In this article, I’ll explain in detail what a checking account is and share Clark.com’s extensive research on the best checking account options. I’ll also make sure you know how to avoid banks that aren’t good options.
What Is a Checking Account?
Also called a deposit account, a checking account is a building block of daily money management.
Checking accounts are very liquid. They allow for a high number of withdrawals and unlimited deposits.
They are great for paying regular bills and for day-to-day expenses, and they give you a convenient way to get paid and store your money.
Your employer can deposit your paycheck into your checking account. You can access your money by writing checks, withdrawing from ATMs, paying with debit cards and making transfers, among other methods.
A bank is a safe place for your money if it’s federally insured, which I’ll explain momentarily.
How a Checking Account Works
To get a checking account, you must apply online. (You can also apply in person if the bank has physical locations.)
Some banks require you to deposit money to open an account, while other banks will let you deposit later. But at some point, you’ll need to put money into your account to use it.
Your bank will send you a debit (ATM) card as well as a checkbook.
Here’s how to fill out a check.
Debit cards allow you to withdraw money from ATMs and buy things. But money expert Clark Howard doesn't think it's a great idea to make payments with a debit card.
Checking accounts also provide a way for you to receive payments. If someone writes you a check, you can deposit it into your account from your phone, at an ATM or at a physical location (branch). At most companies, you can fill out paperwork and your employer will put your money directly into your account, a process called direct deposit.
Now that you know what a checking account is, how do you tell a good one from a bad one? The best checking accounts don’t charge you many fees and don’t have many requirements.
You should never open a bank account unless it is federally insured. Make sure that the bank you are considering is covered by the Federal Deposit Insurance Corporation to the maximum amount of $250,000. That way, even if something happens to your bank, you won't lose your money.
Many banks don’t pay much, if any, interest on checking accounts. It’s nice to earn interest, but it isn’t a necessity especially if the bank offers otherwise strong service (more on that below).
Types of Checking Accounts
The main features and functions of checking accounts are fairly similar across all financial institutions. But there are different types of accounts that cater to specific needs and demographics.
Here’s a broad overview of the types of accounts that exist in the marketplace.
Account Type | What's Different? |
|---|---|
Joint | Allows you to share a checking account with another authorized user. |
Student | Charges low or no monthly fees, but there are age limits or enrollment requirements. |
Business | Often features higher transaction and cash deposit limits as well as tools for tracking business expenses. |
Seniors | If you meet the age requirement, you can often get perks like free checks. |
Second Chance | Helps build or rebuild positive bank history. Typically comes with spending limits and fewer features. |
Free | When a bank offers multiple options, "free" accounts focus on avoiding fees and requirements. |
Premium | Requires larger initial deposit or average balance in exchange for better interest rates and services. |
Online | Typically offers fewer fees and higher interest rates, but you don't have access to physical locations. |
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Checking Account vs. Savings Account: What’s the Difference?
Checking Accounts | Savings Accounts |
|---|---|
| • Pay little to no interest | • Often pay relatively more interest |
| • Come with checks and a debit card | • May not even provide an ATM card |
| • Give you more ways to pay | • Limited direct purchases |
| • Are designed for daily transactions | • May feature transactions limits |
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Checking accounts are designed for daily transactions, and savings accounts are designed to hold money for some time.
Checking accounts provide more options to access your money through checks, debit cards, ATMs and transfers, but they typically pay little to no interest. They’re a great place to put your paycheck. Many employers prefer to pay their workers via direct deposit instead of writing you a check.
Read our recent post to find out more about the differences between a savings account and a checking account.
How to Choose a Checking Account: Fees to Avoid and More
I recommend eight free checking account options in my post on the best checking accounts.
But Clark has a few basic principles for choosing a bank:
- Avoid fees and requirements. Some institutions try to charge you monthly maintenance fees, paper statement fees, overdraft fees and more. You don't want that. You also don't want a bank that requires you to maintain a minimum balance each month or to deposit a certain amount of money to open your account.
- Avoid big traditional banks. JPMorgan Chase, Bank of America, Wells Fargo or Citigroup held more than 35% of all U.S. customer deposits as of June 2019 according to the FDIC. However, those banks have a reputation for being expensive and not customer-friendly, which are two reasons Clark says he despises them.
- Check with your local credit union. Credit unions are non-profit, member-run organizations that tend to be inexpensive and customer-oriented.
- Find an account with features that fit your life. If you are a frequent international traveler, perhaps you want an account that offers free ATM use worldwide, for example.
Frequently Asked Questions About Checking Accounts
What Do I Need to Know About ATMs?
ATMs, or Automated Teller Machines, make it convenient for you to get cash from your account at any time.
Typically, you insert your debit card, punch in a PIN and specify how much cash you want. The ATM then dispenses cash through a slot in the machine.
However, even if you have a lot of money in your checking account, most of the time your bank will limit how much money you can withdraw from ATMs in a single day.
Also, some banks charge fees if you use an ATM that is not part of your bank’s network. Some banks are willing to reimburse those fees, at least to a certain amount each month, and some aren’t.
Is a Debit Card a Checking Account? What’s the Difference?
A debit card is a feature of a checking account. They are two different things.
When you open a checking account, your bank or credit union typically provides you with a debit card.
A debit card looks just like a credit card, but it is linked to the money in your checking account. You can use it to withdraw money from your account at an ATM or to make purchases online or at stores.
Debit cards are not accounts, so you won’t be able to transfer money from them or make deposits with them except through ATMs.
What Do I Do If My Checking Account Application Gets Rejected?
I'm glad you asked. I have written extensively about this topic in this post.
But here are the major points: Banks rely on credit reporting agencies (CRAs) to track your banking history. If you have negative items such as writing checks with no money in your bank account, that can work against you when you apply for a new account.
Fortunately, you have options:
1. Apply at multiple banks. One financial institution may view your history in a more favorable way than another.
2. Figure out if there are negative items within your banking history. You are entitled to know if a bank rejects your application due to something in your banking history. I go into greater detail on this issue here.
3. Find a bank that uses a different method to evaluate your application. There are multiple CRAs. Your banking history may show up as negative according to one CRA but neutral according to another. If you find a bank that relies on the CRA that gives you a more favorable report, you may be able to open an account.
4. Try alternative options. One of those options is a "second chance" account, which allows people with a negative banking history to open a more limited version of a checking account.
Final Thoughts
If you have any sort of income or assets, you probably need a way to manage your daily money that’s safe, convenient and dynamic.
So it’s a great idea to get a checking account if you don’t have one. Just make sure that you choose an account that does not charge you a lot of fees or place too many requirements on managing your money.
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