You probably haven’t written a check in months or years, or never, but we still refer to daily transactional accounts as checking accounts.
What is a Checking Account?
Checking accounts are a type of bank account (and called “share drafts” at credit unions or spending accounts with neo-banks) used for day-to-day financial transactions. Think of it as an effective way to deposit and withdraw money. With checking accounts, you can access your money with a debit card, money transfers or manually writing a check.
A checking or spending account is used for your daily needs and is the financial tool where you can easily access your cash to pay bills and expenses. They are also used as a convenient way to electronically deposit your paychecks or other money transfers such as linking Cash App, Venmo, or Paypal.
Having a checking account is essential to proper money management. And not all are created equal. Some are better than others.
Who Offers Checking Accounts
These accounts are offered by banks, credit unions, and the growing number of neo-banks (hybrid financial services companies). Some online brokerages offer cash management accounts that operate similar to checking accounts. The benefits and features vary based on the financial services company you choose.
What’s the Difference Between a Checking and Savings Account?
Checking accounts are meant for daily use and have no limits on how much you can withdraw. They come with a debit card that is used to purchase goods and services online and offline. And you have the ability to withdraw or deposit money using ATMs. This is unlike savings accounts, money markets, CDs that have restrictions on how or when you can access your cash.
But, you’ll also come to discover checking accounts aren’t meant to grow your money. Sure, some accounts are interest-bearing but the primary objecting is the in- and out-flow of cash. Basically, you store money in saving accounts and use money in checking accounts.
You have many options when it comes to choosing whom to bank with or have a checking account through. These accounts do come with fees and its best to find the right financial institution and account that serves you.
Make a better decision and look for these common fees:
- Minimum balance fees that require you to have a specific balance to avoid a fee. Avoid the fee by choosing a zero-minimum account offer by many financial institutions.
- Monthly maintenance fees for simply having an account. Find an account without this fee.
- Statement fees for having your statements printed and mailed to you. It’s best to choose electronic statements.
- Overdraft fees when you overdraw your account. This can be avoided with certain accounts that won’t let you overdraw your account.
- ATM surcharge fees when using an unaffiliated ATM network. Only withdraw money within the network to avoid surcharges.
You can avoid many of these fees by choosing the right financial institution. Many credit unions offer better options than Big Banks. And many online-only banks and neo-banks offer highly competitive fee-free options.
When is it okay to pay an account fee? Determine the features and benefits to make this assessment. Free checking accounts aren’t necessarily the best option for everyone. It may be worth $1 or more for an account that helps you achieve your financial goals.
How to Open a Checking Account?
Before opening a new checking account, it’s important to understand your needs. This will help you choose the right account. For example, if you depend on local access than a community bank or credit union may be your best choice. If you’re frustrated with the fees charged in your current spending account, then it’s time to open a free account elsewhere.
The process to open a checking account locally and online have differences. The following are the general steps:
- Have your identification. You’ll need a government-issued ID and may need your Social Security Card too.
- Proof of residence. You may need a utility bill or credit card statement as additional proof of address.
- Complete the application and sign the agreement. The bank or credit union may run a Chexsystems report on you but this may not be the case for neo-banks.
- Make your initial deposit. Deposit cash or a check (which may be subject to longer hold timeframe) or electronically transfer money from an existing account into your new checking.
- Make note of your account number. You’ll need this to direct deposit your paycheck along with the routing number.
- Wait for your debit card to arrive. Once you get your debit card, activate the card. It’s also a good time to review how to access cash through fee-free ATMs.
Take Advantage of Your New Account
Get familiar with all the features such as direct deposit, automation, alerts, and the ability to link to savings accounts and more.