Choosing the right type of checking account lets you maximize convenience while minimizing the fees you pay to the bank. There are many different types of checking accounts available, so before you sign up for one, it helps to understand the difference between them.
Basic Checking Account
This "plain vanilla" account is the simplest type of checking account, and you can get it from most brick-and-mortar banks and credit unions. It provides a small set of features and is suitable for everyday banking.
Basic checking accounts generally allow you to:
- Access and transfer money
- Withdraw funds from an ATM
- Use a debit card
- Write and deposit checks
- Pay bills
- View and manage your account online (and in some cases, through a mobile app)
Expect to pay monthly maintenance fees with a basic checking account. You may also have to pay overdraft fees or returned-check fees if you spend more than what's in your account. Other fees may apply, too, so read the fine print.
Some banks waive account maintenance fees if you sign up for direct deposit with your employer, maintain a certain monthly balance, or pay a bill online.
Basic checking accounts usually don't bear interest, so you won't be earning money on your balance. Before you open a basic checking account, find out what you’ll have to pay and what you get in return—you might find a better deal with a different kind of account.
While it may be harder to find these types of checking accounts, free checking isn't dead. Banks continue to offer free checking accounts to drum up business—particularly at smaller banks, credit unions, or online banks.
Free accounts generally offer features similar to basic checking accounts but without a monthly maintenance fee. However, they may impose other checking account fees—for using the ATMs of other banks or receiving paper statements, for example.
Free checking accounts may make up for a lack of maintenance fees with other fees, so don't assume that a free account is entirely fee-free.
In addition, you generally get what you pay for (or rather, don't pay for) with these accounts. They may lack certain features of basic checking accounts: Some don't come with checks, for example) and generally don't pay interest on deposits. Still, if you just need an account for depositing paychecks and paying bills, a free checking account is a good option.
While some brick-and-mortar banks also offer online-only accounts, online accounts are generally available at online banks, which don't have physical branches you can visit. These types of checking accounts offer the features of basic bank accounts but require you to be comfortable with handling your finances over the internet and the phone since you can't visit a bank representative in person.
You can typically access the funds in your online account in a number of ways:
- Use your debit card
- Withdraw cash from an ATM
- Pay bills online with Bill Pay
- Send an electronic transfer or wire
- Send a P2P payment
However, online checking accounts are usually missing some features of basic checking accounts (ATM deposits, for example). But because they also lack the overhead of brick-and-mortar locations, they can pass along the savings to customers in the form of no monthly maintenance fees and higher interest rates on their deposits.
Brick-and-mortar banks that offer online checking accounts may allow you to open the online account in person, although you'll have to manage the account online going forward.
Interest Checking Account
Interest-bearing checking accounts, referred to as interest checking or high-yield checking accounts, are similar to basic accounts but pay interest on your deposits. This allows you to earn a small amount every month just for keeping your money at the bank.
The specific amount you'll earn depends on the annual percentage yield (APY), which reflects how much interest you will be paid based on the interest rate and the frequency of compounding. You may not earn much, but it's something, especially considering that most basic checking accounts earn nothing at all.
Interest checking accounts are most often found at online banks, which have minimal overhead, but some brick-and-mortar institutions offer them as well. As you shop for these accounts, take note of the APY along with any restrictions for account usage (such as how often you’re allowed to write checks and the dollar amount restrictions for any checks you write). Likewise, review the account fee schedule. Some interest-bearing accounts impose monthly maintenance fees, while others (usually online interest checking accounts) don't.
If you like the idea of earning interest and writing checks, also take a look at money market accounts. Those accounts are not checking accounts, but they allow limited check writing and may even come with a debit card. They're best for large, infrequent expenses or emergency savings.
As the name suggests, these types of checking accounts provide basic checking account features plus added benefits to incentivize customers to open and use them. They generally pay interest—often at an even higher APY than the bank's interest checking accounts. Some banks also offer reward account holders the perks of preferred interest rates on new loans or discounts on fees such as overdraft protection.
You often have to “qualify” for the higher rate paid on reward accounts, and it may be difficult to do so. You may have to open a credit card or mortgage with the bank, hold investments with the firm, or jump through other hoops to qualify.
Of the different types of checking accounts, these generally impose the highest monthly maintenance fees. However, you may be able to get these fees waived if you meet the minimum balance requirement. Read the terms of the reward checking account before you sign up.
The Bottom Line
When shopping for a checking account, know that there are different types of checking accounts that cater to different customers. The ideal checking account is one that satisfies your banking needs and budget.
Don't be tempted by sign-up bonuses and high interest rates alone—they won't be worth much if you can't use the account the way you need to. Compare the features among competing banks and pick the account type that offers what you need at prices you can afford in the long run.