If you want to open a checking account, you probably have a few questions. We've answered some of the most common ones below, so read on to learn more about checking account basics!
What is a checking account?
A checking or a transaction account is a bank account held at a bank or other financial institution, and used for daily financial transactions, such as deposits and withdrawals.
You can access the money you keep in your checking account with a debit card, at ATMs, through online banking, or by writing checks. You can have your paycheck, pension or other government benefits deposited straight to your checking account, and use the money to pay bills, make purchases, transfers, and more.
A checking account usually doesn’t have any limits when it comes to the number of transactions allowed each month. You’ll be able to track your spending thanks to numerous features a checking account offer usually comes with, including monthly statements, account alerts, push notifications, budgeting tools, and alike.
While there are many free checking accounts, they often come with a monthly service fee, which can be waived if you meet specific requirements, such as making a direct deposit of a certain amount, or maintaining a minimum balance each month.
When choosing a checking account, you should consider its fees, features, as well as potential limits. Can you earn interest on your balance? Is there a rewards or cashback program? Can you use out-of-network ATMs for free? Can you use your debit card abroad? Are there any check writing restrictions?
What is an online checking account?
An online checking account is basically a traditional checking account you can open online, and manage it anywhere the Internet connection is available. You can apply for one through a regular bank or an online-only bank, but, whatever your choice be, the offer will include typical features, such as online banking, online bill pay, money transfer tools, mobile apps, debit card, checks, etc. Online checking accounts are convenient as they don’t require you to go to a local branch or spend a lot of time on the phone to open an account. Everything’s done online, in a couple of clicks. This, however, doesn’t mean related procedures, terms, and conditions are different. You will still need to provide required information, such as proof of identity, and your Social Security number, and sign an official contract agreement. Security-wise, online checking accounts are as safe as any other checking account (although your security depends enormously on your online behavior, as well). The major difference being their geo-availability, if you want to open a checking account with a bank that doesn’t have a branch in your area, an online checking account might be a great solution, if the bank offers them, of course.
Do checking accounts earn interest?
Checking accounts are mostly used for daily banking, allowing you to access your funds easily. While they aren’t primarily designed to earn interest, many banks and financial institutions do offer a certain rate you can earn on your balance. This rate, also known as the annual percentage rate (APY) is variable, and may depend on a number of factors, such as your balance or time period. That said, a savings account or even money market account might offer better rates, so you might want to check those offers, and then have your checking linked to the second account.
Are checking accounts free?
No checking account is actually free. There are always some fees involved, which is why it’s so important to familiarize yourself with them prior to opening an account. Some of the most common fees include monthly service fees, ATM fees, overdraft/NSF fees, paper statement fees, check order fees, wire transfer fees, foreign transaction fees - and the list goes on and on!
However, there are checking accounts with no monthly maintenance fees, called, conveniently, free checking accounts. Free checking accounts usually exclude other common fees, such as overdraft fees, foreign transaction fees or ATM usage fees. Yet, there might still be possible fees, charged either by the bank (paper statements or early account closure fees, for example), or a third-party (such might be ATM or person-to-person money transfer fees).
Are checking accounts safe?
Financial safety is crucial, especially in today’s connected world. When using digital banking, you need to be cautious, but not excessively anxious. While you do need to be wary of online fraud, and cyber crime, banks have taken many necessary measures to ensure their customers’ safety, both online and offline. In their checking account offers, personal and financial information protection is almost always included in one way or another. Your debit card would probably be safe to use, and protected with chip technology. The money you keep in your checking account should be FDIC-insured -> always check whether the bank you’re considering doing business with is a member of the Federal Deposit Insurance Corporation (FDIC). If a checking account is FDIC-insured, it means that the money you keep in it is insured if the bank fails, to up to $250,000.
Do note that it also greatly depends on you whether your checking account is truly safe. You can take simple precautions to protect your account. For example, never disclose your financial information to anyone, especially not via email or phone. Don’t share your PIN or use your debit card at suspicious locations (also always check ATMs and gas stations for skimming devices). Don’t store your card number on websites, and buy only on secure websites (look for a green padlock and “https” in the website URL; it means the connection is encrypted, and data secure). Don’t use open Wi-Fi to access your account or make online purchases. Create strong, complicated passwords, but try to memorize them instead of writing them down or saving in the cloud. Also, never click on links you might receive in your inbox, as it might be a phishing scam. Finally, check your monthly statements to track activity, and, as soon as you notice something weird, report it to your bank!
How old do you have to be to get a checking account?
