Nearly everybody has a checking account—according to a NextAdvisor survey, 79% of U.S. adults have one. They’re a foundational money management tool, so it’s important to get started on the right foot.
We asked experts why a checking account is so important and what you should know before opening one.
What Is a Checking Account?
A checking account is a bank account that allows you to pay bills, make purchases, receive funds, and transfer to other accounts. “It acts as a funnel between what is coming in — income — and what is going out — expenses,” says Lena Nebel, director of financial planning at BFG Financial Advisors, a financial planning firm in Timonium, Maryland.
They are low risk (federally insured) and intended to house your money safely, with little-to-no expectation of earning money. Unlike savings accounts, money market accounts, and CDs, most checking accounts do not bear interest, though there are exceptions.
Checking accounts come with debit cards, which you can use to make purchases and initiate withdrawals or deposits at ATMs , and check-writing privileges. There is no limit to the number of transactions you can make with a checking account — including checks, online transfers, and automatic bill payments.
How to Use a Checking Account to Your Advantage
Checking accounts are most people’s first bank accounts — and for good reason. They’re great for everyday transactions, says Torabi. “You’ll want a no-fee checking account. This is where you deposit your paycheck or other income and pay for recurring budgetary items like rent, groceries, utilities,” Torabi continues. “This is also the account you want to hook up to, say, a credit card and it’s with this account you pay off your statements each month.”
As your main bank account, a checking account offers a lot of flexibility. You can make deposits and withdrawals through an ATM, write and receive checks, and make as many automatic transfers as you want, with no monthly limit. Not having a checking account makes financial transactions, such paying bills, much more difficult, and it can keep you from reaching long-term financial goals, like investing and building an emergency fund.
Types of Checking Accounts
Traditional checking account
Offers the basics, such as a debit card, checks, and online bill payment functionalities. Typically, you have to be 18 years old to open an account.
Joint checking account
Like traditional checking accounts, but intended for couples, parents and kids, or people taking care of aging family members.
Interest-bearing checking account
Earn interest on your account balance — usually if you meet particular requirements, such as meeting a minimum number of debit transactions or setting up direct deposit.
Student checking account
Intended for students in college, typically between ages 17 and 23. Often come with perks, such as rewards, no-fee overdrafts, ATM reimbursement, and minimal to no fees.
Senior checking account
Intended for people over 55. Accounts are often basic, though some waive monthly fees or offer interest.
Business checking account
Intended for businesses. Often allow a higher minimum balance.
What’s the Difference Between a Checking and Savings Account?
The main difference between checking and savings accounts is that checking accounts are used to store money you plan to spend, and savings accounts are for funds you want to hold onto.
Savings accounts earn interest (as do some checking accounts) and don’t have debit cards or checks. A savings account isn’t intended for everyday use, and may even have a limit on the number of withdrawals you’re allowed to make each month. Some savings accounts even have minimum balance requirements or reward you with a better annual interest rate if you maintain a higher balance.
It can be a good idea to have both a checking account and a savings account. You’ll be able to earn more interest with a savings account, especially with a high-yield savings account. And if you have both accounts with the same bank, you may be able to link your savings account to your checking account as a form of overdraft protection.
What to Look For in a Checking Account
There are many factors to consider when evaluating checking accounts between banks. Here is a shortlist of what you should be considering:
FDIC or NCUA insured
Any bank you open a checking account with should be insured for up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) — or National Credit Union Administration (NCUA) if it’s a credit union. That means you won’t lose your money if the bank collapses.
No minimum opening balance
Many banks require a certain amount of money as an initial deposit in the account, though some (particularly online banks) don’t require a balance. When doing your research, prioritize banks with no minimum balance requirements.
Types of Fees Associated With Checking Accounts
Before you open a checking account you should be aware of any fees you may be responsible for.
No maintenance fees
Some banks will charge a monthly or annual fee for account use and will waive it only if certain account requirements are met, such as a minimum monthly balance or setting up direct deposit. We don’t recommend going with a checking account with monthly fees.
