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What is a Checking Account: 10 Must-Know Facts

Checking accounts allow customers to deposit, withdraw and transfer money, pay bills, and other expenses. Checking accounts are FDIC-insured.

Most of us make some type of financial transaction on a daily basis. Whether it's with cash, a debit or credit card, a day-to-day financial activity is performed.

Checking accounts are bank accounts used for day-to-day financial transactions.

What is a Checking Account?

A checking account is a type of bank account that safely holds your money for the short term. Checking accounts allow customers to deposit, withdraw and transfer money, pay bills, and other expenses.

Checking accounts are very liquid, meaning they offer easy access to your money with an unlimited amount of deposits and withdrawals as long as there are sufficient funds in the account.

1. Why you need a checking account

Checking accounts represent the foundation for all types of financial tasks. When people are unbanked, conducting day-to-day transactions typically costs more in the form of fees.

There's a real cost to being unbanked. A report by the U.S. Postal Service estimates the costs related to being unbanked is estimated at $2,412 annually on interest and fees for alternative financial services. Compare that to consumers with checking accounts who pay, on average, just over $100 annually in overdraft and non-sufficient fund fees.

2. Requirements to open a checking account

You can apply online for a checking account if you’re 18 years or older and a legal U.S. resident. You’ll need the following information:

  • Your Social Security number.
  • Personal information like your address and date of birth.
  • A valid, government-issued photo ID like a driver’s license, passport, or state or military ID.
  • A minimum opening deposit. This can typically be paid with a credit, debit, prepaid card, or a transfer from another financial institution.

3. Do banks run a credit report to open a checking account?

Most banks do not perform a credit inquiry when applying for a new bank account. However, more than 80% of banks and credit unions use ChexSystems to verify your banking history according to the National Consumer Law Center.

ChexSystems collects and reports data on checking account applications, openings, instances of fraud, bounced checks, overdraft fees, negative balances, and closures, including reasons for account closure.

Managing a bank account is similar to managing your credit history. Banks and credit unions review ChexSystems reports to see if the person who wants an account has had trouble managing a bank account in the past.

ChexSystems is a consumer reporting agency making you entitled to a free report to review your banking history. If you find errors, there is a dispute process similar to credit disputes, governed by the Fair Credit Reporting Act.

4. What checking accounts are used for?

A checking account allows you to write checks against your balance. But nowadays people rarely write checks because a checking account offers multiple ways to pay your bills these days — electronic transfers, debit and credit cards, and digital methods of payment (known as ‘digital wallets'). While people still write checks, they only account for about 12% of all non-cash payments, according to the Federal Reserve.

5. How to access money in a checking account

Debit cards give you easy access to the money in your checking accounts. But knowing how to write a check is still a useful skill.

Here are the most common ways to access the money in a checking account.:

  • Write checks.
  • Make purchases with a debit card connected to your account.
  • Make withdrawals and deposits with your ATM card.
  • Visit your local branch to make withdrawals and deposits.
  • Use the bank’s online bill pay service to pay one-time bills or set up recurring payments.
  • Set up automatic payments through a company where you have an account, such as utilities and credit cards.
  • Transfer funds to and from other bank accounts.

6. There are different types of checking accounts

Not all checking accounts are the same but below you'll find the most common types of checking accounts.

  • Traditional checking account: This is a type of checking account in which you use checks and a debit or ATM card to withdraw money or make transactions, and they sometimes offer online bill pay services. You can open a traditional checking account at most banks and credit unions.
  • Interest checking account: An interest-bearing checking account works like a traditional checking account in the sense that you can deposit and maintain money in the account, use checks to make payments, or use a debit card to make purchases but it earns interest on your balance.
  • Senior Citizen checking: These types of checking accounts may offer a number of free benefits specifically for seniors like no monthly fee, free checks, money orders, or official bank checks, waived ATM fees, or interest-earning accounts.
  • Premium checking account: Premium checking accounts earn or offer you perks that you’d normally have to pay for with a traditional checking account. Examples could include no-fee personal checks, no-fee official checks, no-fee money orders, or waived out-of-network ATM fees.
  • Student checking account: Student checking accounts are typically available to students ages 17-24; you may be required to provide proof of active enrollment in a qualifying high school, college, university or vocational program. Student checking accounts are tailored specifically for students that offer basic check-writing and debit card services just like standard checking accounts, but with lower or no fees.
  • Teen checking accounts: Teen checking accounts can introduce young people to money management skills. Most teen checking accounts offer no or low fees, a teen debit card, parental controls, low minimum requirements, and digital banking tools.

