Your checking account might be the most important financial account in your everyday life. Not only do you need an account that functions well, but a bank that minimizes fees so you can keep more of what you earn, too.
When choosing a checking account, there are a few items to pay close attention to: Many accounts offer perks such as cash back, free ATM withdraws anywhere, monthly budgeting and more.
About Checking Accounts
What Is a Checking Account?
A checking account is a bank account that allows for frequent transactions. You might deposit your pay (or have your employer do it automatically through direct deposit) and use the account as a holding area for funds you plan to use soon. Spending money from these accounts is easy. For example, you can:
- Transfer money from the account to pay bills online
- Make purchases with a debit card
- Instruct billers to deduct funds automatically every month
- Withdraw cash for spending at an ATM or the bank
- Write checks
- Link your account to payment apps like PayPal, Venmo, and more
It’s often wise to keep funds in a checking account and spend electronically instead of walking around with large sums of cash. When your bank or credit union is federally insured, your deposits are covered up to $250,000 if the bank goes under.
What Makes a Good Checking Account?
A checking account should be inexpensive and easy to use. Monthly fees are particularly problematic because they’re easy to avoid, and they slowly drain your account. Overdraft charges and other fees can also add up to hundreds of dollars per year.
Be sure to choose a checking account with the services you need. Several features you might find valuable include:
- Online bill pay that allows you to schedule payments and make on-demand payments
- Remote or mobile check deposit
- The ability to link external accounts
- ATM fee reimbursements
- The option to lock your debit card when you don’t plan to use it
- Official payments like cashier’s checks and money orders
- Customer service by chat, phone, or mobile app to help when you need a hand
- ATMs that accept deposits
Why should you have a checking account?
Most American adults have checking accounts, and there's a good reason why it's such a popular place to keep money. Just to name a few reasons to maintain a checking account:
- Liquidity: This is a financial term that basically means “ease of accessing and utilizing assets.” With the numerous ways you can deploy funds from a checking account, it's extremely liquid for spending. On the credit side of the ledger, thanks to instruments like direct deposit, it can be quite fast in receiving money too.
- Flexibility: Checking accounts have few, and often no, restrictions on spending. If you put your funds in a savings account instead, you'd be limited to a handful of withdrawals every month. If that money's in a CD you'd be penalized for taking money out of it. Also, checking accounts typically provide different ways to transact — checks, debit card, online banking, mobile wallets, etc.
- Protection: All checking accounts with up to $250,000 in deposits are fully insured by the FDIC, so in the unlikely event your bank melts down you won't lose one cent of your money. Also, consumer fraud protection services are now standard and free of charge in a great many checking accounts at both nationwide and local banks.
Are checking accounts free?
The short answer to this is “maybe.”
Checking accounts are wonderfully convenient. You pay for this, though, and not only with razor-thin or non-existent interest rates. Checking accounts are known for the numerous fees banks impose for maintaining them.
There are a host of these charges. Here are three of the more common ones.
Monthly maintenance fee (also known as the service charge, among other names). This is the most prevalent type of recurring checking account charge. It tends to range from $5 to $15 or so, but can vary widely.
Fortunately, banks often waive this charge if a customer meets a certain standard or standards. These can include a minimum number of transactions on the account's debit card, the establishment of a recurring direct deposit from an employer, or meeting a minimum ongoing balance amount.
Overdraft fee. This classic charge has been a staple of the checking account for many years. Should you spend more money than what you've got in the account, you'll be slapped with an overdraft fee. $35 per incident is roughly the going rate. Banks don't typically waive overdraft fees.
ATM fee. Here's one to be careful about when using the payment card linked to your checking account. Banks like to charge ATM fees if you draw funds from cash machines that aren't theirs. A standard hit is $2 or $3 per transaction, but these can be much higher in certain locations, especially abroad.
To be clear, not all checking accounts (especially those from online-based banks) charge all of these fees. For example, many of our best checking account picks don't have any monthly maintenance fees or overdraft fees, and some even go so far as to reimburse customers for ATM fees charged by other banks.
Sources: thebalance.com, bankofamerica.com, investopedia.com, fool.com