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Updated on Thursday, April 30, 2020
A checking account is a bank account designed to hold the funds you use for your everyday spending needs. Also called transactional or demand accounts, checking accounts are highly liquid deposit accounts that often allow for unlimited withdrawals and transactions. Funds are easily accessible with the swipe of a debit card, a visit to an ATM or a written check.
- Understanding checking accounts
- Common checking account fees
- Checking account vs savings account
- How to choose a checking account
- How to open a checking account
Understanding checking accounts
As is the case with most financial products, there are both benefits and drawbacks associated with checking accounts.
Benefits of checking accounts
Easy access to funds
The centerpiece of checking accounts is the liquidity they provide. Most checking accounts offer unlimited transactions and withdrawals, and you can typically access funds through a debit card, ATM, paper checks or automatic transfers. This makes checking accounts an ideal candidate for the type of bank account to use for your everyday spending needs, as they are more convenient and safer than using cash to make all your daily purchases.
Unlike underneath your mattress, checking accounts are a safe spot to stash your cash — as long as they have FDIC insurance. The Federal Deposit Insurance Corporation is an independent federal agency that insures deposits in checking accounts, savings accounts, CDs and money market accounts, up to $250,000 per ownership category, per person within a single financial institution, which protects your money in the case your financial institution were to fail.
It’s essential that you look for a checking account that is offered by a bank that’s FDIC-insured. Credit unions offer the same insurance benefit, with deposits insured up to $250,000 by the National Credit Union Association (NCUA).
Automatic deposits and withdrawals
Another noteworthy benefit of checking accounts is their ease of use. Most employers offer the option to have your paycheck directly deposited into your checking account, making it a convenient and seamless way to get your funds come payday. Online bill pay is often another standard feature of checking accounts, and it can typically be automated. These functions make it possible to get paid — and to pay your bills — without ever having to step foot in a bank.
Downsides of checking accounts
Low interest rates
The biggest drawback of checking accounts is that they often offer low interest rates, especially when compared with other deposit accounts, such as savings accounts, money market accounts and CDs. Currently, the average interest rate offered on checking accounts is 0.159%, and while there are checking accounts that offer higher interest rates, they still often pale in comparison to the APYs offered by other deposit accounts.
This is the trade-off that comes with the liquidity checking accounts are known for. For this reason, you should not use your checking account as a spot to hoard all of your excess cash. Instead, keep just the funds you need for your daily spending needs in your checking account, and opt for higher-yielding accounts as a place to stash your savings.
Checking account fees
If you aren’t careful, checking account fees can sneak up on you — and you’ll end up spending much more than you have to on one of the most basic financial products out there. Be wary of accounts that charge hefty overdraft fees (which can stack up quickly), as well as those that charge a monthly maintenance fee.
ATM withdrawal limits
While it might not be a deal breaker, the ATM withdrawal limits imposed by many checking accounts could be a drawback worth considering. Some checking accounts put caps on the amount you can withdraw each day from ATMs, which could be problematic for those who rely on cash to make routine bill payments like rent. However, this issue could be avoided with the use of paper checks or debit cards, which rarely have daily limits.
Common checking account fees
While not all checking accounts are immune to fees, such as second chance checking accounts, you can typically avoid many of the fees associated with checking accounts for the most part. In fact, there are many checking accounts out there that offer little to no fees.
Common checking account fees you should be aware of include:
- Monthly maintenance fees
- Minimum balance fees
- Overdraft fees
- ATM fees
- Paper statement fees
- Inactivity fees
- Returned item fees
- Card replacement fees
- Account closure fees
If you struggle with overspending, you should also prioritize a checking account that offers a robust overdraft protection service. Since the main function of a checking account is to house the funds you use for your daily spending needs, it can be easy to rack up overdraft fees. While many checking accounts charge hefty fees for overdrafting, there are a slew of accounts that charge no overdraft fees or that offer overdraft protection services.
Checking account vs savings account
One of the most common questions when it comes to checking accounts is how they differ from savings accounts.
The key difference between the two is their withdrawal limits — federal regulations cap savings account withdrawals to six per month, while checking accounts allow unlimited withdrawals. This makes your savings account a better place to stash money you don’t plan to need to touch often, such as your emergency fund, while a checking account is good for covering your daily spending needs.
This chart hashes out the other main differences between checking vs. savings accounts:
|Account name||Interest||Withdrawal limits||Fees|
|Checking account||Average APY of 0.159% as of April 2020 (but much higher if you shop around)||Typically unlimited||A range of fees, from monthly maintenance fees to inactivity fees|
|Savings account||Average APY of 0.238% as of April 2020 (but much higher if you shop around)||Typically limited to six per month||Rare|
How to choose a checking account
Checking accounts are not one-size-fits-all, and there are a myriad of options available to you based on your own financial needs. There are standard checking accounts from brick-and-mortar banks, of course, but there are also rewards checking accounts if you want to earn higher APYs or checking accounts targeted at certain groups, such as student checking accounts and business checking accounts.
Here are some of the types of checking accounts you may consider as you shop around for the right account.
|Type||Best for ...||Highlights|
|Standard checking account||People looking for a traditional, brick-and-mortar bank||Large brick-and-mortar presence and sprawling ATM network|
|Online checking account||People looking for a digital-based bank||Higher APYs and a strong digital and mobile presence|
|Rewards checking account||People looking for a robust rewards program||Higher APYs, cash back and other perks|
|Student checking account||Current students looking for a checking account that fits their unique needs||Low fees and overdraft protection|
|Business checking account||Business owners looking for a checking account for their daily spending needs||Low transaction fees and an extensive ATM network|
How to open a checking account
You can open a checking account at banks, credit unions and even fintech companies. Many institutions allow you to open a checking account online, from the comfort of your couch. Before opening an account — whether online or at a physical branch — you should have the following information and documentation on hand:
- A government-issued photo ID
- A second form of ID
- Your Social Security number
- Proof of your address
Keep in mind that some checking accounts may require a minimum deposit in order to open the account, so you’ll want to make sure you do your research ahead of time and have the funds necessary to open an account. Your checking account will come with an account number, which identifies your personal bank account that the funds will move in and out of, as well as a nine-digit routing number, which refers to the institution that manages your checking account.
Check out our current top picks for checking accounts here.