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A checking account is a valuable tool that can help you manage spending, pay your bills, track financial transactions and transfer funds to other accounts as necessary. Stashing money in a checking account keeps it safe and easily accessible when you need it. Read on to learn how checking accounts work, the types available, fees to look out for and how to open one.
What Is a Checking Account?
A checking account is a bank account you can deposit money into and withdraw funds from. The money in a checking account is typically used to cover routine living expenses like groceries, day care or rent. It's important to track the money going into and coming out of your account so you don't overdraw it and get hit with overdraft or insufficient funds (NSF) fees.
Because your account history provides a running list of every transaction you make, checking accounts can also be a powerful budgeting tool that allows you to monitor spending patterns and make adjustments as necessary.
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How Do Checking Accounts Work?
Checking accounts are easy to use. You can deposit money into your account by cash, check, direct deposit or transfer. Withdrawals or purchases can be made via check, ACH transfer, wire transfer, ATM withdrawal, debit card or peer-to-peer (P2P) payment, like Venmo or Zelle. Checking accounts often have multiple features to help keep your money safe and manage it efficiently, including:
- Debit cards: When you use your debit card to make a purchase, the transaction amount is deducted from your checking account.
- Online banking: View your account history, pay bills and more using your bank's online banking feature.
- Overdraft protection: If your account has overdraft protection, your bank or credit union will cover the cost of a transaction even if you don't have enough money in your account to pay for it. You'll likely be charged a fee for this service.
- Funds transfer: You can transfer funds from your checking account to other accounts, such as savings or investment accounts, make P2P payments or pay bills through ACH transfer.
- Alerts: Many checking accounts allow you to set up alerts to avoid overdrawing your account and help prevent fraud. Common alerts include low balance, payment reminder, transaction, unusual account activity and recent deposit.
- Safety: Checking accounts at insured banks and credit unions are protected up to $250,000 per person, which means you'll get your money back if your financial institution fails.
Types of Checking Accounts
There isn't just one type of checking account. Banks and credit unions offer different kinds to meet the needs of various customers. Here are some common types your financial institution may offer.
Traditional
Traditional checking accounts are no-frills deposit accounts you can use to keep your money safe until it's time to pay your bills or make a purchase. Traditional checking accounts typically aren't interest-bearing and may charge fees. You might be able to avoid some account fees by meeting certain requirements, such as setting up direct deposit or maintaining a minimum daily balance.
Interest-Bearing
An interest-bearing checking account works like a traditional one but also earns interest. Rates aren't typically as high as a savings account, CD or money market, but it's better than not earning anything.
Student
Student checking accounts are geared toward high school and college students who may just be starting to manage their finances independently. These accounts often have minimal fees and don't require minimum balances. Students under 18 who want to open a checking account need to have an adult co-owner.
Business
Business checking accounts work like personal accounts, but funds are earmarked for business expenses. They may have special features designed for self-employed professionals or small business owners, such as multi-user account access and multiple debit cards so more than one employee can access the account.
Senior
Senior checking accounts are designed for older adults. These accounts have age restrictions, which vary by institution, but you generally need to be at least 55 years old to open a senior checking account, and in some cases, you must be older. Senior accounts often come with perks such as unlimited check writing, no monthly maintenance fees or minimum balance requirements and discounts on other banking services such as safe deposit boxes.
Rewards
Rewards checking accounts provide the basic features you'd get with a traditional checking account plus cash back. However, you typically need to meet minimum account requirements to earn rewards. These accounts may also have other perks, such as rebates on ATM fees and free overdraft protection.
Checking Account Fees
Although a checking account is crucial for managing your money, there may be fees associated with using one. Here are nine common fees your financial institution may charge.
- Monthly maintenance: This is a monthly fee banks and credit unions charge to keep your account open. Many institutions waive this fee if you maintain a minimum balance or link your savings account to your checking account.
- ATM: You may be charged a fee for using ATMs outside of your bank's or credit union's network.
