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How Do Checking Accounts Operate? What Are They?


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One of the most important parts of managing your money is deciding where to keep it. While you could park your cash under the mattress, a checking account at an FDIC-insured bank can be a much safer choice.

According to the FDIC, an estimated 5.4% of U.S. households are unbanked, meaning they don’t use traditional bank services, which includes checking accounts. If you’ve never had a checking account, you may be wondering how they work or whether you really need one. But there are several good reasons to rely on checking accounts for spending money and paying the bills.

What Is a Checking Account?

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A checking account is a type of deposit account that you can open at a brick-and-mortar bank, online bank or credit union. Checking accounts allow you to deposit money that you can then draw against to pay bills or make purchases. They also may be called transactional accounts.

Checking accounts are different from savings accounts because—rather than being designed to hold money for the long-term—they’re meant for everyday use. The money you keep in your checking account is money you plan to tap into for the short term to cover your expenses.

How Does a Checking Account Work?

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A checking account works by allowing you to deposit and spend money. Checking accounts are typically designed to accept a variety of deposits, including:

  • Direct deposit
  • Mobile check deposit
  • ATM deposits
  • Deposits made with a teller
  • ACH deposits
  • Incoming wire transfers

With direct deposit, you can have money added to your account automatically by sharing your bank account information. For example, you could have your paychecks or government benefits you receive deposited straight to your account without needing a paper check.

Mobile check deposit allows you to take a photo of a paper check and deposit it to your checking account. This feature offers convenience, since you don’t need to visit a branch or ATM to deposit checks. You would, however, still need to go to a branch or ATM to deposit cash into your checking account.

Traditionally, checking accounts offer you the ability to write paper checks to pay bills or make purchases. A check is a financial instrument you can use to transfer money from your bank account to another person or another entity.

For example, if you borrow money from a friend, you could write a check to pay them back. Or, if you need to pay your electric bill, you could write a check to the utility company for the amount you owe. The person or business you write a check to deposits it into their checking account. Their bank processes the check and the money is withdrawn from your account and credited to theirs.

Checks aren’t the only way you can spend money with a checking account, however. You also have these options for moving money in or out of a checking account:

  • Debit cards. Debit cards bearing a Visa or Mastercard logo can be used to make purchases in stores or online and make deposits or withdrawals at ATMs.
  • ATM cards. ATM cards can be used to make deposits or withdrawals at ATMs, but you can’t use them for purchases.
  • ACH transfers. ACH or electronic transfers allow you to schedule deposits or withdrawals, including bill payments, to and from your checking account that take place online.
  • Wire transfers. Wire transfers can be used to deposit or withdraw large sums of money to other bank accounts in the U.S. and foreign countries.
  • Person-to-person (P2P) payments. A person-to-person payment allows you to send money to someone else electronically from your bank account to theirs, using either their email address or account information.

Many banks also offer mobile wallet capabilities. For example, you might be able to add your debit card to Google Pay or Apple Pay to make secure transactions online or in stores.

Different Types of Checking Accounts

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Checking accounts aren’t all alike, and there are several different types you could choose from, depending on where you decide to bank. Here’s an overview of some of the most common types of checking accounts and how they work.

Standard or Traditional Checking

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A standard checking account is a basic checking account you can use to pay bills, write checks and make purchases using a debit card. This type of account may have minimum balance requirements, meaning you need to maintain a certain balance daily or monthly to avoid paying a maintenance fee. There also may be a minimum deposit required to open a standard checking account.

Standard checking typically doesn’t come with any extra bells and whistles. The key features are most often unlimited check-writing abilities, debit card access and access to online and mobile banking to manage your money.

Interest Checking

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Interest checking accounts are very similar to standard checking accounts, with one key difference: You can earn interest on your balance. While interest checking accounts do not require a higher minimum to open the account, at some banks the rate of interest you earn can vary, depending on the account balance you maintain. Many credit unions offer competitive interest rates on checking accounts.

The rate you may earn is typically less than what you would get with something like a high-yield savings account or a certificate of deposit. But these accounts are a simple way to grow your money while still having the convenience of being able to write checks and pay bills.

Note that some interest-bearing checking accounts may be referred to as high-yield checking accounts or even as rewards checking accounts, which also has another meaning.

Rewards Checking

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Rewards checking accounts may or may not pay interest and they offer the chance to earn rewards when you spend. Similar to a rewards credit card, you may earn points or a set percentage of cash back for making purchases, paying bills or scheduling direct deposits into your account each month.

These accounts are less common than standard or interest-bearing checking accounts. It will pay to shop around, as any minimums required, and the rate at which rewards are earned, will vary.

