What is a checking account?

Woman signs a check in her home office.Image: Woman signs a check in her home office.

In a Nutshell

A checking account is an account at a financial institution that you can use to deposit and store money, pay bills and make withdrawals.
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Financial institutions like banks and credit unions offer multiple types of accounts to help you save and spend money. Checking accounts are a primary way to pay bills, receive deposits and access your cash.

And checking accounts can be powerful tools. Many allow you to automate some of your finances, helping you stay on budget and meet your financial goals, while providing a safe space to store your cash until you need it.



What is a checking account?

A checking account is a type of bank account that you can use to receive money, deposit funds, and make payments or withdrawals. While a savings account is meant to hold your money and help it grow over time, a checking account is designed to store your money for a short amount of time until you withdraw it or use it to pay a bill.

Where can I find a checking account?

Banks and credit unions typically offer checking accounts. But there are other sources as well, such as neobanks, which are online institutions that offer bank-like services. And, of course, traditional banks typically offer other products, such as money market accounts and CDs.

What’s the difference between savings and checking accounts?

Checking accounts and savings accounts have two key differences.

Checking accounts are meant to be working accounts where you temporarily store money for day-to-day transactions. You might use your checking account to write a check to pay rent or a mortgage, to purchase a morning coffee with your debit card or to withdraw some spending cash from an ATM.

On the other hand, savings accounts are meant to be used for storing money for a longer time. And since many pay interest, they can also help you grow your funds.

Why you need a checking account

Here are a couple of reasons to have a checking account.

Convenience

Checking accounts make banking convenient in several ways.

  • Direct deposits — By having your paychecks automatically deposited into your checking account, you eliminate the need to go to the bank to cash or deposit your check every time you get paid.
  • ATMs — You can access your money anywhere, anytime using automatic teller machines. Keep in mind that you may have to pay a fee if you use an out-of-network ATM, but sometimes banks or credit unions waive those fees if you meet certain conditions, like having direct deposit.
  • Bill pay — Many financial institutions let you set up bill pay so that you can pay your bills electronically, directly from your checking account. You can do this by getting online access to your bank account. The benefit: No more worries about forgetting to write a check in time to mail it, or about payments lost or late in the mail. And if you have the option of automatic bill pay, you can set the payment so that it’s automatically paid, meaning you won’t even have to worry about forgetting to go online and pay it.
  • Debit cards — Debit cards let you access the money in your account by swiping your card and entering a personal identification number, or PIN. This makes it easy to buy what you want or grab your dough on the go.

Safety and protection

As we mentioned, keeping your money stashed under your mattress isn’t necessarily safe. Financial institutions can hold your money for you. And while opening a bank account means sharing your personal and financial information with a third party, financial institutions should be proactive about protecting your information.

Additionally, many banks are insured by the Federal Deposit Insurance Corporation, and many credit unions are insured by the National Credit Union Association. That means that, if the financial institution fails, the insurer will reimburse you up to a certain amount — up to $250,000 per depositor for each covered account type at each insured institution.

Types of checking accounts

When selecting a checking account, you want to compare fees, ATM networks, opening balance restrictions and any additional features that are important to you, like earning interest on your funds. Here are some of the most common types of checking accounts.

Traditional checking

Traditional checking accounts can be found at most brick-and-mortar financial institutions. These are good if you’d like to be able to walk into a branch and get help. The features and fees may vary depending on the bank.

Online checking

If you don’t need access to a physical branch, online checking accounts may be a good option. They often offer higher interest rates on your money, fewer fees and extended ATM networks.

High-interest checking

With a high-interest checking account, you can earn extra money and help your account grow. But these accounts typically have balance and transaction requirements.

Student checking

Some financial institutions offer student checking accounts, often waiving maintenance fees until you reach a certain age, typically 24.

Bank of America offers a student checking account to students who are enrolled in high school, college, vocational school or a university, and are younger than 24. Bank of America will waive the monthly $12 maintenance fee if the student meets these requirements.

Keep in mind that if the student is under 18, a joint account with a parent or guardian may be required.

Checking account fees

Though checking accounts can be convenient, they may come with some costs. Even free checking accounts that don’t charge monthly maintenance fees may leave you subject to third-party fees if, for example, you use an ATM outside your bank’s network.

Here are some common fees you should be aware of.

Maintenance fees

Many checking accounts will have monthly service or maintenance fees. Some financial institutions will waive your monthly fee if you meet specific criteria, like having a minimum balance or holding more than one account at the bank. Be sure to read the fine print to understand all requirements.

Overdraft fees

When you have insufficient funds in your account to cover your transactions, you could be charged an overdraft fee.

You may be able to link an additional checking, savings or line of credit to your account to avoid this fee. But take note that although you may avoid an overdraft fee this way, some banks may charge a different fee to use this service (this is allowed as long as the bank discloses the fee to you).

Some lenders allow you to set up alerts to notify you by text or email when your balance is low, making fees easier to avoid. You can also set up account alerts through Credit Karma if you link an online financial account to your Credit Karma account and set up your monitoring preferences.

Additional fees

Sometimes financial institutions add on additional fees. These fees can include additional statement fees, check ordering fees, money order fees, legal processing fees and more. Read the fine print and understand all fees before opening an account.


Next steps

If you’re ready to get a checking account, here’s what to do next.

  • Do your research on financial institutions. Do you want a local credit union? A big, national bank with lots of branches? An online bank with great rates? Make sure you also check customer reviews.
  • After you’ve narrowed down your list to a few institutions, check on what kind of fees you might have to pay and what kind of benefits might be attached to the account.
  • Once you’ve selected your preferred bank, you’re ready to apply for a checking account. You’ll need to gather your personal documents and prepare your deposit.

About the author: Ashley Chorpenning is a personal finance writer and content creator. In addition to being a contributing writer at Credit Karma, she writes for solo entrepreneurs and Fortune 500 compani… Read more.