7. Checking account fees

Most checking accounts at brick-and-mortar banks have a monthly service fee, unlike online checking accounts. Since online banks don't have the cost of running local branches, they typically offer free checking accounts along with higher interest rates on savings accounts.

With traditional banks, meeting certain requirements like maintaining a minimum balance or signing up for direct deposit will get a monthly maintenance fee waived.

Other common fees associated with checking accounts

Like most financial products, checking accounts often charge fees. Here are two of the most common (and how to avoid them):

  • Overdraft fee: Overdraft fees up to $35 can occur when you spend more than the amount in your account. This can be avoided if you enroll in overdraft protection, which will decline transactions greater than your checking account balance or transfer extra funds from a linked savings account.
  • Non-sufficient funds (NSF) fee: If you write a check without enough funds in your account to cover the written amount, you’ll likely incur a NSF fee. This fee costs up to $35, similar to overdraft fees.
  • ATM fee: When you use ATMs that aren’t affiliated with your bank or credit union, you may incur a fee from your bank as well as the ATM operator you're using. When choosing a bank, consider how extensive their ATM network expands or consider a bank that reimburses out-of-network ATM fees.
  • Foreign transaction fee: If you use your debit card to make purchases or withdraw money from an ATM outside of the U.S., you’ll often incur a fee that’s a percentage of the U.S. dollar amount of the transaction.
  • Paper statement fee: To encourage paperless (online statements), many banks and credit unions will charge a fee up to $5 to get a monthly statement in the mail. These fees can add up in a year's time. Paperless statements allow you to view and print your statements for free at home.

» Want to avoid monthly fees altogether? Take a look at the Best Free Checking Accounts

8. Do checking accounts earn interest

While some checking accounts earn interest, most don’t. Interest checking accounts earn interest on your balance. Interest checking accounts work like a normal checking account with the only key difference being you'll earn money on the amount deposited in your account.

An interest checking account is an important attribute for individuals who keep large amounts of money in their checking account as long as it's a high-interest checking account. Unfortunately, many interest checking accounts offer a low rate that's not much higher than the national savings rate of 0.13% APY.

Many banks with a higher APY on their checking accounts are lesser-known online banks like CIT Bank which offers 2.10% APY or Quontic Bank which offers 1.10% APY on their high-interest checking account.

High-interest checking accounts may have certain requirements customers must meet every month to earn that high APY, such as making a certain number of debit card transactions, making a certain number or dollar amount of direct deposits, enrolling in online banking, or signing up for electronic bank statements.

9. Overdraft fees can add up quickly

If you're using an ATM card, you might be charged an overdraft fee each time you try to withdraw more than what's available in your account. This happens because banks charge customers who overdraw their accounts. However, there are ways to avoid being hit with an overdraft fee.

  • First, check your bank statement carefully before making any withdrawals. If you see that you've exceeded your balance, contact your bank immediately so they can reverse the transaction.
  • Second, consider switching to a debit card instead of an ATM card. Debit cards work much like credit cards, except that you won't incur interest charges.
  • Third, if you need to make large purchases, such as a car payment, apply for a line of credit. These loans will let you borrow against your assets, allowing you to cover the purchase without incurring any fees.

10. Reviewing your statement remains important

Mobile banking apps make it simple to stay on top of account balances and transactions. But, regularly reviewing your monthly bank statement remains a critical part of banking.

You should review your monthly bank statements at least once per month. Doing so will help you identify any transactions that aren't authorized by you. It also helps you catch any unauthorized activity on your account.

Final thoughts on checking accounts

Don't let your balance get too low. If you're not careful, your checking account balance can quickly go down to zero. This means that you won't be able to make payments on your credit cards or pay bills. Before you reach this point, take steps to avoid it.

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