You can live without a checking account, but it sure is a lot harder.
From keeping your money safe to making secure payments to receiving money electronically, checking accounts offer a gateway to banking and investing. Without one, it’s hard to make even basic financial transactions, or open a brokerage account to save for retirement.
If you’re new to banking, consider checking accounts Square One on the game board.
What Is a Checking Account?
A checking account is a bank account designed to cover your day-in and day-out expenses. You can deposit your paper paycheck in your checking account, or more likely have your employer direct-deposit it electronically. From there, you can pay for goods and services with a debit card linked to your checking account, and pull out cash at any time.
You can also transfer money by wire transfer, ACH, or of course by writing a good ol’ fashioned check. Lenders let you pay bills by debiting your checking account, and set up recurring electronic payments for bills like your mortgage loan and auto loan.
Banks keep your money safe and secure, backed by the federal government. Try saying the same for the underside of your mattress.
In short, checking accounts let you manage your monthly cash flow easily.
How Checking Accounts Work
When you open a checking account, the bank assigns you a unique account number. That, combined with the bank’s routing number, lets you send and receive money electronically by wire or ACH transfer. Most employers offer to pay you via direct deposit in your checking account — setting that up requires that you give your employer your bank account and routing numbers.
The bank also typically gives you a debit card, that you can either swipe in person or use online to pay for, well, just about anything. If you like, you can choose to order checks, although fewer people do so in today’s world.
Some banks also offer a bill pay service, letting you easily pay bills directly from your checking account.
You can open a savings account alongside your checking account, to set aside money for your savings goals. Lately, more banks have started offering free checking accounts and only charge fees for avoidable actions like overdrafts.
Types of Checking Accounts
Checking accounts come in a few flavors. Each appeals to slightly different audiences, but all provide the same basic function: letting you receive, hold, and send money.
Traditional Checking
A traditional checking account doesn’t offer any quirky perks. It’s simply an account to manage your day-to-day transactions.
You can write checks with it, swipe a debit card, pull out cash from an ATM, and send or receive money by ACH or wire. Other financial institutions, such as your investment brokerage account, can link with it to transfer money in or out.
Not sure how to pick an account with thousands of banks and credit unions to choose from? Start with this list of the best checking accounts in the U.S.
Business Checking
Businesses need bank accounts to manage their cash flow, just like individuals do.
These accounts help businesses — including sole proprietors — keep their business and personal finances separate. That helps keep their accounting clean and clear, protecting them from (and during) IRS audits. It also plays a role in asset protection, helping to prevent litigators from “piercing the corporate veil” to go after business owners individually.
Like personal checking accounts, some business checking accounts charge monthly maintenance fees, possibly avoidable by maintaining a minimum balance. Others are completely free.
Read up on the best business checking accounts before committing to a bank.
Interest Checking
Some checking accounts pay interest on your balance. Don’t get too excited though — the interest won’t exactly make you rich. It’s rare to see interest rates over 2%.
But something is better than nothing, right? Check out these high-yield checking accounts if an interest-bearing account appeals to you. Just keep an eye on fees or minimum balance requirements.
Rewards Checking
Know how some travel credit cards generate reward points for free flights or hotel stays?
Some checking accounts offer rewards too, such as cash back on certain purchases. All without the risk of racking up huge credit card debt — because you’re spending real money in your checking account, not theoretical money on a credit line.
Like interest checking accounts, watch out for fees and account minimums. Banks need to make up the cost of these rewards somehow, and that usually means unwary customers who don’t pay enough attention to the fine print.
Research the best rewards checking accounts before opening one. Many of these accounts specialize in a specific type of reward, such as airline miles, that might not be suitable for everyone.
Student Checking
Students tend not to have much money, so the best student checking accounts tend not to impose minimum balance requirements or charge monthly fees. A few even offer cash back rewards.
The best checking accounts for high school students make it easy for minors to use their accounts. You still need a parent or other adult cosigner, but you should have access to all the major features of adult bank accounts.
As adults, college students have more flexibility in opening checking accounts — no joint account owner needed. Check out these best college student checking accounts for maximum features and minimum fees.
Senior Checking
While banks don’t pour the same advertising dollars into advertising accounts for seniors as they do students, some banks do offer senior-specific checking accounts.
Often these accounts come with a suite of other financial products, such as certificates of deposit (CDs), brokerage accounts, and retirement accounts. Banks sometimes waive the monthly maintenance fee for your combined balance among all these accounts, or waive other fees for seniors if they can document a medical emergency.
Start with this list of the best checking accounts for seniors as you explore your options.
Second-Chance Checking
When you have bad credit, it can feel like no doors sit open for you.
But bad credit doesn’t stop you from opening a bank account. While banks may not roll out the red carpet with high interest yields or amazing rewards, plenty are still happy to provide you with basic banking.
If your credit looks a little dented and scratched, try these bank accounts for bad credit — also known as second chance bank accounts.
Checking Account Features
Most checking accounts share the same core features. While you should always double check availability before opening an account, you can typically count on these services with a checking account.
Debit Card
Debit cards like you swipe plastic to pay for goods directly from your bank account. In most cases you don’t earn rewards on purchases, but a few checking accounts do offer them.
Like credit cards, you can pay either in person or online with a debit card, by entering the card number, expiration date, security code, and your billing address.
Online Banking
While every bank offers online banking nowadays, some portals are easier to use than others, and some offer more functionality.
