What Is a Checking Account?

A checking account is a type of bank account that allows you to easily access your money. You can use your debit card, cheques, or account information to make transactions.

Definition and samples of a Checking Account

A checking account is a deposit account that allows you to deposit and withdraw funds. It enables you to access your cash in a variety of ways. You can withdraw cash from an ATM or bank, write a check, send an e-check, set up an automated transfer, or use your debit card to access the funds in your account. This type of account is usually used for day-to-day expenses. There are some types of checking accounts to choose from. For instance, you'll open a personal checking account, a student account for your young adult at school, or a joint bank account with your partner or spouse.

How a Checking account Works

Checking accounts have only a few limitations when it comes to accessing your funds. You'll make purchases and payments using your checking account as long as you have enough money in your account to cover them. You will, however, be subject to a daily ATM withdrawal restriction, and your open-end credit may limit the amount you may discharge from your account on any given day. Note: Banks generally provide you together with your first book of checks free of charge when you open a checking account. If you would like more, typically you will have to buy them. As a trade-off for their convenience, checking accounts often do not pay much interest, if any at all. Furthermore, many banks provide check accounts with monthly service costs that are waived if you satisfy certain conditions, such as maintaining a certain level or making direct deposits to avoid service fees.

Establishing a Checking account

You may open a checking account by visiting a bank or credit union branch or by registering online. You will need to bring or give the following items:  
  • Social Security number
  • Personal information such as your address and birth date
  • A valid form of identification is required to open an account.
  • A minimum opening deposit may also be required.
When you create a checking account, the bank will do a quick background check using a service like ChexSystems, which keeps track of closed bank accounts. If you have been reported for having an account with a long-term negative balance, you may be unable to open an account until the negative sum is settled. Note: Most banks require the presence of an adult to open a bank account for a minor. If still a minor, you will need to ask your parent or guardian to establish the account for you.

Overdraft Options

An "overdraft" occurs when you write a check for more money than you have in your account. Your bank may provide overdraft protection, which covers these transactions for you, but it usually comes with a price. If you choose overdraft protection, you will be able to link another account to your checking account and have money transferred over immediately if you have a negative balance. Some financial institutions may allow you to overdraw up to a certain limit before returning cheques and denying transactions. The average overdraft cost, according to the Consumer Financial Protection Bureau, is $34. If you decline overdraft protection, any transactions that would exceed your checking account balance would be denied. This keeps you from getting charged overdraft penalties, but it may restrict you from making purchases if you don't keep an eye on your balance. Note: Banks occasionally provide cash bonuses as incentives for opening a bank account, so keep that in mind while looking for a new checking account. You sometimes have to meet requirements like maintaining a minimum balance.  

Checking account vs. Savings account

Checking Account

  1. Few limits on withdrawals
  2. It bears little or no interest.
  3. Possess the ability to make direct payments using checks, debit cards, and account information.

Savings Account

  1. Limited number of withdrawals per month
  2. Pays low interest rate
  3. Able to form direct payments with your account information, subject to your withdrawal limits
  Savings accounts are designed to carry your money. They often pay a low interest rate, although it is typically comparable to what is given for a checking account. Savings accounts typically limit the amount of "convenient" transactions you can make in a given month. Convenient transactions include automatic transfers from bank accounts to other accounts and online and phone transfers out of your savings account. Financial institutions can also limit the number of withdrawals you can make from a savings account at an ATM or in person. Savings accounts also limit direct purchases. Bills will be able to be paid online. using your savings account details, but you will not be able to make purchases using a debit card or a cheque using funds straight from your savings account.

Key Takeaways

  • A checking account is a bank account that allows easy access to your money. You'll use your debit card, cheques, or account information to make transactions.
  • Checking accounts usually pay little or no interest. They'll have service fees, but they will often be waived by meeting balance or direct deposit requirements.
  • You can choose whether to opt-in for overdraft protection. If you decide, the bank will cover charges that exceed your available funds, However, it will demand a price for this service.
  • Open an account online or in person at a branch. You will need your Social Security number and government-issued identification.

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