Choosing a safe and reliable place to deposit your money is a crucial aspect of sound financial management. A checking account at a bank participating in the Federal Deposit Insurance Corporation’s (FDIC) insurance program is often more secure than hiding money under a mattress.
The FDIC reports that 5.4% of American families are unbanked, meaning they do not use any form of traditional banking, such as a checking account. You may be unfamiliar with the purpose and procedures of a checking account if you’ve never had one before. However, there are several advantages to using checking accounts for everyday transactions like shopping and bill paying.
List of contents
- What Is a Checking Account?
- How Does a Checking Account Work?
- Different Types of Checking Accounts
- How to Choose a Checking Account
- How to Open a Checking Account
- Can’t Get a Checking Account — Why?
What Is a Checking Account?
You can make deposits and withdrawals from your money when you have a checking account at a bank. A checking account, also known as a demand or transaction account, is a liquid financial instrument that may be accessed in various ways, including paper checks, ATM withdrawals, and electronic debits. Unlike savings accounts, which may limit deposits and withdrawals, checking accounts typically do not have such restrictions.
Anyone anticipating making regular deposits or withdrawals from their bank account might benefit from opening a checking account. In most cases, opening a checking account takes less than an hour, whether you apply online or in a physical bank location.
How Does a Checking Account Work?
Your bank account will begin processing your deposit and will be available immediately. A standard checking account will accept the following types of deposits:
- Direct deposit
- Mobile check deposit
- ATM deposits
- Deposits made with a teller
- ACH deposits
- Incoming wire transfers
By providing your bank account details, money can be deposited into your account directly and without any more action. You may, for instance, receive direct deposits of your paychecks or government benefits, eliminating the need for paper checks.
You may photograph and upload a paper check to your bank account with a mobile check deposit. With this function, you won’t have to waste time driving to a bank or using an ATM to deposit a check. You would still need to visit a bank or an ATM to add funds to your checking account.
You can use a paper check from your checking account to pay or purchase. You can send money to another individual or business by writing them a check from your bank account.
For instance, you could issue a check to repay a friend who lent you money. Alternatively, you can send a cheque to the utility company to cover your power payment. A check is a payment you make to another person or organization, which is deposited into their checking account. Your bank will cash the check, and their bank will deposit the funds into their account as soon as the cheque clears.
However, a checking account can be used for more than just writing checks. Other ways to deposit or withdraw funds from a checking account are as follows:
Paying using a debit card
Visa and Mastercard debit cards can be used in any retail establishment, online, or at an ATM to make purchases, deposits, and withdrawals.
The only way to use an ATM card is to make a deposit or withdrawal at an ATM; they cannot be used to create a transaction.
Direct Debit Transactions
Online bill payments and other ACH or electronic transfers can be scheduled anytime.
Paying with wires
Large sums of money can be sent or received from other bank accounts in the United States and worldwide via wire transfer.
Peer-to-peer (P2P) transactions
With a person-to-person payment, you can transfer funds directly from your bank account to another person’s bank account by providing only their email address or bank account number.
A variety of financial institutions now provide mobile banking services. To make safe in-store and online purchases, you may, for instance, add your debit card to Google Pay or Apple Pay.
Different Types of Checking Accounts
You may access various checking account options depending on your preferred financial institution. We’ll review the basics of some of the most common checking account varieties and how they function.
Standard or Traditional Checking
You can use your regular checking account to do the basics, like paying bills, getting cash from an ATM, and shopping online using your debit card. There could be daily or monthly minimum balance restrictions for this type of account, meaning you’d need to keep a specific amount in it to avoid a fee. A basic checking account could also need a certain starting balance to be opened.
General verification services rarely have additional features. You’ll most commonly be able to write as many checks as you like, use a debit card, and manage your finances online or via your mobile device.
Similar to a regular checking account, but with the added perk of interest on your balance, an interest checking account is essentially a variation on the theme. There is often no lower threshold for opening an interest checking account, but the interest rate you receive from some banks may change depending on the amount of money in the account. Savings accounts at credit unions typically earn more interest than those offered by banks.
However, the rate you earn is likely lower than what you could get with a high-yield savings account or a certificate of deposit. These accounts, however, allow you to acquire interest on your savings while still enjoying the flexibility of writing checks and making electronic payments.
It’s essential to keep in mind that the terms “high-yield checking account” and “rewards checking account,” both of which relate to interest-bearing accounts, can have additional meanings.
There is a possibility of interest accrual on rewards checking accounts, and customers can receive prizes for their purchases. You can earn benefits, such as points or a percentage of cash back, just for using the card for everyday transactions, such as shopping and bill payments, or by setting up automatic deposits into your account each month, just like with a rewards credit card.
They are much less widespread than regular checking accounts or those that pay interest. The minimum purchase amounts and the rates at which rewards are accrued will vary among retailers, so comparison shopping is recommended.
The bank may have specific guidelines for how awards can be redeemed. If you use your debit card to earn cash back, the money you’ve achieved could be put directly into your checking or savings account. It’s possible to exchange earned points for monetary compensation, store credit, goods, and vacations.
Student and Teen Checking
The purpose of a student checking account is to help those unfamiliar with the convenience of checking to get started. Usually, there is a minimum and maximum age requirement to open one of these accounts. For instance, 13–17-year-olds are the target demographic for teen checking accounts, but 17–24-year-olds may be served better by a student checking account.