Most banks charge a fee if you overdraw your account and bring your account balance below zero. The fees can be anywhere between $10 to $40, though some banks offer opt-in overdraft programs that float your negative balance until you’re able to get back to $0. As a rule of thumb, Torabi says, you should “keep 2 to 3 months worth of living expenses in [a checking] account to avoid overdraft fees.”
If you want to make withdrawals and deposits on the go, you should choose a bank that offers a wide network of ATMs in your area. ATMs typically charge about $3 for withdrawals, though it’s free if the ATM is in-network. Some checking accounts also waive a certain number of out-of-network ATM transactions or a certain dollar amount in ATM fees per month.
Foreign transaction fee
When you’re out of the country on vacation you may incur a foreign transaction fee for making a purchase or ATM withdrawal with your debit card. These fees usually range from 1% to 3% of the transaction amount.
Wire transfer fees
Some banks charge up to $10 per transaction when you transfer money to an external account. These fees aren’t extremely common, and typically apply only to transactions over a certain amount or to expedited transfers.
Early account-closing fee
Some checking accounts charge fees if you close the account within a certain amount of time from opening it. This fee ranges from $25 to $50 and is usually applied only if you close the account within 90 to 180 days of opening it.
Many bank accounts allow you to earn perks, such as interest, travel points, or cash back.
Bank apps allow you to pay bills, deposit checks, initiate transfers, and check your balance on your phone.
Where to Open a Checking Account
Banks vs. Credit Unions
Credit unions are nonprofit financial institutions offering bank accounts, loans, and other types of services to people who are part of a particular group, whether it’s a profession, faith-based organization, location, or other identifier. Interest rates on checking accounts are typically higher, and the terms are more attractive, but you do have to be a member, Nebel says. Use a credit union locator to find a credit union near you and its membership requirements; some are easier to join than others.
On the other hand, “banks tend to have more options with checking accounts and more locations internationally for those that travel,” Nebel says. Larger banks also tend to have more widely available ATM networks.
Traditional Banks vs. Online Banks
Traditional brick-and-mortars, such as Bank of America, Wells Fargo, and Chase, are likely what you think of when you think “bank.” But online banks are becoming more and more popular with the rise of the smartphone. It’s easier than ever to operate a bank account without having to go to a branch. Especially with the pandemic, “individuals that were not comfortable with mobile banking and preferred to go into a bank to speak with a teller are learning how to bank differently,” Nebel says.
Online banks have an advantage over traditional banks in that they have much less overhead. This translates to higher interest rates, as online banks can pass those cost savings (i.e., less staff, few to no locations) onto their customers. However, in 2020, Nebel says, “with rates being at a historical low, there has not been a competitive difference.”
How to Open a Checking Account
Step 1: Compile Application Information
Most banks require two forms of identification (i.e., driver’s license, state ID, birth certificate, passport), a tax ID or Social Security Number, date of birth (or date of incorporation, in the case of a business), proof of permanent address, and employment information to open an account.
Depending on the type of account, you may also need to provide info about your net worth, assets, and liabilities, says Nebel. However, most basic checking accounts won’t require that.
Step 2: Complete Application
Stop by a bank branch or fill out an application online to open a checking account. Most major banks have online applications, so it’s not necessary to go in person. You’ll likely undergo a credit check. This won’t require anything of you; essentially, the bank will run your name and check your banking history for anything suspicious.
Step 3: Get Approved
Once you’re approved, you’ll sign the account agreement, either online or in person. From there, you’ll receive an account number and a routing number and make an opening deposit (if the bank requires one). The bank will then send you personal checks and a debit card, which you’ll have to activate and create a PIN for.
Step 4: Sign Up for Online Banking
Make sure to create a username and password for your bank account, so you can access your funds online and on your bank’s mobile app. You can check your balance, make transfers, pay bills, and deposit checks on the go, without having to physically stop by your nearest bank branch.
Step 5: Set Up Direct Deposit and Automatic Bill Payments
One major benefit of a checking account is you can automate basic transactions, so you don’t have to worry about missing a bill. If your workplace offers direct deposit, you can connect your checking account so the paychecks can come in automatically without having to cash physical checks. You can also set up automatic bill payments with your landlord, electric company, cell phone provider, lenders, and other companies.