What is a checking account?
Find out how checking accounts are used for withdrawing, depositing, and managing personal funds.
Checking accounts allow for simple deposits, withdrawals, and bank transfers.
Most Americans have a basic checking account.
You can earn interest from some check accounts.
The best checking accounts have low monthly and transactional fees.
What is a checking account?
A checking account is a simple deposit account that allows you to make withdrawals, transfers, and deposits as needed easily. In fact, you probably had a checking account as your first bank account.
Sometimes called transactional accounts or demand accounts, checking accounts are typically used for managing short-term expenses, such as groceries, transport, or day-to-day necessities and entertainment. However, they can also be used to pay bills and make big purchases.
You can open a checking account at a brick-and-mortar bank or via an online banking platform. Different banks have different account options and fee structures to consider.
There is a frequent misconception that checking accounts are the same as savings accounts. Where savings accounts are designed for long-term use and tend to have higher interest rates, checking accounts are designed for everyday transactions and generally have low or no interest rates at all.
How do checking accounts work?
Checking accounts are one of the most common and standardized bank account types. They are easy to open if you have valid personal information and proof of address, and they tend not to require a large balance.
These accounts work by allowing you to deposit money, which can then be withdrawn to make purchases or pay bills. There is no credit facility, so the funds in the account are the funds that can be spent - often with a low minimum balance required to keep the account open. You can usually access the money in a checking account using a debit card or via an online banking platform or mobile app. Checking accounts are popular because they offer a practical, easy, and accessible way to manage funds on a day-to-day basis.
What are the differences between a checking and a savings account?
There are multiple differences between checking and savings accounts. Understanding the differences between the two is crucial for getting the most value out of either account. Here is a list of differences that make checking and savings accounts unique:
Checking accounts are:
Low to no interest bearing
Accessible all day, every day
Used for everyday transactions and purchases
Savings accounts are:
Higher interest bearing
Have withdrawal limits
Used for growing wealth on a long-term basis
If you are looking to grow your wealth over an extended period of time with only the occasional deposit or withdrawal, you need a savings account. If you want a space to move money between everyday goods or regular bills, a checking account is more appropriate.
What are the different types of checking account services?
There are a variety of different types of checking account services. Some of the most notable ones include:
Wire transfers: Also known as credit transfers, wire transfers are a method of electronically transferring funds from one account to another. This can also work when transferring money to a business or entity.
ATM access: Automated Teller Machines, more commonly known by the abbreviation “ATM,” are self-service banking outlets that enable people to deposit and withdraw cash on a day-to-day basis.
Debit cards: Like a credit card but without the credit, debit cards allow checking account holders to make card machine purchases with whatever funds currently exist in the account.
Direct deposit: Direct deposits are automatic fund transfers from one account to another, often set to recur on a particular date. These are often used to transfer your paycheck into your checking account quickly.
How do you open a checking account?
Multiple points should be taken into account before opening a checking account. Once you have determined that a checking account will best suit your financial and transactional needs, you can follow these steps for setting one up for yourself:
Be over 18 years of age.
Get your documents together. You’ll need your social security number, a valid photo ID, and proof of US residence.
Prepare a $25 minimum initial deposit fee to put into your account once it is opened. This amount may vary depending on which bank you choose. Some banks may offer a free checking account option, but it may come with latent fees to be aware of.
Visit the banking branch of your choice and ask to set up a checking account.
Setting up a checking account is a pretty simple and accessible process, especially in comparison to other bank account types. You may also be able to open a business checking account, but this will have more stringent requirements, such as proof of your business registration.
How can you effectively manage your checking accounts?
Choosing and balancing a checking account strategically is key to managing it effectively.
There are a few different ways in which you can manage checking accounts. Here are some of the best checking account management tips:
Check your account balance regularly: This will help you to manage your money and your budget.
Sign up for banking alerts: These alerts will help you keep track of all incoming and outgoing funds and spot any potentially fraudulent transactions.
Find a financial advisor to provide insight and guidance and help you to manage your money.
What else do I need to know about checking accounts?
With 81% of Americans holding an active bank account, checking accounts remain a reliable and popular option for adults of all ages and demographics. Paired with a savings account, you can manage your finances in a way that accommodates short and long-term financial growth strategies.
Can I earn interest on a checking account?
While checking accounts are primarily designed for everyday transactions, some banks offer interest-bearing checking accounts that provide a nominal interest rate on your balance. Always check the interest available from the bank, as a Chase checking account may differ from a Citibank account.
Are there fees associated with checking accounts?
Some checking accounts may have monthly maintenance fees, overdraft fees, or ATM fees. However, many banks offer fee-free or low-fee options, especially for students or account holders who meet specific criteria. You may also get a checking account bonus if you maintain a certain balance or swipe your card a certain number of times a month.
Can I set up automatic payments and direct deposit with my checking account?
Yes, you can set up automatic bill payments and arrange for direct deposit with your employer. This streamlines your financial management and ensures bills are paid on time.
Can I switch banks and transfer my checking account to a new institution?
Yes, you can switch banks and transfer your checking account to a new one. The new bank will typically assist you in the process, ensuring a seamless transition.
How do I protect my checking account from fraud and unauthorized transactions?
You can safeguard your account by regularly reviewing your statements, monitoring for unusual activity, and protecting your account information and debit card from theft or fraud. If there’s the option to add two-factor authentication to your account, always do so.
The bottom line
There’s a reason why checking accounts are one of the most ubiquitous bank accounts in the world. They’re easy to manage, require minimal documents to set up, and help people facilitate the withdrawals and deposits that everyday life demands.
If you are curious about checking accounts or simply could use an expert’s guidance, get matched with a financial advisor. With expert advice from an SEC-regulated advisor, you can manage your money to make it work for you.
Senior Content Writer
Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.