A major plus of a checking account for a student or youngster is usually free or meager maintenance costs. If a monthly fee is assessed, it can often be avoided by keeping a certain minimum balance or by designating an alternate payment method (such as a direct deposit) into the account.
Similarly to the minimum age for opening a student or teen checking account, banks may impose an age limit on opening a senior checking account. It’s possible, for instance, that opening such an account requires you to be 55 years or older.
Free premium checks, individualized debit cards, fee exemptions, and higher interest rates on savings are just a few of the perks available with a senior checking account. In addition to the standard features, some senior checking accounts offer additional benefits such as interest or dividends paid quarterly.
Second Chance Checking
If you’ve ever had difficulties keeping up with your regular checking account, you may benefit from a second chance checking account. A person with a bad credit checking history on file with ChexSystems may benefit from opening this type of account. ChexSystems compiles data on banking issues such as NSF checks and overdue fines.
If you have trouble getting authorized for a regular bank account, one of these checking accounts may be an excellent alternative. While the costs for these accounts may be greater than those of a standard checking account, you will still have access to a debit card and the ability to write checks. Second chance accounts have the potential to improve long-term credit standing if appropriately used, increasing the likelihood of future approval for a more traditional account type.
Other forms of non-traditional checking accounts include “checkless checking” accounts. This type of account does not permit writing paper checks and instead requires using a debit card, mobile banking, or the Internet for all financial dealings.
If you rarely use checks and don’t have a sizable balance in your checking account, this type of account may suit your needs.
How to Choose a Checking Account
Whether you’re in the market for your first checking account or just ready to switch, here are some considerations to consider as you shop around.
A checking account can be opened in a traditional bank or credit union, or it can be opened digitally with a bank like Ally Bank or ING Direct. Banks with physical locations are convenient for customers who want to stop by, while those with virtual locations may offer lower checking account costs. Therefore, you must prioritize either convenience or price.
Check out the fee schedule of a potential bank to get the full extent of any potential costs associated with opening a checking account. For starters, try to find these costs:
- Monthly maintenance fees
- Minimum balance fees
- Account inactivity fees
- Wire transfer fees
- ATM fees and surcharges
- Non-sufficient funds fees
- Overdraft fees
- Overdraft protection fees
Avoiding these fees on a checking account is essential if your bank or credit union implements them. For accounts with a minimum balance fee, avoiding the cost could be as easy as maintaining an average daily balance over that threshold.
Last but not least, think about what you value most in a checking account and whether or not it offers that function. Online and mobile banking, cash back incentives, a sizable ATM network, and interest earnings on account balances are all examples of desirable features in a financial institution. Finding the ideal balance between features, accessibility, and pricing is crucial when selecting the checking account that best serves your needs.
How to Open a Checking Account
In today’s digital age, opening a checking account at a bank is typically a quick and painless process. After researching and locating a checking account that works for you, you may apply for one online. Typically, this entails making an initial payment and giving personal and financial details. Although it may seem time-consuming, opening a new checking account online can be done in just 10 minutes.
What Do I Need to Open a Checking Account?
In order to open a checking account, a bank will need to know specific details about you. In order to open a new checking account, whether online or in person, you will generally need to provide the following information:
- Mailing address
- Phone number and email
- Date of birth
- Social Security number
When opening a joint checking account, both account applicants must provide identical personal details for their co-owner. When you create a new bank account, the bank will ask for information that can be used to authenticate your identification, but they won’t use it to check your credit. A government-issued photo ID may be required when opening an online bank account.
After signing up with your details, the next step is to arrange your initial deposit. A routing number and account number are required to link a separate bank account to your online bank account. While it may slow down the account establishing process, some banks will accept a paper check sent in the mail as an initial deposit.
In order to verify your identity, some online banks may ask for a small test deposit or two before opening your account. Your connected account will automatically receive deposits from the bank. Check your new bank account online to double-check the deposits. However, once you’ve completed those steps, your new account should be active for use. Be patient; it could take a few business days for your new checking account’s debit card to arrive in the mail.
Can’t Get a Checking Account — Why?
Having a negative ChexSystems report is the primary reason someone may be denied a checking account. ChexSystems collects data on banking relationships in a manner analogous to credit bureaus like Equifax, Experian, and TransUnion.
You may be denied a checking account if there are reports of any of the following:
- Excess overdrafts
- Numerous bounced checks
- Involuntary account closure (meaning the bank closed the account)
- Unpaid fees
- Negative balances
Instances of potential fraud or identity theft, as well as several account applications in a short period, can lead to a checking account denial. The bank may reconsider its decision to deny you a checking account. You’ll need convincing evidence to convince the bank to approve your request.
Even if the bank won’t budge, there’s still a chance you can open a “second chance” checking account. If it doesn’t work, a prepaid debit card is another option. Prepaid debit cards don’t require a bank account to make purchases, bill payments, or get cash from ATMs.
Having a checking account can reduce the complexity of managing your finances, and you often won’t be charged any fees for opening one. No shortage of online banks providing checking accounts with minimal minimum balance requirements and cheap or no monthly fees. If you want to get the most out of your checking account, it’s best to make a wish list of the features and perks you need first. It would be best if you also considered whether or not doing your banking online and avoiding the branch is your best option.
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