What Is a Checking Account?

You'll also get tips on how to pick a checking account.

Checking accounts are demand deposits, meaning that banks are required to return account-holder funds upon demand, making them one of the most liquid vehicles for cash. Checking accounts are designed for daily expenses and bills, and checks can be written against the account, as the name indicates. There are individual and business accounts, which both fulfill similar roles in different contexts.

The vast majority of Americans use checking accounts, with only 6.5% of households being unbanked. For people seeking information on checking accounts, information can be fragmented or confusing, and much of it can be supplied by financial companies hoping to persuade customers.

This article will inform readers on what a checking account really is, covering basics and more in-depth aspects through the following topics:

What Is a Checking Account?

Checking accounts can provide useful features such as direct deposit, which allows paychecks to be transferred to your bank without any obligation to visit a branch to make the deposit. ATMs allow account holders to withdraw cash from checking accounts — sometimes for a fee if the ATM is not owned by the account holder’s bank. Debit cards are convenient payment tools that link to checking accounts and can be used in a similar fashion to credit cards, freeing account holders from the obligation to carry cash. Checking accounts can even be used to pay bills automatically online, helping people avoid late payments.

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How To Choose a Checking Account

There are numerous different types of checking accounts, each carrying features appropriate for different sorts of consumers. Here’s an explanation of some different checking accounts you can choose from.

Joint Checking Accounts

Joint checking accounts are designed to have multiple owners. They are popular among couples and spouses but are also useful for minors, business partners or caregivers.

Because they are co-owned by the holders, joint bank accounts require trust, communication and shared objectives to be successfully managed. When managed correctly, joint accounts can be a great step toward healthy relationships with financial collaboration.

Student Checking Accounts

Young people can utilize student checking account options, which are low-fee vehicles designed for people with limited credit history. As many people’s first bank accounts, they tend to have modest fees and no minimum balance requirements to get young adults on their feet. Some students will also find it convenient to utilize the same institution that provides private student loans for the purpose of organization and simplification.

See: Best Banks for College Students

Senior Checking Accounts

Senior checking accounts are designed for retirees who generally live on a fixed income from Social Security, pensions, annuity and income generated by investment portfolios. Most retired people are averse to spending down accumulated assets, so low-fee accounts and high yields are especially meaningful. Seniors may also recognize the value in accounts with banks that offer advisory services for retirement income planning.

Compare: Best Checking Accounts for Retirees

Second-Chance Checking Accounts

Some people will find value in second-chance accounts, which are designed for anyone with restricted access to banking due to credit issues or bad banking history. Be mindful of monthly fees and overdraft expenses when assessing these accounts. Consider the ability to upgrade to other types of checking accounts once a person’s banking profile improves. The chart below outlines different types of accounts so you can decide what works best for you.

Types of Checking Accounts
TypeBest forProsCons
StandardPeople who want traditional brick-and-mortar banking with potential online optionsPhysical locations and ATM networkUsually have account minimums to avoid monthly fees, lower interest rates
OnlinePeople who don’t need brick-and-mortar locationsLower fees and better interest ratesNo in-person service, few or no ATMs
JointSpouses, caregiversCan be used for shared goals and expensesRequires trust and coordination
BusinessBusiness ownersHigher spending limitsHigher fees and more restrictive terms
StudentYoung adultsLow fees and account minimumsRestrictive withdrawal terms
SeniorRetireesLow feesLimited availability
Second ChancePeople with poor banking historyOpportunities might not be available otherwiseHigher fees, more restrictions

Learn: Everything You Need To Know About Bank Deposits

Checking account deposits cannot be loaned out to generate interest income for banks, so they rarely offer rewards. However, some banks offer a bonus for account opening. Other banks, such as Discover, provide modest cash back on debit purchases, essentially giving debit card users a discount on every single purchase. Depending on the specific holder’s needs and habits, these might be attractive perks that can offset spending and create value for an overall financial plan.

Similarly, checking accounts frequently do not bear interest, unlike savings accounts. However, there are numerous banks that offer interest for accounts that meet a certain balance, deposit or debit usage requirements. This can be helpful to offset the impacts of inflation or generate a modest return for consumption and saving.

Money market accounts often deliver higher interest rates than other cash accounts, and they often have checking features. However, balance requirements, fees and transaction limitations are more restrictive for money market accounts than other sorts of checking vehicles.

Once a prospective account holder has decided on the most appropriate type of account, it is important to choose the right type of institution that offers the best set of characteristics for their personal needs and preferences.

Many people have checking accounts with credit unions. Credit unions are nonprofit institutions that are owned and managed by account-holding members. Credit union members often enjoy better terms, as excess capital is returned as a dividend to account holders, whereas bank profits are distributed as dividends to shareholders.

