What is a checking account?


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A checking account is a type of bank account designed to help people keep their money safe while giving them easy access to the funds via regular deposit and withdrawal transactions. People can quickly spend money or pay bills from their checking accounts using debit cards, writing a check or via an electronic fund transfer without having to carry around large quantities of cash.

What a checking account is used for

A checking account keeps your money safe. While you could stuff your extra cash in your mattress and carry large amounts to the store when you need to make a purchase, those aren’t the safest ways to store and transfer money. You could easily lose some of the bills or, in the worst case, have someone steal your money.

Putting money in a checking account makes it easy to track and limits your losses if you should wind up losing your wallet that’s filled with cash. Insurance from the Federal Deposit Insurance Corporation adds to that safety. The FDIC protects bank accounts, up to a limit of $250,000, so you’ll get your money back even if your bank fails.

At the same time, checking accounts are designed to be the hub of your financial life. You probably deposit your paycheck to your checking account every pay cycle and you likely pay most of your bills out of the account. You need to be able to easily move your money in and out of the account. Unlike savings accounts, checking accounts are so-called “transactional accounts,” and don’t limit the number of transactions that you can make or charge fees for excessive transactions.

Almost every bank and credit union offers a checking account, though a few online banks focus only on savings-based products.

Benefits of checking accounts

There are many benefits to opening a checking account.


Checking accounts keep the money you’ve deposited safe. If you’re carrying all your money in cash and wind up losing your wallet, then you’re out of luck. If your money is in a checking account and you lose your wallet, you only lose the cash you had on hand. All you have to do is visit your bank to get a new debit card.

Checking accounts also receive up to $250,000 in insurance from the FDIC, which means your money is safe, even if your bank closes.

Ease of access

One of the primary goals of a checking account is to make it easy for you to access your money. They do this through a combination of debit cards, checks and online payment features.

When you’re out shopping, all you have to do to pay for goods is to swipe your debit card to make a payment from your checking account. No cash is required. If you do want to make a cash payment, you can use your card to make a withdrawal from an ATM.

In some ways, debit cards are preferable to using credit cards because you can’t use them to spend money you don’t have (with small overdrafts serving as the exception to the rule). That means you won’t go into huge amounts of debt.

For larger purchases, such as your monthly rent, you can write a check against your account’s balance. That makes it easy to spend large sums without having to carry large quantities of cash.

Finally, you can use your bank’s online bill payment system, or set up direct debits with the billing companies, to easily make payments online. This makes paying things like utility and credit card bills simple and on time.

If you need to pay your friends, many checking accounts come with Zelle, a peer-to-peer transfer service you can use from your phone. You can also link your account to other services to make quick transfers to friends.


Automating your finances is a great way to make managing your money easier and less stressful. If you don’t have to think about paying your bills, you don’t have to worry about missing due dates or sending the wrong amount.

Checking accounts make it easy to automate your money management. You can set up direct deposit so your paychecks arrive in your account automatically, rather than you having to visit your bank to make a deposit every time you get paid.

You can also set up automatic payments so that your credit card, utility, and other bills get paid automatically on their due dates.

Access to overdrafts

Overdrafts, which occur when you withdraw so much money from your account that your balance dips below zero, are a double-edged sword. The fees the bank charges you to cover your payment can be expensive. And they hit you when you already have little money in your checking account. Still, it can be nice to have the option to spend just a bit more than you have in your account if you truly need to do so.

Ideally, you should set up overdraft protection, which involves transferring funds from your savings account or a line of credit, which reduces the cost of overdrafting while giving you the extra flexibility.

Cons of checking accounts

Checking accounts aren’t without their drawbacks, which you should keep in mind.

Poor interest rates

Checking accounts pay very low interest rates compared to savings accounts, which means your balance won’t grow over time. Many checking accounts don’t pay any interest at all.

The lack of interest makes opening a savings account for medium to long-term storage of funds important. The interest you earn can help reduce the impact of inflation, which makes money lose spending power over time.


Checking accounts aren’t always free. Some accounts charge monthly maintenance fees which the bank deducts directly from your account. Usually, there are ways to avoid these fees, such as maintaining a minimum balance or making a sufficient number of debit transactions. Still, no one likes jumping through hoops to avoid fees.

There are also other fees, such as fees for ordering checks and overdraft fees. Looking at the fee structure and making sure you won’t pay your bank for giving it the privilege of holding your money is an important part of choosing the best checking account.

Difficult to switch accounts

Once people open a checking account, they tend to keep it for the long-term. Switching can be a hassle, especially if you’ve set up direct deposit and several automatic bill payments from your account.

If you do want to switch, you’ll usually want to keep the old account open for awhile after you make the change, just to make sure you don’t miss any bill payments or get a paycheck sent to the wrong account.

ATM limits

One of the reasons you want to have a checking account is so you can easily access your money. However, many banks limit the amount of cash you can withdraw at a time or in a single day through ATMs. If you need to make a large cash purchase, you’ll have to visit the bank to make a withdrawal in-person or space your withdrawals over a few days.

Opening a new checking account

Once you’ve shopped around and chosen the bank you want to use for your checking account, you can start the process of opening the account.

The first step in the process is filling out an application. This typically involves providing some personal information and government-issued ID, like a driver’s license.

If you’re funding your new account from your old checking account, you’ll also need both the routing number and account number for your old account. This information will let your new bank transfer the funds from your old account to the new one. If you’re opening an account in-person, you might be able to make your initial deposit with a check or cash.

Once your new account is open and ready to use, take the time to get comfortable with the account. Sign up for online banking and download your bank’s app. Also set up the automation that you want, such as bill payments and direct deposit.

A good way to do this is to look at the last few statements you’ve received from your old bank. Keep an eye out for bill payments debited from the account and make sure to transfer the automatic payments to the new account. Don’t forget to talk to your employer about changing your direct deposit. HR can usually help make that change.

Once you’ve gone a couple of months with no automatic bill payments from your old account, you should be ready to close it and continue on with only the new checking account.

Featured image by Mendenhall Olga of Shutterstock.

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