A checking account is a bank account that you use for everyday expenses, such as bills or any time you need money right away. There are no limits per month as to how many times you can access your money, though you generally earn much less, if any, interest, compared to a savings account.
What Is A Checking Account?
Checking accounts are used in everyday life. Whether it's writing checks to pay bills, or depositing money or checks from work, or using a debit or ATM card to get cash at a machine, checking accounts are your one-stop shop to access your money whenever you need it.
Banks expect customers to use their checking accounts often, and because of that, checking accounts are usually made as convenient as possible. This includes providing checkbooks, debit cards, mobile apps, and payment services to customers.
Do Checking Accounts Have Fees?
Unlike savings accounts, which limit your monthly transactions, checking accounts generally have unlimited transactions. Since money moves in and out of checking accounts frequently, banks have to keep more cash in reserve to accommodate. To compensate for this, banks typically charge fees. The two most common fees are monthly maintenance fees and overdraft fees.
A typical monthly maintenance fee can be as high as $15 a month. Generally, having a minimum balance or setting up direct deposit can get these fees waived. Avoid banks that have maintenance fees, or keep your balance over the minimum.
When you have a checking account, you can sign up for overdraft protection. Overdraft protection allows transactions to go through that would normally fail due to insufficient funds, but it will cost a fee.
For example, if you have $100 in checking and use your debit card to pay for something that costs $120, instead of your card getting declined, your balance would be reduced to negative $20, and you would be charged a fee. The average overdraft fee is approximately $35 per transaction.
Avoid overdraft fees and overdrawing your account like the plague. A $35 fee is about the equivalent of the interest you'd earn with $2,000 in a high-yield savings account for one year.
Some banks charge a foreign ATM fee. If you use an ATM that is not part of your bank, you may have to pay a few dollars. When possible, look for banks that don't charge ATM fees. Many online banks fall into this category.
Bottom Line For Fees
If you're looking for a financial institution with minimal fees and a high interest rate on your money, I personally use Charles Schwab. If you open a Charles Schwab account with this link, Schwab will give you up to $500 after your first qualifying deposit. Whenever you can, fee-free is the way to go.
Are Checking Accounts Safe?
Checking accounts through FDIC banks or NCUA credit unions are insured up to $250,000 per owner, per bank.
Before opening a checking account, read about the bank's fraud policy in case you are the victim of someone stealing your debit card or checking account information. Fraud is a risk of having a checking account.
Benefits and Drawbacks
Checking accounts are a great place to store immediate-need money. It's handy for whenever you need to write a check, such as to send a gift to someone, or pay a bill that you can't pay online.
I use mine as the source that feeds everything else. Our income comes into our checking account, and then money from the checking account is automatically sent to pay our bills, to pay our credit cards, to add to our savings account, and to further grow our investment and retirement accounts. Automatic payments make life a lot easier.
Many checking accounts have minimal to no interest rate paid out to you. That means all money in the account is generally not growing much, if at all. Consider opening a high-yield savings account with money you don't immediately need!
Wrapping It Up
It's definitely a good idea to have a checking account. It will allow you to make transactions regularly without having to keep a stash of cash under your mattress.