A checking account is what is known as a deposit account. A deposit account is simply an account at a bank or credit union that allows both deposits and withdrawals. Checking and savings accounts and certificates of deposit (CDs) are all examples of deposit accounts.
Whereas some deposit accounts, such as savings accounts, limit how often you can withdraw money, checking accounts are considered transactional deposit accounts. They usually allow unlimited withdrawals in the form of debit card transactions, ATM withdrawals, electronic bill payments and payments by checks.
When you first begin earning a regular income, you'll need an account or some other place to keep your hard-earned cash. However, you'll want something that allows you to easily access the money in your account to pay bills and other day to day expenses. While there are now many money apps that provide the means to pay bills and transfer money, these apps may not always be safe for depositing your money. A bank or credit union checking account can be a much safer and more convenient option.
Here is an overview of checking accounts — from how they work to how to open one — so you know what features to look for and fees to avoid when choosing where to keep your money.
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.
Choosing a Checking Account
Checking account features and fees will differ by checking account type and the bank or credit union that holds the account. When choosing a checking account, it can help to be familiar with the many different features a financial institution might offer and the fees you may encounter.
An important thing to remember when choosing a checking account is that unless you intend to open a checking account at a financial institution with which you already have other bank accounts, choosing a checking account will mean selecting a financial institution.
You want to choose a bank or credit union that is federally insured. Choosing an FDIC-insured bank or an NCUA-insured credit union means your money is protected up to a certain amount should something happen to the financial institution.
While some of today's money apps provide many of the same features as checking accounts, they are not all FDIC insured and can leave your money unprotected if the company goes out of business.
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.
Credit Card Details
Petal® 2 "Cash Back, No Fees" Visa® Credit Card
Card Details
Card Details- 1% cash back on all eligible purchases
- 1.5% cash back when you pay on time for 12-months
- 2-10% cash back at select merchants
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