How you redeem your rewards typically depends on the bank. For example, if you’re earning cash back on debit card purchases, then your cash rewards may be automatically deposited into your checking or linked savings account. If you’re earning points, on the other hand, you may be able to redeem them for cash back, gift cards, merchandise or travel.

Student and Teen Checking

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Student checking accounts are designed for students who are new to using checking. These accounts typically have a minimum and maximum age range to qualify. For example, teen checking accounts are typically designed for kids aged 13 to 17, while student checking accounts may be for students aged 17 to 24.

The biggest advance of student and teen checking accounts is that they often have little to no fees. Or if they do charge a monthly fee, they offer simple ways to avoid it, such as maintaining a low minimum balance or setting up a monthly direct deposit.

Senior Checking

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Senior checking accounts are designed for older banking clients and, similar to student and teen checking, there may be age requirements. For instance, you may need to be 55 or older to open one of these accounts.

Senior checking can offer unique benefits, such as free premium checks, personalized debit cards, fee waivers or higher interest rates on savings accounts. Some senior checking accounts also pay interest or quarterly dividends as an added perk.

Second Chance Checking

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Second chance checking accounts are nontraditional bank accounts for people who may have had trouble managing a checking account in the past. This type of account is usually best for someone who may have a negative checking history on file with ChexSystems. ChexSystems collects information related to banking activity, such as bounced checks or unpaid fees.

These checking accounts can be a good way to get back in the habit of using checking if you can’t get approved for a standard bank account. They may have higher fees than regular checking accounts, but they can give you all the same features, including check-writing abilities and debit card access. And if you can use a second chance account responsibly, this can help you qualify for a standard account down the line.

Checkless Checking

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Checkless checking accounts are another type of alternative checking account. As the name suggests, these accounts don’t allow you to write checks; all transactions are done via a debit card, mobile banking or online.

If you don’t normally write checks or don’t maintain a large balance in checking, this kind of account may be appealing.

How to Choose a Checking Account

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Whether you’re looking for your first checking account or your next one, there are a few things to keep in mind when comparing the options.

First, decide whether you want to open a checking account at a brick-and-mortar bank or credit union or at an online bank. Brick-and-mortar banks are good for people who need to visit a branch, while online banks may charge fewer fees for checking. So you need to decide what matters more to you—convenience or cost.

Speaking of fees, take a look at a bank’s fee schedule so you know exactly what you might pay for a checking account. That includes looking for these fees:

  • Monthly maintenance fees
  • Minimum balance fees
  • Account inactivity fees
  • Wire transfer fees
  • ATM fees and surcharges
  • Non-sufficient funds fees
  • Overdraft fees
  • Overdraft protection fees

If a bank or credit union charges any of these fees for a checking account, it’s important to know how to avoid them. For example, if there’s a minimum balance fee, then getting around it may be as simple as keeping a certain amount of money in your account at all times.

Finally, consider what features or benefits a checking account has to offer that are most important to you. These can include things like online and mobile banking access, earning rewards on purchases, a widespread ATM network or the ability to earn interest on your balance. Choosing the right checking account ultimately comes down to finding the best mix of features, access and cost to fit your individual banking needs.

How to Open a Checking Account

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Many banks make it easy to open a checking account online. Once you’ve compared checking accounts and found one that fits your needs, you can fill out the online application. This usually requires providing some personal and financial information, then arranging for your initial deposit. It might sound complicated but it’s possible to open a new checking account online in under 10 minutes.

What Do I Need to Open a Checking Account?

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Banks require certain pieces of information in order to open a checking account. Whether you’re applying for a new checking account online or off, you’ll typically need to share your:

  • Name
  • Mailing address
  • Phone number and email
  • Date of birth
  • Social Security number

If you’re applying for a joint checking account, you’ll need to share the same information for your account co-owner. Banks normally don’t check your credit scores when opening a new account but they still ask for this information to verify your identity. If you’re applying for a bank account online, you may need to upload a copy of your government-issued ID as well.

Once you enter your personal information, you’ll need to set up your first deposit. With an online bank account, you’ll need to link an external account using your routing number and account number. Some banks will allow you to mail in a paper check to make your initial deposit, though this can slow down the account opening.

Keep in mind that online banks may require one or two test deposits to verify your information before your account can be fully opened. The bank will make the deposits to your linked account. You’ll have to log in to your new bank account and verify the deposit amounts. Once you’ve done that, however, you should be able to start using your new account. Note that it may take a few business days for your new checking account’s debit card to arrive in the mail.

How Many Checking Accounts Can I Have?

