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What is a Checking Account?

Checking accounts are a type of bank account (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 write a check.

A checking or spending account is used for daily needs and is a financial tool for easily accessing cash to pay bills and expenses.

Having a checking account is essential to proper money management. However, not all checking accounts are created equal, and some are better than others.

Who Offers Checking Accounts

Banks, credit unions, and the growing number of fintechs (hybrid financial services companies) offer these accounts. 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 a Savings Account?

The basics of banking include checking and savings accounts. 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. You also have the ability to withdraw or deposit money using ATMs. This is unlike savings accounts, money markets, and CDs, which have restrictions on how or when you can access your cash.

But you’ll also discover that checking accounts aren’t meant to grow your money. Sure, some accounts are interest-bearing, but the primary object is the in- and out-flow of cash. Basically, you store money in savings accounts and use money in checking accounts.

Common Fees

You have many options when it comes to choosing whom to bank with or through which to have a checking account. These accounts do come with fees, and it’s best to find the right financial institution and account to serve you.

Make a better decision and look for these common fees:

  • Minimum balance fees require you to have a specific balance to avoid a fee. Avoid the fee by choosing a zero-minimum account offered 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 for when you overdraw your account. However, certain accounts will not let you overdraw your account, so this can be avoided.
  • 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. Many online-only banks and fintechs offer highly competitive, fee-free options.

When is it okay to pay an account fee?

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?

The following are the general steps:

  1. Have your identification. You’ll need a government-issued ID and may need your Social Security Card too.
  2. Proof of residence. You may need a utility bill or credit card statement as additional proof of address.
  3. 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.
  4. Make your initial deposit. Deposit cash or a check (which may be subject to a longer hold timeframe) or electronically transfer money from an existing account into your new checking.
  5. Note your account number. You’ll need this, along with the routing number, to direct deposit your paycheck.
  6. Wait for your debit card to arrive. Once you get it, activate it. This is also a good time to review how to access cash through surcharge-free ATMs.

Take Advantage of Your New Checking Account

Get familiar with all the features such as direct deposit, automation, alerts, the ability to link to savings accounts, and more.

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