What is a checking account? This may seem like a silly question to most people, on par with asking the definition of a bank. But a checking account can mean different things for different people and specifics can also vary greatly from bank to bank.

checking account

Keep reading to find out the details of how it all works so you can maximize the use of your own checking account.

What’s the difference between a checking account and savings account?

At its core, a checking account is an account with a financial institution that allows you to easily move money from one place to another. You can deposit money from one or more sources and then disburse that money in order to efficiently pay bills or make purchases.

Checking accounts differ from savings accounts in that the money is designed to be fluid. A savings account is just that — a way to save money. While you can deposit and withdraw money in similar ways to a checking account, a savings account is designed to grow money over time.

Savings accounts typically have beneficial features like interest rates but also have fees associated with actions like frequent withdrawals or low minimum balances. Checking accounts also have fees attached but they are different and typically result from overdrafting or having insufficient funds.

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How does a checking account work?

You can control your funds through a variety of methods with a checking account. The most traditional way is with a check. Though not as common as they once were, you might still use a check to pay your rent or send in a particular bill every so often.

A check is simply a uniform document ordering a bank to move a specified amount of money from your account to the person or entity whose name appears on the check. It can then only be deposited or cashed by the person or entity whose name appears on that check.

Years ago, using a physical check was the only way to move money out of a checking account. Depositing a payroll check from your employer meant receiving a physical check from them on payday and going to your bank, standing in line, and depositing a check directly with a teller.

Your bank would issue you a check book with a number of checks for you to write out to anyone you owed money. The bank’s routing number, your individual checking account number, and the check number were encoded on the bottom left portion of the check.

You would fill out the name of the receiver, the amount of the check and apply your signature and then deliver the check either physically or through the mail. While this is still done today, banks now offer many other ways to transfer money from your checking account to the receiver making things much simpler, faster and safer.

When choosing a checking account it’s important to think about how you’re going to use it and determine if the method of transfer and associated fees make sense for you.

How can you make deposits into your checking account?

These days, picking up a check from an employer and depositing it is a slow and unnecessary way to transfer your money. Banks now offer direct deposit which electronically deposits your paycheck into your checking account. Instead of receiving a check from your employer, you receive a receipt of deposit.

Many banks require direct deposit as a means of deposit in order to avoid a regular maintenance fee. When deciding what checking account is right for you, it’s important to check if your employer offers direct deposit.

While most employers do offer direct deposit some, like service industry jobs such as bartending, may not. Additionally, if you are hired as an independent contractor you may not be eligible for direct deposit from your employer. If this is the case you’ll have to deposit money the old fashioned way, either at the bank directly or at an ATM. This can cause delays in receiving your deposit in a few ways.

Not only is there the physical time it takes you to deposit the money but there could also in delays within the bank while they verify the money being deposited. If your employer does offer direct deposit, it’s important to sign up for it as quickly as possible. It ensures that your payroll check is deposited quickly and efficiently, and helps you avoid unnecessary fees that your bank may charge.

How do you use a debit card with a checking account?

Debit cards, also known as ATM cards, have truly revolutionized the banking business. They solved many issues in traditional banking such as depositing or withdrawing cash while the bank was closed. They also reduced wait time and the number of tellers needed to complete physical transactions.

With your debit card, you can now withdraw money at any time in just about any place. On the downside, ATM fees for these transactions are going up. If the ATM you are using is from the bank in which you have an account there are usually no fees associated with withdrawing money.

However, if you are using an ATM that is not associated with your bank you can expect to pay anywhere from $2 to $3 or more just to withdraw some cash. These fees can quickly add up if you often need to withdraw money and are not near your personal bank or ATM.

It’s important to consider bank and ATM locations when choosing the checking account that is right for you. Additionally, note that you are not able to deposit money into an ATM that is not from your bank.

If you travel a lot or are often in a different region or state, say for college or work, you should look for a bank that services multiple areas. This is especially true if you tend to withdraw cash from your account often.

