What Is a Checking Account?

Definition & Examples of a Checking Account

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A checking account is a bank account that allows easy access to your money. You can make purchases by using your debit card, checks, or account information.

Learn more about how checking accounts work.

What Is a Checking Account?

A checking account is a deposit account, which is a bank account you can use to hold and withdraw money. Checking accounts allow you to easily access your funds in several ways. 

You can access your money by withdrawing cash at an ATM or branch, writing a check, sending an e-check, setting up an automatic transfer, or using your debit card. Checking accounts are typically used for day-to-day spending.

How a Checking Account Works

Checking accounts have very few limitations when it comes to accessing your funds. You may have a daily ATM withdrawal limit, and your debit card may limit the amount you can debit from your account on a given day. Other than that, you can make purchases and payments using your checking account as long as you have enough money in your account to cover the purchases.

As a trade-off for this availability, checking accounts typically don't pay much in interest, and many accounts don't pay any interest at all.

Checking accounts may have monthly service fees, but many financial institutions waive these fees if you meet specific requirements. For example, you may need to maintain a minimum balance or have some amount of direct deposits each month to avoid service fees.

Understanding Overdraft Options

These accounts also have overdraft fees. In exchange for an overdraft fee, your bank or credit union covers a transaction that exceeds the money in your checking account. Your bank may offer overdraft protection, which you can decide whether to opt-in for.

With overdraft protection, you may be able to link another account (like a savings account) to your checking account and automatically transfer money over if you have a negative balance. Some institutions will allow you to overdraw up to a certain limit and then they begin returning checks and declining transactions.

When you use a bank's overdraft protection, you're charged an overdraft fee; according to the Consumer Financial Protection Bureau, the median overdraft fee is $34. If you decline overdraft protection, any transactions that could exceed your checking account balance will be declined. This prevents you from being charged overdraft fees, but it could mean not being able to complete purchases if you don't keep an eye on your balance.

Opening a Checking Account

You can open a checking account by going to a bank or credit union branch or signing up online. You will need to provide your Social Security number, personal information like your address and date of birth, and a valid form of identification to open an account. You may also need to make a minimum opening deposit.

When you open up a checking account, the bank will also run a quick background check using a service like ChexSystems. ChexSystems maintains information about closed bank accounts. If you have been reported to ChexSystems or a similar company for having an account with a long-term negative balance, you may not be allowed to open an account until the negative balance is resolved.

Most banks will not open a checking account for a minor, so if you are younger than 18 years old, you will need a co-signer on the account.

Banks sometimes offer cash bonuses as incentives for opening a checking account, so that's something to look for when you're shopping for a new checking account. You typically have to meet requirements like maintaining a certain balance.

Checking Account vs. Savings Account

Checking Account Savings Account
Few limits on withdrawals Limited number of withdrawals per month
Pays little or no interest Pays a low interest rate
Able to make direct payments with checks, debit cards, and account information Able to make direct payments with your account information, subject to your withdrawal limits

Savings accounts are designed to hold your money. They typically pay a low interest rate, but that rate is more than what you usually see with a checking account.

Savings accounts typically limit the number of "convenient" transactions you can make in a given month. Convenient transactions include automatic transfers from savings accounts to other accounts and online and phone transfers out of your savings account. Financial institutions may also limit the number of withdrawals you can make from a savings account at an ATM or in person.

Savings accounts also limit direct purchases. You may be able to pay bills online using your savings account information, but you can't use a debit card or a check to make purchases using funds directly from a savings account. You would need to transfer the money to a checking account first.

Key Takeaways

  • A checking account is a bank account that allows easy access to your money. You can make purchases by using your debit card, checks, or account information.
  • Checking accounts typically offer low or no interest. They may have service fees, but they can often be waived by meeting balance or direct deposit requirements. 
  • You can choose whether to opt-in for overdraft protection. If you opt-in, the bank will cover charges that exceed your available funds, but it will also charge fees for this service. 
  • Open an account online or by visiting a branch. You'll need your Social Security number and government-issued identification. 
  • Savings accounts offer higher interest rates but less access to your funds.

Article Sources

  1. Consumer Financial Protection Bureau. "CFPB Finds Small Debit Purchases Lead to Expensive Overdraft Charges." Accessed Aug. 15, 2020.

  2. Consumer Financial Protection Bureau. "Checklist for Opening a Bank or Credit Union Account," Page 1. Accessed Aug. 15, 2020.