Checking accounts are offered by banks & credit unions to manage your everyday expenses and manage monthly finances.
A checking account is a bank account that allows you to access money through any number of withdrawals. Unlike a savings account that offers a limited number of withdrawals.
You can ask your employer to deposit your paycheck into your checking account and then use it for paying your bills, purchases and withdraw cash.
Checking account allows you to access your money by writing a check, setting up an automatic transfer or by using a debit card.
Generally, checking account comes with the following features
- Low of Zero minimum requirements
- High or no limits on the number of withdrawals
- Pays very little or zero interest rate
- Designed for making direct payments
Different Kinds of Checking Accounts
#1. Traditional Checking Account
Traditional checking accounts are normal checking accounts without any additional benefits like payback programs or rewards.
Traditional checking accounts offer withdrawal through checks and ATM card and facility to make online bill payments.
Depending on the balances you maintain you will be eligible for a waiver of monthly maintenance fees on your traditional checking account.
#2. Premium Checking Account
Premium checking account requires you to maintain a higher minimum balance. Usually, the banks earn interest by deploying your balances.
In return, the bank provides you a free safe deposit box, free personal checks and free money orders. Even the fees are waived off on few out-of-network ATM transactions.
#3. Free Checking Accounts
Online small banks and credit unions do offer free checking accounts that are hard to find at traditional big banks. You can use a free checking account to get your paycheck deposited and paying bills.
The features of the free checking account are similar to the basic checking accounts with a difference that they do not charge a monthly maintenance fee.
But you need to be careful of their charges on using the ATMs of other banks or receiving paper statements.
#4. Student Checking Account
Student Checking account is specifically tailor-made for students in the age group of 18-23 to help them manage their finances.
Features of a student checking account
- May not require to pay a maintenance fee
- ATM fee reimbursement possible
- May offer overdraft forgiveness.
#5. Senior Checking Account
Senior checking account is for people age 55 (females) or 60 (male) and older.
Senior checking accounts may offer certain senior-related benefits like free check orders and check collection facilities. But you need to check before your open an account.
#6. Online-Only Checking Account
Online checking accounts can be opened with online banks. Online banks lack a physical branch or place of business.
Before you opt for an online checking account, make sure that you are comfortable handling your financial transactions online because online banks do not have the option to visit a customer representative.
You have access to the bank’s online bill payment system to pay bills or write yourself a check. Most of the online checking account does come with an ATM or a debit card that you can use at any ATM.
However, online checking accounts do not allow ATM money deposits that can be done in a normal checking account.
#7. Interest-bearing Checking Account
As the name suggests, you have a checking account that helps you earn interest.
But the catch is that you will be asked to fulfill certain requirements like
- Maintaining a higher balance than the threshold
- Having a minimum direct deposit
- A minimum number of debit card transactions
That is because your bank deploys the excess money and pass on the benefits to you in the form of interest. Generally, your interest-bearing checking account can earn APY in the range of 0.50% to 0.65% depending on the bank.
Online banks save on physical infrastructure and employee costs and pass on the benefit in the form of interest on your checking account.
#8. Business Checking Account
Business checking account helps you manage your business transactions and finances.
If you run a business then a business checking account will help you to manage operating expenses, worker & vendor payments and payroll.
You can use a business checking account for receiving payments, cash deposits, checks and online money transfer facility on your checking account.
#9. Checkless Checking Account
If you do not use much of checks then you can go for a checkless checking account. You can use your debit card and online banking facility to make payments.
#10. Rewards Checking Account
Rewards checking accounts help you earn back some money by earning points or cashback on the transaction you have made.
But the bank may ask you to meet certain requirements like minimum spending of certain amounts to earn rewards or cashback.
Why Do You Need a Checking Account
Regulation D from the Federal Reserve puts limits on the number of withdrawals for savings bank accounts.
But checking accounts does not fall under the above regulation and you can make unlimited withdrawals from your checking account.
You can spend your money by writing checks, using ATM cards, setting online transfers and online banking any number of times. This flexibility helps you to manage your daily expenses and utility payments.
In short, checking accounts make all kinds of financial payments much easier. They help you receive a paycheck and are best to keep the money for short- to medium-term.
Apart from that, you may need an overdraft facility that comes with a checking account and not with your savings account.
The overdraft can provide you additional money if you do not have any, but you are charged for the overdrawn amount of money.
Checking Account Fee
#1. Maintenance Fees
Checking accounts carry a monthly maintenance fee. The maintenance fees can be up to $15 per month.
But the banks are ready to waive off the maintenance fee if you keep a high balance in your checking account or you directly deposit a large sum of money.
#2. Overdraft Fees
Overdraft facility is where you can withdraw money up to the overdraft limit from your account even if you have zero balance.
Checking accounts that offer an overdraft facility charge you for the facility. The charges for overdraft facilities can be up to $35.
How to Choose a Best Checking Account
Ideally, you should look for the following factors to choose the best checking account.
#1. Low Monthly Maintenance Fees
Checking accounts carry a monthly maintenance fee. The best checking account would be the one that has zero or low monthly fees.
You can check whether there are conditions that you can fulfill to get the monthly maintenance fee waived off.
#2. Rewards, Payback Programs and Sign-up Bonuses
Banks offer checking accounts with loyalty benefits, attractive rewards & payback programs. But you may be required to make a certain number of transactions or there can be other requirements that you need to look at.
You need to choose a checking account where you can fulfill the requirements without stretching your finances and also earn rewards.
#3. Low Fees and Balance Requirements
You should pick a checking account that provides free checks, low out-of-network ATM fees and can be opened with zero or low balance requirements.
#4. Checking Account With APY
Generally, the checking account does not pay any interest on your balances.
But few banks offer checking accounts that earn you an interest income on your balances. For which you need to maintain higher balances in your checking account. The APY can be up to 0.65% but depends on bank to bank.
How to Open a Checking Account
Banks allow checking accounts for persons over 18 years of age. If you are a minor then you need to ask your parents to be a co-signer for opening a checking account.
Once you have finalized the checking account, you have two options to open your checking account.
- You can visit the branch (Time-consuming & involves paperwork)
- Open account online (Quick and hassle-free)
In either case, you will be required to provide your Social Security number and a valid form of identification like a government-issued photo ID card, a driver’s license, or a passport.
You need to provide personal information like date of birth, contact details and phone number.
Some banks may ask you to make an initial deposit up to $25 to get started.
Before applying for a checking account make sure that you have a good credit score because banks will be doing a background credit check from the credit bureaus.
If you have a bad score then chances are that you would not be allowed to open a checking account.
Checking accounts is a basic requirement that makes your life easy by automated payments and helps you to keep track of your money inflows and expenses efficiently.
Checking accounts can be used as a financial tool to get disciplined at money matters and manage your money prudently.