- Overdraft: Your financial institution may pay a bill even if you don't have enough money in your account to cover it, but they'll usually charge a fee for it. You can often avoid overdraft fees by linking another bank account to your checking account so funds can be automatically transferred to make the payment.
- Insufficient funds: If you don't have enough money in your account to cover a bill or make a purchase and your bank or credit union declines the transaction, it may charge an insufficient funds fee.
- Inactivity: If there are no deposits into or withdrawals from your account for a set amount of time—usually six to 12 months—your financial institution may charge an inactivity fee.
- Stop payment: If you need to prevent a payment from being processed after writing a check or scheduling an ACH transfer, your bank or credit union may charge a fee to stop it.
- Statement: Some financial institutions charge a fee if you continue to receive paper statements.
- Wire transfer: Wire transfers allow you to quickly move money from your account to someone else's, but your bank or credit union will likely charge a fee for this service.
If you have questions about the fees attached to a checking account and how to avoid them, talk to a representative before opening your account so there are no surprises later.
What Is Required to Open a Checking Account?
Opening a checking account is simple, but you need a few pieces of information to provide your bank or credit union, including:
- A government-issued photo ID, such as a driver's license or passport
- A Social Security number or individual taxpayer identification number (ITIN)
- Your Social Security card, a bill with your name and address on it or your birth certificate
- An initial deposit
How to Choose a Checking Account
There are many options to choose from when selecting a checking account. Here are some tips to help you identify one that's right for you.
- Assess your needs. Before starting your search, decide what services and features are most important. This will help you quickly identify accounts that meet your needs and eliminate those that don't.
- Do your homework. Traditional banks, credit unions and online banks offer checking accounts, but fees, rates, features, account access, branch locations and ATM availability vary. Compare multiple options before making a final decision.
- Review your options. After finding an account or two that meet your needs, do a deeper dive on the bank or credit union to learn more about its reputation and what customers say about their experiences. Online review sites can help you find this information.
- Choose your account. Select the account that best fits your needs. Ideally, it will meet all your "must have" criteria and have few or no fees.
Learn more >> Online Banking vs. Traditional Banking: What's Better?
How to Open a Checking Account
Opening a checking account is a straightforward process you can complete in a few simple steps.
- Select the account. Choose your bank or credit union and the checking account you want to open.
- Gather your documentation. You typically need a government-issued photo ID and either a Social Security card, current bill or birth certificate to open a checking account.
- Complete an application. The application generally takes just a few minutes to fill out and can be completed online or in person at a local branch if you choose a financial institution with brick-and-mortar locations.
- Make a deposit. Most banks and credit unions require a minimum deposit to open an account. Amounts vary by institution but generally range from $25 to $100.
Frequently Asked Questions
Because checking accounts are typically used to manage routine spending, they have check-writing capabilities and debit cards that make paying bills and purchasing items easy and convenient. Savings accounts don't have these features because they're designed to help you save for mid- and long-term goals.
The money in a checking account earns little to no interest, while savings accounts have higher rates. You can withdraw money from your checking account anytime, but your bank or credit union may limit how often you can make withdrawals from your savings account.
In general, you should keep enough money in your checking account to cover one to two months of living expenses and other transfers you make regularly, such as investment or college savings account contributions. You may also want to maintain a bit of a cushion to help you avoid overdrawing your account and racking up overdraft or NSF fees.
It depends on the financial institution, but if you don't use your checking account for a certain amount of time, usually six to 12 months, your bank or credit union may charge you a dormant account fee, which typically ranges from $5 to $20 per month. After an extended period of time, your financial institution may close your account, but that usually only happens if there's been no activity for three to five years.
The Bottom Line
A checking account is a valuable tool that can help keep your money safe, ensure your bills get paid and track your spending. Features like online banking, overdraft protection and account alerts help you manage your money effectively and protect your financial health. Researching different banks and credit unions and the accounts they offer can help you find the best option for your unique situation.
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