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A checking account is a bank account designed to be the center of your financial life, into which you can easily deposit funds and withdraw them when needed.

What is a checking account?

Many consumers use checking accounts to pay bills, write checks, make debit card transactions, and transfer funds electronically to savings or investment accounts.

Unlike savings accounts, checking accounts don’t limit the number of transactions you can make or charge for excessive transactions.

Benefits of a checking account

A checking account keeps your funds safe and accessible, and makes it easy to automate your money management.

Safety

Shopping with a checking account debit card is safer than carrying large amounts of cash with you, which helps protect your funds if your wallet is lost or stolen.

Checking accounts are typically secured by the FDIC for up to $250,000. (FDIC) or National Credit Union Administration (NCUA), which means your funds are safe even if your bank fails.

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The transportation network extending in all directions

A checking account makes it easier for you to withdraw money via debit or ATM cards, checks, and online payment tools. It can be used for anything from retail purchases to rent or mortgage payments to automatic bill payments.

If you need to pay your friends or family, many checking accounts have peer-to-peer money transfer services, such as those you can use from your smartphone or computer. You can also link your account to other services like Venmo for quick transfers.

Automation

A checking account makes it easy to automate money management. You can set up direct deposit so that paychecks are automatically deposited into your account so you don’t have to manually deposit your money every time you receive a payment.

You can also set up automatic payments to debit your credit card, utility and other bills when they are due.​​​

Get overdraft protection

An overdraft occurs when you withdraw more money from your account than you actually have in your account and your account balance falls below zero. The overdraft fees your bank charges you to cover your payments can be expensive. Many checking accounts offer overdraft protection, which automatically withdraws funds from your savings account or line of credit if your checking account is overdrawn. Overdraft protection can help you avoid costly overdraft fees and let your payments or charges go through.

Checking and Savings Accounts

A checking account is essential for everyday financial transactions, while a savings account is a great place to save for emergencies or financial goals like a vacation or buying a new car.

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  • Primary use: A checking account is typically used for money you spend, while a savings account is used to store money you keep.

  • Interest: Many checking accounts do not earn an annual percentage return (APY), and those that often pay the lowest interest rate. Savings accounts typically earn APY, and interest rates vary by bank.

  • Transfer Limits: While checking accounts allow transactions of any amount, savings accounts limit transfers to six per month in most cases.

Regular Checking Account Fees

When looking for the right checking account, be aware of fees that may apply. While free checking accounts are common, many checking accounts charge fees, and some common ones include:

Monthly Administration Fees: Not all checking accounts have these, and those can be waived if you meet certain requirements, such as:

ATM fees: Your bank may offer its own ATM or give you access to a free ATM network such as Allpoint or MoneyPass. Using an out-of-network ATM may result in charges for both your bank and the ATM owner. Some banks refund up to a certain amount of these fees each month, and you can also avoid them by buying from a debit card instead of using an ATM to get cash.

Overdraft Fees: If you withdraw more funds than you have in your checking account, overdraft fees may apply. According to a 2021 Bankrate study, the average overdraft fee is a whopping $33.58. You can avoid these automatic fees by disabling these automatic fees with your bank, which will cause the bank to refund the overpayment as a non-payment. You can also choose overdraft protection or choose a bank that does not charge overdraft fees, such as B. Capital One or Ally Bank.

Types of checking accounts

Traditional exam

These accounts typically offer checking, debit or ATM cards, and online bill payment. Some charge maintenance fees, which are usually easy to avoid by meeting certain requirements. Overdraft protection can be provided to cover payments that would otherwise overdraw the account.

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Interest check

Interest-bearing checking accounts often allow you to earn a certain amount of APY if you directly deposit your salary or make a minimum number of monthly debit card transactions. However, many interest-bearing checking accounts earn a fraction of the APY that many high-yield savings accounts do.

Check student accounts

These accounts are generally for college students aged 18-23, and can provide valuable perks, such as bonuses, to anyone learning about money management.

Advanced Exam

These accounts may offer attractive benefits to those 55 and older, such as: B. Free checks and money orders, and easily waived fees. But if you’re looking for these benefits, you can also find them in many traditional checking accounts.

Second chance review

Anyone who has been denied access to a traditional checking account in the past due to excessive overdrafts or unpaid overdraft balances may consider a second chance checking account. These accounts are generally subject to certain restrictions and fees, but some allow customers to switch to a traditional checking account after responsibly running Second Chance Account for a period of time.

Second chance accounts can be found at banks such as Wells Fargo, Chime, Varo, and LendingClub.

How to Open a Checking Account

Once you’ve shopped around and selected the best checking account, you can start filling out the application form, which usually involves providing some personal information and some government-issued identification, such as a driver’s license.

If you are funding the new account from an old checking account, you will also need the sorting code and account number of the old account. This information allows your new bank to transfer funds from your old account to your new account. If you open the account in person, you can make your first deposit by check or cash.

Once your account is open and ready to use, take the time to understand its capabilities. Sign up for online banking, download your bank’s app and set up automatic payments and direct deposit.

Check your old bank’s most recent bank statement to make sure you haven’t transferred any automatic payments from your old account to your new account. Also, update your employer’s payroll manager with your new account information to ensure your direct payroll goes to the correct account. Human resources can often help make this change.

If a few months pass and your old account doesn’t automatically pay bills, you should be prepared to close it and move on to your new checking account.

Bottom line

Make sure you find the right checking account for you, whether it has a strong ATM network, has no fees, offers the ability to earn interest, and more. Once you’ve found an account that fits your needs, you’ll appreciate the versatility and ease with which it lets you manage your day-to-day finances.

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