So, what is a checking account you may ask?
A checking account is the most basic type of bank account that acts as a deposit account and can help you better manage your money and plan your personal finance more effectively.
When it comes to bank accounts, there are many different options available. Each account has special features and requirements that make it useful for particular uses.
In this article, we will be looking at everything there is to know about checking accounts, including the different types, what to look out for, and answering some of the most commonly asked questions.
What is a Checking Account?
Simply put, a checking account is a bank account that is used to make payments.
Unlike other accounts, there are no limits on the number of transactions you can make each month, making them perfect for daily and monthly expenses alike.
You get easy access to your money, and most banks won’t charge fees for them.
The downside is that checking accounts earn low-interest rates if any at all. This makes them ill-suited for saving money.
For interest-bearing accounts, Money Market Accounts or Certificates of Deposit are better options.
Most people use a checking account to receive their paycheck or government assistance pay.
Businesses also use a checking account from which to make and receive payments.
Money that is saved is usually transferred to a savings account where it can earn higher interest rates.
Are All Checking Accounts The Same?
Yes and no. All checking accounts are the same in the sense that they offer a bank account that allows you to make payments without restrictions, as discussed.
At the same time, different financial institutions offer different features, including access to your account, requirements, fees, and a few other things.
Let’s first look at the financial institutions that offer checking accounts.
Most, if not all, traditional banks offer checking accounts. Traditional banks are those banks that have a brick-and-mortar branch you can visit.
They tend to offer a wide range of financial products and services, including:
- checking accounts
- savings accounts
- credit cards
…and several others.
One of the advantages traditional banks offer is that they have a branch to visit.
While this is not critical to opening and owning a checking account, it can bring you peace of mind.
Most online banks offer checking accounts.
One of the biggest differences between online banks and traditional banks is that online banks do not have any physical branches.
Instead, everything is done through an app or on the bank’s website, including opening a bank account online.
Online banks also tend to offer fewer services than traditional banks, but this isn’t always the case.
Since online banks have no branches to manage, they tend to offer lower fees and higher interest rates.
Having said that, some traditional banks are quite competitive and offer great deals.
Credit unions are like traditional banks in that they have physical branches that you can visit.
Unlike banks, they are owned by the account holders.
This means they are not-for-profit organizations. In fact, any profit made is either re-invested or returned to the account holders.
Because they’re not in it for profit, credit unions tend to offer better rates than traditional banks.
In most cases, they offer fewer services than banks and have fewer branches you can visit.
Checking Account Features
Checking accounts can have additional features such as:
- online banking
- protection against overdraft fees
- debit cards
- ATM withdrawals
…and more. Different banks and credit unions may offer different features, with some features being free and others against payment.
They also tend to come in tiers. The higher-tier accounts will have more features and might have fewer fees overall.
On the other hand, these higher-tier accounts will generally have higher requirements than the lower-tier accounts, requiring the account holders to keep a higher minimum balance.
This can help you ensure your money is safe should something happen.
Common Checking Account Fees
Most, if not all, banks do not charge anything for opening an account.
Having said that, there are some checking account fees that you need to be aware of.
These fees tend to change from one financial institution (be it a bank or credit union) to the next.
Either way, you should be able to find a schedule of fees on the bank’s website.
The monthly maintenance fee is a fee that is paid to help maintain the account.
Most banks waive this monthly service fee if you meet certain requirements, such as setting up a direct deposit and keeping a minimum account balance.
Lower-tier accounts have lower requirements and lower fees than higher-tier accounts.
ATM fees are fees charged by the ATM operator and your bank when using an out-of-network ATM.
If ATM withdrawals are important to you, you might want to open a checking account with a bank that has a large ATM network.
Bank Account Fees
Banks fees range from NSF (insufficient funds) fees to fees for wire transfers.
Banks tend to have a different schedule of fees, with some banks even promising no fees at all.
Make sure you understand any fees associated with your checking account, as these can put a serious dent in your budget if you’re not careful.
Checking Account Requirements
Generally speaking, there are not a lot of requirements when it comes to opening a checking account.
Even so, requirements tend to change from one bank or credit union to the next. Either way, you should be able to find this information on their website.
You’ll need to have some information at hand, including:
- personal identification
- social security number (SSN)
- proof of address
…and anything else the bank might ask for.
Some banks will also run a credit check on you before opening your account.
