What Is a Checking Account?

For your everyday spending

Close-up of woman's hand with pen writing a check
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A checking account is a bank account that allows easy access to the money you keep in it. Also called a transactional account, it’s the account that you would use to pay your bills and make most of your financial transactions. 

If you have a checking account, you can access your money by writing a check or sending an e-check, setting up an automatic transfer or using your debit card. These transactions are debits to your account, while a credit is a deposit. Money that you put in a checking account usually won’t stay there for long, since it’s where your everyday spending, bills, and other debits occur.

Differences Between Checking and Savings Accounts

Checking Account

  • Usually high or no limits on number of withdrawals

  • Designed for making direct payments

  • Several payment options: debit cards, checks, ACH, etc.

  • Pays little or no interest

Savings Account

  • Limited number of monthly withdrawals

  • No direct payments from the account

  • Larger balances often required

  • Usually pays a small interest rate

Most checking accounts do not have rules about the number of transactions you can complete each month, while a savings account may limit the number of withdrawals you can make from an ATM or in person. There are also limits on the number of transfers you are allowed from savings to checking accounts.

Generally, you can’t make payments directly from a savings account, due to a federal law called Regulation D that limits certain withdrawals. It is fairly easy to spend money from your checking account, though, by taking money out of an ATM, writing a check, using your debit card, or paying for something electronically. If you’re looking for an account for your spending money, a checking account is a good option.

Because checking accounts are designed for a constantly rotating balance, they usually don't require large balances or pay interest, as savings accounts do.

What to Know Before Choosing a Checking Account

You will find that most banks offer many options, so carefully consider the features you need when choosing your checking account.

Pay particular attention to the minimum balance requirements, and be sure you can maintain them. You do not want to fall below a minimum balance that you cannot maintain and end up owing the bank money each month.

Some accounts also limit the number of checks or debit transactions you can have daily. Others limit the number of bill pay transactions. You should be aware of these limits and be sure they work for your spending style. If the numbers seem too restrictive, consider moving your account elsewhere.

Additionally, you should consider the monthly service fee and overdraft fees for each of the accounts. Credit unions often offer lower fees. Also, keep in mind that many banks waive monthly service fees if you have an automatic deposit or meet a minimum number of monthly transactions. However, many free checking accounts do exist.

Finally, you should consider whether the bank offers additional features such as mobile deposits, that make banking more convenient. Many banks now offer a banking experience that rarely, if ever, requires you to come to a branch.

How to Open a Checking Account

Once you have found a checking account that meets your needs, the next step is to open the account by going to a branch or signing up online. When you go to the bank or its website to open your new checking account, you will need to provide your Social Security number and a valid form of identification.

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. When you open up a checking account, the bank will also run a quick background credit check. If you have been reported to ChexSystems or a similar company, you will not be allowed to open an account until you clear that up, as the bank won’t risk losing money on you.

How to Get the Most out of Your Checking Account

When you first open your checking account, you will need to keep a running balance in order to track the amount that you have in your account and avoid overdrawing. Remember, the balance you receive at the ATM or see online may not be the most recent balance, because not all the charges may have cleared your account yet and the bank may hold deposits for a certain period. If you’re not a pen-and-paper kind of person, online budgeting and money software can help you do this.

Additionally, it is very important to balance your account each month, as this will help you to catch any errors that you or the bank have made, such as deposits to the wrong account or unauthorized transactions.

Other ways to get the most out of your checking account include:

  • Take advantage of all online and mobile banking features for convenience.
  • Always maintain any minimum balances to avoid fees.
  • Set up direct deposit and other automatic transactions that minimize the need to go to the branch frequently.

Understanding Overdraft Protection

You should also find out about any overdraft protection that your bank may offer. Many banks used to automatically enroll customers in these plans, but federal regulations now require that the customer give express permission.

Some banks or credit unions will allow you to link another account to the funds and automatically transfer money over to cover you if you go into the negative. Other banks will link a line of credit or credit card to your checking account and will transfer money into your account to cover you. Additional institutions will allow you to overdraw up to a certain limit and then begin returning checks.

Example

Let's say you sign up for your bank's overdraft program. It connects to your savings account, and any overdrafts come with a $30 fee.

You have $200 in your checking account and $5,000 in savings. You attempt to pay for a $500 item with your debit card. The bank automatically pulls the additional $250 from your savings account to cover the difference, along with a $30 overdraft fee.

Your new checking account balance is zero, and your savings account balance is $4,720.

If you are prone to overdrafting your accounts, educate yourself on the best overdraft protection offered by your bank, as well as the fees that go along with it. Keep in mind that, if you enroll in the program, overdrafts and any accompanying fees will occur automatically. According to the Consumer Financial Protection Bureau, the median overdraft fee is $34.

Tips for Managing Your Money

A checking account is insured by the FDIC for up to $250,000. However, if you have that much money, you are likely better off to put the majority into a savings account or another type of investment tool.

Your checking account should really only contain the funds that you need for your daily transactions during the month. Although some banks do offer interest-bearing checking accounts, the rates are usually lower than a savings account. Putting your money elsewhere will allow it to grow more quickly.

If your checkbook or debit card is stolen, it is important to report it immediately. The bank can put stop payments on your account and prevent you from losing a large amount of money. Many banks now even offer customers the ability to quickly "freeze" their debit card for while they're looking for it. This blocks any fraud attempts but doesn't cancel the card permanently.

Updated by Rachel Morgan Cautero.

Article Sources

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  4. Federal Deposit Insurance Corporation. "§ 1020.220 Customer Identification Programs for Banks, Savings Associations, Credit Unions, and Certain Non-Federally Regulated Banks." Accessed March 28, 2020.

  5. Consumer Financial Protection Bureau. "When Can I Be Denied a Checking Account Based on My Past Banking History?" Accessed March 28, 2020.

  6. Office of the Comptroller of the Currency. "How Can My Account Be Overdrawn When I Just Made a Deposit?" Accessed March 28, 2020.

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  11. Federal Deposit Insurance Corporation. "Deposit Insurance at a Glance." Accessed March 28, 2020.