What is a checking account?
Key takeaways
- A checking account is a bank account used for everyday transactions, such as paying bills, making debit card purchases, withdrawing cash at ATMs, writing checks, sending money to friends and family and receiving direct deposits.
- Checking accounts are often covered by federal deposit insurance.
- There are various types of checking accounts, including free checking, interest-bearing checking, rewards checking and second-chance checking.
A checking account is a bank account that’s designed to be the hub of your financial life. It holds the money you use for everyday spending, and allows you to move funds in and out with ease. You can access your money through a debit card, ATM card, checks or online transfers, and set up direct deposit and automatic billpay to keep your finances running on autopilot.
A checking account is safer and easier than carrying cash or using prepaid products. If your account is covered by federal deposit insurance, your money is protected based on the limits and guidelines, even if the bank or credit union fails. And if your debit card is lost or stolen, you can lock it and dispute unauthorized transactions. To top it off, you won’t pay for any of this protection and access with a free checking account.
What is a checking account used for?
A checking account is meant for the money you use every day, so its features are designed to help you spend, receive and manage that money. Most accounts include these tools:
- Debit card access. A checking account provides a debit card linked to the account. This makes everyday purchases — both in person and online — and ATM withdrawals possible.
- Online and mobile tracking and budgeting. Using this feature, you can check balances, transfer money, pay bills and deposit checks. Some bank apps allow you to create a budget, set alerts and access customer support.
- Overdraft protection. If you spend more than you have available, overdraft protection helps bridge the gap by covering transactions that exceed the account balance. You typically have to opt in to these programs and some charge you a fee for this privilege, though others have eliminated or reduced overdraft fees.
- Direct deposit. Direct deposit lets you have your paycheck or other income deposited electronically into your checking account. Some financial institutions even allow early access, up to two days, to funds that are deposited using this feature.
- Check writing. Although checks aren’t as popular as they used to be, they can still come in handy. For example, some landlords may still only take payment via check.
Not every account handles these features equally well, so it pays to compare Bankrate’s picks for the best checking accounts.
Benefits of checking accounts
Checking accounts keep your money safe and accessible, and they make it easy to automate your money management.
Safety
- Safer than cash. If your wallet is lost or stolen, you can lock your debit card and dispute unauthorized transactions as long as you report them quickly. Once cash is stolen, it’s often gone for good.
- Federal deposit insurance. If your account is with a federally insured bank or credit union, your money is protected if the institution fails, within coverage limits.
- Coverage limits. The Federal Deposit Insurance (FDIC) and National Credit Union Share Insurance Fund (NCUSIF) insure funds up to $250,000 per depositor or share owner, per insured financial institution, per ownership category — such as joint or single accounts.
Ease of access
- Many ways to pay. Use a debit or ATM card, checks or online payments for everything from retail purchases to rent, mortgage payments and other bills.
- Quick transfers to others. Many accounts offer peer-to-peer payments through Zelle from your phone or computer. You can also link your account to apps like Venmo.
Automation
- Direct deposit. Paychecks land in your account automatically, so you don’t have to deposit them yourself. Some banks allow you to receive your paycheck up to two days sooner through early direct deposit.
- Automatic bill pay. Regular expenses, such as credit card and utility bills, are electronically withdrawn on a recurring basis.
- Automatic saving. Splitting your paycheck between checking and a high-yield savings account allows you to “pay yourself first” and put your savings on autopilot.
Access to overdraft coverage
Overdrafts can occur when you withdraw more money than what’s in your account and your balance dips below zero. Overdraft fees the bank charges you to cover your payment can be expensive, though some banks now offer this service free of charge.
Many checking accounts offer overdraft protection, which automatically transfers funds from your savings account or a line of credit when your checking account is overdrawn. You can easily find banks that don’t charge a fee for such transfers from a linked savings account.
Checking vs. savings accounts
A checking account is best for making day-to-day financial transactions, while a savings account is a good place for funds set aside for emergencies, or financial goals such as a vacation or a new car purchase.
| Feature | Checking account | Savings account |
|---|---|---|
| Debit card | Yes | Not usually |
| Check writing | Yes | No |
| Interest rate | Low or none | Higher (with the best accounts) |
| Minimum balance requirements | Varies (often low or none) | Varies (potentially higher than checking accounts) |
| Typical use | Daily transactions | Saving money |
You can get the best of both worlds by having your checking account at a brick-and-mortar bank and a high-yield savings account at an online-only bank. This way, you’re able to walk into a bank for checking issues or to make cash deposits while earning a competitive yield on your savings at an online bank.
How to choose a checking account
Start by deciding which type of checking account fits your needs, then compare the details that affect cost and convenience:
- Monthly fees: Maintenance fees can eat away at your balance over time. Look for a free checking account with no monthly fee, or check whether the fee can be waived with either a direct deposit you would normally make or a reasonable minimum balance.
- Other fees: Check the fee schedule for overdraft fees, out-of-network ATM fees or paper statement fees. Make sure such fees are easy for you to avoid, or choose an account that doesn’t charge them.
- Minimum opening deposit: This can vary among banks, so make sure it’s an amount you’re comfortable with. Some checking accounts don’t require any set minimum deposit.
- ATM access: The total average out-of-network ATM fee is around $4 to $5. To avoid these fees, choose a bank that offers plenty of its own ATMs or is a member of a large fee-free network, or go with a bank that reimburses ATM fees.
- Branch access: If you prefer in-person banking, find a bank with branches near you, but watch for higher fees, since banks with branches tend to charge more to cover their costs. Most also offer online banking, which works well if you want a mix of both.
- Features: Consider what you’ll actually use, such as a strong mobile app, early direct deposit, budgeting tools, peer-to-peer payment options like Zelle and overdraft protection. If you want to earn interest, check whether an interest checking account’s requirements are manageable for you.
Next steps
How to open a bank account
Here’s what you need to do when opening a bank account.
Checking account fees
Learn the common fees and how to avoid them.
Second-chance checking accounts
Access for those whose history may prevent them from opening a standard account.
Best interest checking accounts
These accounts earn money on the funds you use for daily expenses.
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