However, there are some drawbacks to credit unions that might disqualify them for some people. They tend to be smaller institutions with fewer resources than large banks, so they might not have the full range of banking products, customer services and technology solutions that someone might seek from their primary banking relationship. Not all credit unions are FDIC insured, which is a major issue for people with large holdings and distrust of financial stability. However, this does not mean they are uninsured; federally charted credit unions are insured by the National Credit Union Share Insurance Fund, while nonfederal or state-chartered credit unions are insured by private investors.

Due to their smaller scale and different structure, credit unions might have fees or account minimums for members that are restrictive for some purposes.

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For those who prefer a bank to a credit union, there are a number of factors to consider among different types of banks. There are large national and international banks, regional or local banks and online banks, all of which offer different pros and cons. Large traditional banks have substantial resources and footprint, allowing them to offer a wide range of products, a large number of ATMs and branch locations, online solutions and overall strong options for customer service. However, large banks are more formulaic in their approach to customer service, and they tend not to lead the market on interest rates of adjacent products like savings accounts. Fees and terms for checking accounts can vary widely among large traditional banks, so be sure to compare the best checking accounts before settling on one or the other.

Small banks might not offer the same convenience or range of products as their larger competitors, but they bring a more personal approach and often provide superior terms or flexibility for people who intend to use their bank as a lender. Online banks such as Ally, Marcus, Synchrony and other fintech companies have also gained popularity in recent years. These institutions do not offer the convenience of physical locations and ATMs, but their more efficient cost structure allows them to offer much better interest rates on cash accounts, which can be ideal for tech-savvy people.

Taking advantage of current bank account promotions can also be a great start for new accounts, and third-party ratings can be useful guides to find the best offers. Getting account opening bonuses in the form of cash or airline miles can be worth hundreds of dollars.

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Common Checking Account Fees

Once the above options have been considered, account holders must decide among institutions with competing offers. Free checking is extremely popular for obvious reasons, but some people are more than happy to incur fees in exchange for value. There are numerous options for free checking, but be aware of fees, minimum opening deposits and minimum balances which can range from $0 to thousands. Common fees include ATM transaction fees, which are charged for accessing cash from certain ATMs. It might also cost money for paper statements, foreign transactions or debit card replacement. Overdraft protection can help you to avoid fees associated with insufficiently funded transactions, but this is a feature that might cost account holders. Foreign transactions usually carry a fee, so research those before making purchases while traveling. Finally, many accounts have monthly or annual account fees, especially if balance minimums are not met.

When evaluating similar checking accounts, be sure to minimize fees such as insufficient funds, overdraft protection, ATM, account maintenance, paper statements, foreign transactions and card replacement, all of which can vary from bank to bank. Minimizing these costs long term through the most consumer-friendly banks can produce substantial benefits.

Checking accounts can provide useful features such as direct deposit, which allows paychecks to be transferred to your bank without any obligation to visit a branch to make the deposit. ATMs allow account holders to withdraw cash from checking accounts — sometimes for a fee if the ATM is not owned by the account holder’s bank. Debit cards are convenient payment tools that link to checking accounts and can be used in a similar fashion to credit cards, freeing account holders from the obligation to carry cash. Checking accounts can even be used to pay bills automatically online, helping people avoid late payments.

Find: Best Banks With No Fees

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Differences Between a Checking and Savings Account

Checking accounts usually generate a lower interest rate than other cash instruments such as savings accounts. While checking accounts are designed to store money for spending and paying bills, savings accounts are meant to accumulate cash. Savings accounts are not designed to be drawn upon as frequently, so they usually have different limitations to the amount and volume that can be transacted within the account in a given period.

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Are Checking Accounts Safe?

Checking accounts at FDIC-insured institutions have the backing of the federal agency, but account holders also need to consider account safety measures to protect against fraud and identity theft. Many accounts offer features such as online security, fraud protection and suspicious activity alerts. Account holders should understand the availability and cost of security features, and it is important to regularly review bank statements to manage finances and monitor for unauthorized activity. It is also important to protect debit card PIN numbers from potential thieves, and the Federal Reserve recommends only using debit cards on encrypted pages for online transactions.

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How To Open a Checking Account

Prospective account holders can go to the desired institution’s website to open an account online or walk into a local branch to speak with a customer service representative. As is the case with most decisions in life, there are trade-offs between different options, so be sure to keep the above factors in mind when selecting the most appropriate account. To open an account, banks generally require photo identification, a Social Security card and proof of address.

See: Best Banks 2020

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Should You Get a Checking Account?

Checking accounts are very common accounts that are extremely useful for storing cash that is intended to be spent. With any financial instrument or account, consumers and business owners should identify the features that are important for their specific needs, goals and preferences. With checking accounts, important factors to consider include fees, account minimums, customer service, interest rates, security, promotional offers, adjacent products and services.

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This article has been updated with additional reporting since its original publication.

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About the Author

Ashley Eneriz is a freelance writer based in California that specializes in writing about frugal living, budgeting, and making money.