To apply for any checking account, you need to be at least 18 years old. While there are checking account offers for teens aged between 13 and 17, the presence of a parent/legal guardian is required, because minors under 18 cannot sign any legal documents on their own. Most likely, a checking account for minors will be linked to a parent’s/legal guardian’s checking account, if not co-owned by them. In almost all cases, a minor’s parent/legal guardian will have the ability to monitor the child’s account.
How many checking accounts should I have?
While there are no particular reasons not to have several checking accounts, because it wouldn't impact your credit score in any way, the best answer to this question would probably be: one. This way, you can track and organize your finances more conveniently, as you’d keep all of your money in one place. That said, do check out available options. Different banks offer different perks with their checking accounts, so if there might be some that better suits your needs in one way, and another checking account that would be more beneficial elsewhere, then opening both would not be as bad. For example, one bank might offer higher interest rates or cashback, while another might offer free ATM access worldwide. If you travel often, but would also like to earn cashback rewards, the combination seems reasonable. Test out different offers, and stick with the one[s] that is/are most rewarding in terms of your needs.
If you own a business, though, you should consider a business checking account to keep your personal and business expenses separate.
Furthermore, it is recommended to open a savings account, in addition to a checking account. A savings account will earn you interest, while still having [limited] access to your funds in case of an emergency. If you’re planning to buy a house or set money aside for a trip next year, it might be better to store money in a savings account, and watch it grow until you reach your financial goal.
What is the difference between a checking account and savings account?
A checking account is a bank account that lets you access your funds whenever you want, whether it be through online banking, using a debit card, by writing checks or at ATMs. A checking account is, therefore, typically used for daily spending, and purchases. With a checking account, you may or may not earn interest on your balance, but this isn’t its primary purpose anyway.
On the other hand, a savings account is also a bank account, with limited access to funds, and higher interest rates. If you want to save for college, travel, home renovation or a new car, a savings account can help you put aside money for your future plans, and reach your financial goals faster.
While both checking and savings accounts offer attractive features, as we’ve mentioned previously, you won’t be able to make just any transaction with your savings account due to something known as “Regulation D”. This is a federal law that says you can't make more than six withdrawals or transfers per month out of your savings account. The purpose of Regulation D is to help banks and other financial institutions maintain reserve requirements, which are based on the balances in their transactional accounts, such as checking accounts. Also, Regulation D ensures people use their savings accounts to save, not spend money. This, while it might seem frustrating at first, is quite logical and necessary, both on a macroeconomic and microeconomic level.
Access to funds via savings accounts is even more limited, since savings account don’t usually offer debit cards or checks, unlike checking accounts. So, to sum up: a checking account is used for everyday purchases, and other kinds of transactions, while a savings account is there to help you save money.
How to open a checking account online?
Most banks and financial institutions allow consumers to apply for a checking account without visiting a branch. Rather, one needs to complete an online form in order to apply, and provide personal information (name, date of birth, address, contact information), such as a government-issued ID, Social Security number, and a debit card number or another bank account information, in case an opening deposit is required.
Each bank has its own rules and procedures, but the process is usually done in a few minutes, so you’ll quickly find out whether you’ve been approved for a checking account, and when you can start using it.
How do I close a checking account?
If you decide to close your current checking account, the first thing to do is open a new checking account, so you have where to transfer funds from the account you want to close. Then, make sure you communicate your new checking account details to anyone making direct deposits to your current checking account (your employer, for example). Cancel all automatic or recurring payments (household bills, subscriptions, etc.), and set them up with your new checking account. This way, you’ll avoid any potential overdraft fees or failed/rejected transactions. It’s also important to clear all the charges left with your old account, so ensure there aren’t any pending transactions or unpaid fees. You don’t want to be chased after by your old bank for not having settled all your dues! In case you have other linked accounts you want to close, such as a savings one, do so prior to closing the checking account.
Once all of this has been done, you can proceed with account closure. You can probably close your account online, but in case you need assistance or want to make sure you’ve done everything there was to do, you can always visit your local branch, and get in touch with a bank representative to see whether there’s a particular procedure to follow. Each bank has a different policy.
Finally, don’t forget to destroy all relevant debit or credit cards, as well as checks, as you won’t use them anymore. Do request a written statement as proof of closure from the bank, just in case if. Some banks might sometimes reactivate an old account if there’s a debit or credit made to it, instead of rejecting the transaction. These accounts are known as “zombie accounts”, and can be a real nightmare. You might be charged extra fees, including overdraft, and monthly service fees (since your account has been reopened). This is another reason why it’s important to ensure any automatic transfers or direct deposits are redirected to your new checking account!
Finally, keep in mind that some banks will even charge you early account closure fees, which could go anywhere between $25 and $50. So, even if you’re not happy with your current bank, you might want to wait 3 to 6 months before closing your checking account to avoid this unnecessary fee.
