Man making a deposit at credit union
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A checking account is a safe place to park your cash while keeping it easy to access. Creating and using one is simple and easy, but there are some things you should know before making your first deposit. Here’s an overview of the basics.

Checking account basics: an overview

While savings accounts are meant to hold money for longer-term needs, checking accounts are for everyday use. That means it’s easier to deposit and withdraw money from a checking account. By comparison, there are often restrictions on the flow of money in and out of a savings account. For example, you might only be able to make a certain number of withdrawals each month from a savings account without being charged extra fees.

Most people make a checking account the hub of their finances, using it to pay bills, make purchases and receive regular deposits. Virtually all banks and credit unions offer checking accounts, and they usually can be set up quickly and with small opening deposits.

Benefits of checking accounts

The reason checking accounts are so central to most people’s finances is because they have many uses and benefits. Here are some of the most valuable features:

  • Access to debit cards and checkbooks. Most checking accounts provide access to a debit card that allows you to make purchases, along with the ability to write checks.
  • Assurance that your cash is safe. Checking accounts are insured by the Federal Deposit Insurance Corporation, just like savings accounts. Up to $250,000 of the money you place in your account is backed up by the full faith of the U.S. government.
  • Automated deposits and withdrawals. You can arrange for paychecks or other regular sources of income to be direct deposited in your checking account and you can arrange for bills and other payments to be directly withdrawn from your account through electronic funds transfers.
  • Overdraft protection. Occasionally you may write a check or make a payment that exceeds the balance of your checking account. Many banks and credit unions offer overdraft protection to cover the difference in these situations, so you have the money you need. Expect to pay fees for this service, however.

The downsides of checking accounts

Checking accounts are very useful on a daily basis, but there’s an important reason why you shouldn’t deposit in them more money than necessary. Compared to savings accounts, you’ll usually earn much less interest on money you place in a checking account. That’s why you’ll want your long-term savings in an account that will benefit from the advantages of compounding interest.

That said, you can find some checking accounts with more appealing interest rates. These are often marketed as “rewards” accounts and they may only be available to individuals who meet certain qualifications.

The other drawback to most checking accounts is that they charge fees. Over time, these fees can chip away at your funds, but many of these charges, such as overdraft fees and fees for holding less than a minimum balance, may be avoidable.

Setting up a checking account

All you need to open a checking account at most banks and credit unions is identification, an opening deposit and some other basic personal information, such as an address and your Social Security number. But before you fill out the paperwork, shop around for a checking account that will fit your needs and give you the best deal. You should consider how easy it will be to access your money, the interest you’ll receive and the fees that you’ll be charged.