What is a Checking Account?

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 finances 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.

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.

Where to Open a Checking Account

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.

Traditional Banks

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
  • loans
  • mortgages
  • credit cards

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.

Online Banks

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

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.

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 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.

Checking Account Features

Checking accounts can have additional features such as:

  • online banking
  • protection against overdraft fees
  • checkbooks
  • debit cards
  • ATM withdrawals

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.

You’ll need to make sure that the account is either FDIC insured (Federal Deposit Insurance Corporation) or NCUA insured (National Credit Union Administration). 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.

Maintenance Fee

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

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

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.

What Can I do if I Am Denied a Traditional Checking Account?

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.

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.

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.

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