Take a quick demo of a bank’s online banking portal before opening an account. Look for intuitive usability, and features like bill pay, ACH transfers to other banks or people, and connectivity with third-party tools like Zelle. Some banks can also set up overdraft protection for you by linking your checking account to another deposit account as a backup source of funds.
If you prefer managing your money on your phone rather than a desktop computer, check out a bank’s or credit union’s mobile banking app before signing on the dotted line.
ATM Access
Occasionally, you still need access to cold, hard cash, if for no other reason than to tip bartenders and valet parking attendants.
Make sure you open an account with plenty of convenient ATMs for your lifestyle. That could mean a nationwide bank with thousands of ATMs, or it could mean an online bank that refunds you for ATM fees when you pull money out of other banks’ ATMs. The latter is often more convenient, since you don’t have to go out of your way to find a specific bank’s ATM.
If you travel overseas frequently, keep an eye on foreign ATM fees as well.
Direct Deposit
Any bank account can receive ACH payments, such as direct deposits. But some clear your money faster than others.
Receiving an ACH payment could take as little as one business day or as long as five, depending on the two banks involved and possibly other factors. That can make a huge difference during months when money is tight.
Paper Checks
Most banks still offer paper checks. They have their uses, such as paying state and local taxes — some governments still don’t accept ACH payments — or giving money in a greeting card.
As an online banking feature, some banks offer bill pay with paper checks as a backup payment method, for paying people or businesses that can’t accept ACH payments.
Wire Transfers
All bank accounts can receive wire transfers, but some charge outlandish fees for them.
The same goes for sending money by wire, not just receiving it. Beware of banks that charge high fees for sending or receiving wires.
FDIC Insurance
All depository bank accounts — including checking and savings accounts — in the U.S. are insured by the Federal Deposit Insurance Corporation (FDIC).
Specifically, your account balance is insured up to $250,000. If a bank robber holds up the bank, or the bank declares bankruptcy, you still get your money back, up to $250,000.
Designed to prevent runs on banks and keep the public’s faith and trust in the U.S. banking system, FDIC insurance has succeeded far better than most government programs.
Checking Account Fees & Service Charges
Some checking accounts come with virtually no fees, while others come with booklets of fine print detailing all the reasons the bank can charge you.
Keep an eye out for the following common types of fees as you shop around for checking accounts.
- Monthly Maintenance Fee. In particular, watch out for banks that charge a monthly fee. If you’re not careful, you can end up flushing $15 or more in monthly fees.
- Overdraft Fee. This one is a little more reasonable. If you overdraw your account, banks penalize you with a one-time — or daily fee charged until your balance is positive again.
- ATM Fees. Banks typically let you withdraw money for free from their own ATMs, but what about other banks’ ATMs? You may find yourself paying not one but two ATM fees if you use a different bank’s ATM, to your own bank and the ATM bank.
- Wire Fees. Most banks charge a fee for sending wire transfers, but this fee ranges from $15 to 50 or more. Some banks also charge a fee for you to receive an inbound wire transfer as well.
How to Open a Checking Account
Nowadays, you don’t even have to walk into a bank to open an account within a few minutes. Most banks let you open an account instantly online.
While almost anyone can open a checking account, you do need to provide some documentation.
First, expect to input your full name, address, date of birth, and Social Security number. You’ll also need to provide a government-issued photo ID in most cases. Banks must follow complex U.S. financial regulations, including “Know Your Customer” (KYC) laws that require banks to verify the identity of every client.
You must also typically make an opening deposit. Some banks require as little as a few dollars, just so the account doesn’t have a zero balance. Others require hundreds or even thousands of dollars to open an account.
Checking Account FAQs
Banking remains a foreign concept to many people. And I get it — if you’re used to thinking about money as physical paper, it takes some adjusting to start thinking of it as existing only as digital ones and zeroes.
The following rank among the most common questions when people first open a checking account.
What’s the Difference Between a Checking Account vs. Savings Account?
Checking accounts are designed for cash flow, for the constant movement of deposits and expenses. Think of checking accounts as operating accounts, where income arrives and bills go out.
Savings accounts are where money parks for a while. They work well for emergency funds: holding cash you don’t plan to touch except when urgently needed.
What Can I Do If I’m Denied a Checking Account?
If a bank turns you down for a checking account, do like your mom told you and “try try again.”
But this time, get a little more strategic about it and look specifically at second chance checking accounts, as outlined above.
What Is a High-Yield Checking Account?
A high-yield checking account pays interest, at rates higher than most accounts. But it’s still a bit of a misnomer — even high-yield accounts pay paltry interest rates compared to dividend stocks, mutual funds, and other market-traded investments.
What Is an Interest-Bearing Checking Account?
Interest-bearing accounts pay interest, as the name suggests. Even if an account only pays 0.01% interest, it still technically counts as an interest-bearing account. Again, don’t expect to get rich off the interest on checking accounts.
Final Word
Checking accounts serve as your main banking hub, the place where most of your dollars stop however briefly on their way somewhere else.
“Somewhere else” could mean your bills of course, but it also means your savings and investment accounts. In fact, the more of your money that you can shunt into savings and investments and out of your checking account, the faster you’ll build wealth.
If money tends to burn a hole in your account, look into automatic savings tools to get money out of your checking account and into savings and investments. The more you can automate, the less you have to rely on self-discipline to get you where you want to go.
