly maintenance fee. Choose an account that does not have this fee or waives the fee if you meet minimum account requirements.
- Overdraft Fee: If you overdraw your account, even if you have overdraft protection, you could get hit with a hefty overdraft fee, sometimes as much as $30 – $35. Before opening an account, consider whether the bank provides overdraft protection options and what fees you may face if you overdraw your account.
- ATM Fees: The last thing you want to do is pay a fee to access your money at an ATM. Choose a financial institution with plenty of fee-free ATM locations on its network or that reimburses fees for using non-network ATMs.
Types of Checking Accounts
When shopping around for a checking account, you'll find several different types. The following are three to consider:
Traditional Checking
A traditional checking account typically provides all of the standard checking account features listed above. These accounts also often have maintenance fees for those who don't meet the account minimum requirements. If you don't think you can meet the minimum account requirements, look for a bank with a free checking option.
Many banks allow traditional checking account holders to sign up for overdraft protection, ensuring bills still get paid if the account is overdrawn. However, you may still be charged an overdraft fee even if you sign up for overdraft protection.
Student Checking
Many financial institutions offer an account specifically for college students. These accounts are often more lenient on fees for overdrafts and ATMs to make account management easier for those who have never had a checking account.
Interest-Bearing Checking
Interest-bearing checking accounts typically provide the same features as traditional checking, but the account holder earns interest on the account balance. These accounts usually have steeper account requirements than traditional checking, and it may be more challenging to avoid monthly maintenance fees.
Opening a Checking Account
Once you choose a financial institution and checking account, it is time to open your new account. Online banks obviously allow you to open accounts online, but some financial institutions with physical branches may require you to open the account in person. Either way, you may need the following to open an account:
- Your personal information, including contact information and date of birth
- A valid form of identification, such as a driver's license
- Your Social Security number
- A minimum opening deposit
Managing a Checking Account
Once you open an account, you should monitor it regularly to track your deposits, spending and account balance to ensure you're not overdrawing your account and you're meeting account requirements that can help you avoid maintenance fees.
If your bank or credit union offers mobile banking, having account access on your phone can make account management much more accessible.
If a student loan payment is one of the bills you'll be paying with your new checking account and you find yourself struggling to afford it, you may be able to refinance your student loan at a lower interest rate.
>>> Compare student loan refinance lenders