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There’s generally no limit to the number of checking accounts you can have. In fact, it may be a good idea to have checking accounts at different banks if you’re worried about exceeding FDIC coverage limits. There are, however, some things to consider before opening multiple checking accounts.

First, consider the fees you might pay. If you’re maintaining several accounts at a brick and mortar bank, you may face paying several monthly fees for them which could quickly add up. Choosing checking accounts at an online bank instead could help you avoid the fee, as long as you’re comfortable forgoing branch banking access.

Next, think about how easily you’ll be able to manage multiple checking accounts. This may not be a problem if they’re all at the same bank. But if you have accounts at different banks, you may find it harder to keep track of deposits and withdrawals. That could put you at risk of incurring overdraft fees or missing bill payments.

Setting up banking alerts or notifications can help you keep track of deposits, purchases, withdrawals and bill payment due dates. You may also consider using a budgeting app that allows you to monitor all of your accounts in one place. Be aware, however, that allowing financial apps access to your banking information may violate your bank’s terms of service.

Reasons for Being Denied a Checking Account?

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The main reason someone may be denied a checking account is having a negative ChexSystems report. ChexSystems collects information about bank accounts, similar to the way Equifax, Experian and TransUnion collect information about debt obligations.

Some of the situations that could lead to you being denied for a checking account include reports of:

  • Excess overdrafts
  • Numerous bounced checks
  • Involuntary account closure (meaning the bank closed the account)
  • Unpaid fees
  • Negative balances

You could also be denied a checking account if there’s suspected fraud or identity theft, or you’ve tried applying for multiple accounts within a short period of time. If you’re denied a checking account, you could ask the bank to reconsider. You’ll need to provide a good argument for why the bank should consider your request.

If the bank is unwilling to budge, you may still be able to get a second chance checking account. And if that fails, you may try a prepaid debit card instead. Prepaid debit cards are not tied to a bank account but they can allow you to load funds so you can spend, pay bills or withdraw cash at ATMs.

Checking Account vs. Savings Account

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Checking accounts and savings accounts are both deposit accounts. You can find both at traditional banks, credit unions and online banks. But they’re not identical when it comes to what they’re designed to be used for or their features.

With a checking account, you’re depositing money that you eventually plan to spend. You might pay bills, buy groceries, get gas or pay back a friend. With a savings account, you’re depositing money that you don’t necessarily plan to spend, or at least not in the near-term. For example, you might open a savings account for emergencies or to hold money for a future vacation.

Savings accounts can earn interest, though they don’t usually come with a debit card or ATM card. Your bank may limit you to a certain number of withdrawals per month and charge a penalty fee if you go over that amount. Deposits can be FDIC-insured and depending on where you open a savings account, you may pay a monthly maintenance fee.

Is a Debit Card a Checking Account?

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A debit card can be a feature of a checking account but it’s not a checking account in and of itself. For instance, you can add money to a prepaid debit card that’s completely independent of any bank account.

If you have a checking account that comes with a debit card, that card is directly linked to your balance. So if you have $500 in your checking account and use your debit card to buy $40 worth of gas, your balance will be reduced by that amount.

That’s what makes debit cards and checking accounts different from credit cards. With a credit card, you’re spending the credit card company’s money, not your own. Anything you spend has to be paid back later, most often with interest and fees added on.

If you have a debit card, your bank might impose daily, weekly or monthly limits on purchases and withdrawals. Being aware of those withdrawal limits can help you avoid a situation where you’re not able to spend or withdraw cash because you’ve hit the maximum.

Bottom Line

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Checking accounts can simplify money management and you don’t have to pay a lot of fees in order to have one. There are plenty of online banks that offer checking accounts with low minimum balance requirements and low or no monthly fees. Before choosing a checking account, it’s helpful to list out the features and benefits you’d most like to have. Also, consider whether banking online–and skipping the branch–fits your money lifestyle.

Frequently Asked Questions (FAQs)

Does opening a new checking account hurt my credit?

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Banks typically don’t check your consumer credit reports when you apply for a new account. So opening a checking account shouldn’t hurt your credit. But banks may review your ChexSystems report to see if you have any negative banking history, such as unpaid overdrafts or excessive bounced checks.

Does closing a checking account hurt my credit?

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Closing a checking account usually doesn’t affect your credit, as bank accounts are not reported to the consumer credit bureaus. You may, however, get a negative remark on your ChexSystems report if you’re closing a checking account with outstanding overdrafts or fees that are left unpaid.

If your checking account comes with checks, your account number should be listed at the bottom, after your bank routing number. You may also be able to log in to online or mobile banking to view your checking account number. If you still can’t find it, you’ll need to contact the bank and verify your identity to get the number.

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