In most cases, this will be a soft pull credit check, which does not affect your credit rating.
A hard pull credit rating can dent your credit rating by up to 5 points, so do take the time to check if a credit inquiry is carried out and, if so, what type of pull before applying for an account.
You might also be required to make an initial deposit to activate your account.
This is not always the case, and some banks require very small deposits, starting from as little as $0.01.
How To Open a Checking Account
Opening a new checking account is a relatively easy and straight-forward process.
In most cases, you can complete the entire application online; this certainly is the case when opening a checking account with an online bank.
To make the process as easy and smooth as possible, make sure that you have all of the required information at hand. This can make the entire thing a breeze.
As mentioned earlier, you’ll need to fulfill the bank’s requirements before the account is fully opened, including passing a credit check if this is required.
Checking Account FAQs
We answer some of the most frequently asked questions regarding checking accounts and their features.
What is a checking account used for?
Generally, checking accounts are used to receive direct deposit payments such as pay from your employer and make payments.
Is a checking account a debit card?
Most checking accounts come with a debit card.
The debit card lets you access any money in your checking account without having to withdraw, such as when making online or in-store purchases.
You should also be able to use a debit card to withdraw money from your account using an ATM.
Here, you need to be careful of any applicable ATM fees.
Is a checking account the same as a bank account?
A checking account is a type of bank account. Banks offer many different types of accounts, each serving a different purpose.
Having said that, depending on the context in which it is used, in most cases, a bank account and a checking account are one and the same.
What are the 4 types of checking accounts?
There are quite a few different types of checking accounts. These are usually based on the feature they include or do not include.
Here are the 4 main types of checking accounts:
- Standard Checking Account: This account offers all of the basic checking features of a checking account, including debit card, overdraft protection, and check writing.
- Interest Checking Account: This account offers interest on the checking balance, which is typically lower than that of a savings account.
- Second Chance Checking Account: This account is designed for those who are declined a standard checking account.
- Rewards Checking Account: Rewards accounts offer rewards usually in the form of cashback on purchases made using the debit card.
Which are the best checking accounts?
Because checking accounts can come with different features, and everyone has different financial goals and priorities, there is not just one best checking account.
The best account is the one that best fits your financial requirements and goals. Here are a few of our recommendations.
Online Bank: Chime
Chime’s checking account is called Chime Spending Account and comes with a Visa debit card.
There are no monthly fees and no maintenance fees, making this something of a free checking account.
Traditional Bank: Capital One
Capital One’s 360 Checking Account offers access to more than 40,000 ATMs and has no maintenance fee.
You can also get overdraft protection, bill pay, and mobile deposit, among many other features and perks.
Credit Union: Alliant
Alliant’s High-Rate Checking account offers an APY of 0.25% and access to more than 80,000 ATMs.
You can also get up to $20 per month in rebates when using out-of-network ATMs. Furthermore, there are no maintenance fees and no balance requirements.
Is the money in a checking account safe?
Money in a checking account is generally considered to be safe. To make sure that you’re covered, always ensure that the account is insured by the FDIC or the NCUA.
The FDIC (Federal Deposit Insurance Corporation) insures bank accounts. In most cases, the insured amount tops out at $250,000.
The NCUA (National Credit Union Administration), on the other hand, insures accounts for credit unions.
You might want to know that most online banks are safe because they work with a partner bank.
The partner bank is the bank that actually holds your money. You will need to make sure that this account is insured by the FDIC.
Such information is usually available on the online bank’s website.
What can I do if I’ve been rejected?
In certain cases, you may be denied a checking account. This can happen for several reasons, including having a bad credit score.
If you have had many overdrafts or bounced checks and failed to pay the fees, this might be reported to Chexsystems – a consumer reporting agency.
In this case, you might want to look at prepaid checking accounts or second chance checking accounts.
These accounts only let you spend what you have. This helps the banks minimize the perceived risks.
These accounts have very low requirements going no further than identity verification.
So, Is a Checking Account Best for You?
Alongside savings accounts, checking accounts are one of the most basic types of bank accounts.
Unlike savings accounts, checking accounts feature unlimited withdrawals, making them the ideal type of account to take care of payments and expenses.
Understanding your financial requirements can help you choose the best option for you.
Even so, make sure you take the time to read the fine print and download a copy of the fee schedule to keep fees at a minimum.
This can help you keep moving towards financial success.