Basics of a Checking Account
Frequently Asked Questions
How do you open a checking account?
Opening a checking account is as simple as filling out a form with the bank or credit union. You’ll also need to provide some information, including your address, a Social Security number or other tax ID number, and your date of birth. A driver’s license or other state-issued ID and a bill with your name and address on it is usually all the documentation required.
What do you need to open a checking account?
You’ll need at least two forms of identification—a driver’s license and a bill with your home address, for example—and you may need a small opening deposit of $100 or less, depending on the bank. Banks and credit unions don’t check your credit score, but they may check your profile through ChexSystems (which tracks bank account activity rather than credit account activity) to make sure you haven’t mismanaged a checking account in the past.
Can you set up a checking account online?
It depends on the bank or credit union. Some banks and credit unions require you to open an account in person, while others allow you to open an account online. And some banks and credit unions are online-only, so online is the only way you can set up a checking account with those institutions.
What is the difference between a checking and savings account?
A checking account is used for everyday spending, and there are no restrictions on how many purchases or transactions you can make per month. A savings account, on the other hand, is designed to hold money that you don’t expect to spend soon, and money stored in this account usually earns a bit of interest. The Federal Reserve used to cap the number of “convenient,” non-branch transactions account holders could make with a savings account, but that is no longer a regulatory requirement (although many banks still do enforce transaction limits).
Can you open a bank account with no money?
Yes, some banks and credit unions allow you to open an account with no money, while others require a minimum opening deposit of $25 to $100.
How do you close a checking account?
You can close a checking account by notifying your bank. If you have any outstanding fees or overdrawn balances, you’ll need to settle those up. If you have any automatic deposits or payments associated with the account, you should also make plans for those—redirect your deposits to another account and reschedule your automatic payments from another account as well.
A bank statement is a document prepared by your financial institution each month. With a bank statement, you can see all of the income and spending activity related to the account.
When you don’t have enough money in your financial account to cover a transaction but your institution honors it anyway, you’ve been said to have an overdraft. An overdraft allows you to continue using funds in your account even when it has a negative balance, but you’re required to replace the money, and usually pay a fee.
Banks and credit unions are referring to the money in your accounts when they use the term "deposit." They're holding onto this money for you. Deposits can also refer to other valuables the institution holds for you, such as jewelry in a safety deposit box. You can access financial deposits by spending on that account with a debit card, by paying bills online, by writing checks, or by taking cash withdrawals.
Annual Percentage Yield
Annual percentage yield is the annual percentage of profit earned on an investment, which takes into account the effect of compounding interest.
A money order is a method of paying for something with cash using a check from a third party. You pay for the money order, and the third party issues you a check that you can give or send to someone. This person deposits the money order in their bank account or exchanges it for cash at a business or post office.
When money lies dormant in a deposit account or appears to be abandoned, the bank or other organizations with which the money was deposited aren’t necessarily allowed to just keep that money for their own use. After a period of time, they’re required to turn it over to the state. This is called escheatment.
A wire transfer is a method of moving funds electronically. It can go between both banks and credit unions. It can also be sent either domestically or internationally.
A debit card allows users to make payments directly from their bank accounts using credit card networks instead of paper checks. When you buy something with a debit card, the money comes directly from your checking account.
Automated clearinghouse (ACH) payments are electronic payments that pull funds directly from your checking account. Instead of writing out a paper check or initiating a debit or credit card transaction, the money moves automatically.
Credit unions are nonprofit organizations that provide financial services to their members. If you need to save money, pay bills, or get a loan, a credit union is an all-in-one option for those services.
Interest Checking Account
An interest checking account is a checking account that accrues interest on the money in your account. As long as the requirements to earn interest are manageable, the interest benefit of these accounts gives savers an opportunity to grow their deposits on autopilot.