Can you use a debit card as a credit card?

Cash is not always king and debit cards now double as credit cards in partnership with companies such as Mastercard and Visa. You can use these cards to purchase goods and services just as any normal credit card. The amount of the sale is automatically deducted from your checking account balance.

Physical cash is used less and less in transactions these days and banks are making it easier and easier for you to spend money. Using your debit card as a credit card can eliminate the need to constantly seek out and use an ATM.

Since there are usually no fees on your end for using your debit card in this manner, it’s often preferable than hunting down an ATM to withdraw cash from your account. Keep in mind that many banks have daily and monthly withdrawal limits. It’s important to know what these limits are because your card may be declined if you go over the limit.

How can you use your checking account online?

Banks are making it easier and easier for you to access, deposit and transfer money from your checking account. Online banking through a bank’s website or phone app can give you instant access to your accounts as well as your bank statements.

Once your account is set up you can easily see where your money is coming from and where it is going. Many banks allow you to transfer money directly from one account to another with just the recipient’s email address. Additionally, you can set up automatic payments for recurring bills such as electric, phone, or Internet.

Many bank apps now also allow you to deposit checks by simply taking a picture of the front and back of the check. You no longer need to physically deposit a check to move the money into your account. The need for a bank branch near your location is becoming less and less necessary as these technologies become more widespread.

What kind of fees are associated with checking accounts?

Choosing a checking account these days largely be comes down to how and when a bank charges you fees. We’ve already briefly discussed ATM fees. These fees can add up quickly if you don’t live or work near your bank. If you are someone that uses an ATM to withdraw cash often you’ll want to open a checking account that has a widespread network of ATMs in areas that you frequent.

Maintenance Fees

When you hear the term “free checking,” it usually means a checking account with no maintenance fee. A maintenance fee is charged by the bank monthly to maintain your account. The average maintenance fee adds up to almost $160 annually, so finding a checking free checking account can save you a lot of money.

Free checking accounts, however, usually come with stipulations. Common requirements often include a minimum monthly balance or a direct deposit requirement. If you can abide by the bank’s stipulations it can save you a lot of money in the long run and a maintenance free checking account could be right for you.

Minimum Opening Balances

Minimum opening balances are also something to consider. Most banks have a minimum requirement for opening a particular type of checking account, but the amount can vary.

Basic accounts can swing from $25 to $100 or sometimes much more. If an account has a minimum balance requirements ranging from $100 to $500 or more, it’s easy to be hit with a maintenance fee if your account balance dips below the required amount regularly.

Overdraft Fees

Another fee often seen with checking accounts is the overdraft fee. This occurs when you spend more money than you have in your account. If your account goes into negative numbers, the bank charged you an overdraft fee that can be $30 or more.

Obviously, the easiest way to avoid this fee is not to overdraw your account in the first place. This may seem elementary until you realize it can take different amount of times for checks to clear and you may have less money in your account than you realize.

You can opt out of overdraft protection so you don’t accumulate any fees, but doing so puts you at risk of having your card declined at the cash register. It’s up to you to decide which one is the worse scenario for your own situation.

How to choose the best checking account

Choosing the checking account that’s right for you usually comes down to cost versus convenience. In a perfect world, your bank would charge you no fees, ATMs would be everywhere, checks would deposit instantaneously and you’d never dip below your minimums. Obviously, we do not live in a perfect world.

Before you decide what checking account is right for you, make a list of priorities. You’ll be in a better position to choose the right bank and the right checking account if you really understand how your money moves in and out of it.

If you work in a restaurant and most of your income is from tips, you may look for a bank that has 24-hour ATMs nearby that easily allow you to deposit cash. If you’re an out of state college student you may want to start your search with banks that service multiple states. Whatever your situation, there’s going to be a checking account for you. Do your research and match one that fits your lifestyle.