It is a type of account that allows you to deposit money and withdraw money for daily transactions. It includes that you may deposit a check you received, by using a debit card you can withdraw cash or set up a direct deposit for paychecks.

Checking account is a very liquid type of account. It is also called demand accounts or transactional accounts. It provides several ways to access your funds at any time.

How it works:

It has very few limitations when you access your funds from financial institutions. There are few limits on your daily transactions like a daily ATM withdrawal limit or your debit card is limited to a certain amount on a given day. On the other hand, you can purchase and make payments as long as you have enough funds in your checking account.

For the smooth trade-off and availability of this service, usually checking accounts don’t pay interest as saving accounts do. Many other accounts also don’t pay any interest at all depending on the type and the nature of the account.

It may have monthly service charges but it can be waived off if you meet some specific requirements given by the financial institutions. For example, you will have to maintain the minimum balance requirements in your checking account or you will have to direct deposit some amount each month to avoid service charges.

Checking accounts fees:

Like many other financial products provided by financial institutions, checking accounts also charge fees. Below, two of the most common are given:

  • Monthly Service Fee: Major banks charge monthly fees to maintain your checking account which ranges up to $15. You can waive this fee if you meet certain requirements like maintaining a minimum balance as per required by the financial institutions, or set up a direct deposit.
  • Overdraft fee: If someone has spent more than the amount in his account, they may have to deal with the overdraft fee which on average can be $301. You can avoid this by enrolling yourself in overdraft protection. In this your transactions will be declined, greater than your checking account balance. If you have linked your savings account then it will automatically transfer funds from it.

Opening a checking account:

If you have chosen a checking account, then it will be relatively easy for you to open. You can go to the local branch of your desired bank or you can sign up online for it. You will have to provide your personal information like name, address, birthday, and your social security number.

At some point, the bank may check your credit history but it may be a formality so nothing to worry about it. You should double check the terms and conditions before opening an account.

On the other hand, you should verify that the account is insured by Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA)2. FDIC and NCUA provides standard insurance of $250,000 to a single depositor.

Checking Account vs. Savings Account:

Checking AccountSavings Account
There is no limit on withdrawalsPer month withdrawal limitation
No or little interest ratesPays interest rate
You can make direct payments through debit cards, checks and from account informationYou can make payments through your account information and it is subjected to your withdrawal limits

 

Types of Checking Account:

There are many different types of checking account depending on your requirements. There are few of them as below:

  • Standard: Traditional or standard design is usually a type of account which you use to pay bills, you can write checks, or by using a debit card you can purchase anything. It requires the minimum amount of balance but you need to maintain it on a daily or monthly basis to avoid the maintenance fee. You may be asked to deposit some amount to open the standard checking account.
  • Interest Checking Account: It is similar to the standard or traditional checking account but the only difference is you can earn certain amount of interest on your balance. This type of account does not require higher minimum to open the account. The rate of interest varies from bank to bank. It depends on how much you maintain your account balance over the period.
  • Rewards Checking Account: Usually it may not pay interest but it offers you to earn certain rewards from the bank depending on the amount you have spent. In this type of account, you can earn points or a percentage of cashback. These are less common type of checking accounts. It will pay when you shop something or pay bills according to the minimum requirements by the banks.
  • Student and Teen Checking Account: These are designed for the students and teens to facilitate them who are new to the checking account. In this type of account there is only a minimum and maximum age requirement to qualify. For example, the minimum age requirement for teen checking account is 13 to 17 years and for students, it is 17 to 24 years.

The biggest advantage of this type of account is there is no fee to a little amount of fee required to open the account. If they charge a monthly fee, they also provide many ways to avoid these charges.

  • Senior Checking Account: It is designed for the older clients of the banks and it is similar to the student and teen checking account in terms of few services. There may be an age requirement, for example, you will have to be 50 or older than this to meet the requirements of opening a senior checking account.
  • Checkless Checking Account: It is another type of checking account which does not allow you to write checks because you can do all the desired transactions via mobile banking, debit card, or online banking. If you normally do not maintain a large amount of balance in a checking account, this can be more appealing for you.

Choose A Checking Account:

There are few things, you need to keep in mind before choosing a checking account:

  • In which type of bank, you are opening a checking account whether it is brick-and-mortar, credit union, or at an online bank.
  • Fee schedules like Monthly maintenance fees, ATM fees and surcharges or Overdraft fees

 

 

 

https://www.fdic.gov/consumers/overdraft/

2 https://www.ncua.gov/