What Is a Checking Account?
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Are you wondering if a checking account is right for you? It all depends on your financial goals and circumstances. If you’re making a purchase, own your own business, or need a way to pay bills, a checking account is almost certainly the way to go.
We’ll cover reasons you may need a checking account, different types of checking accounts, and a few alternatives you may want to consider.
Checking Accounts: What Are They?
A checking account is a bank account that can be used for everyday spending because these accounts typically allow unlimited deposits and withdrawals. You can write a check against the account balance as a form of payment and access your funds through the use of a debit card or automated teller machine (ATM). Additionally, you can connect your account to third-party platforms to receive and disburse cash, make investments, or build your savings.
Do I Need a Checking Account?
There are certainly other avenues to house and move liquid cash and make purchases, but there are a few scenarios where having a checking account might make financial transactions easier.
- Day-to-Day Transactions — Checking accounts are perfect to use as your everyday spending account because there are typically no limits on deposits or withdrawals. When limits are imposed by a bank, these limits are considerably higher than those on savings accounts or money market accounts.
- Real Estate or Property Transactions — If you are financing your purchase, lenders might require bank statements as proof of income and money management. If you are planning to buy a home with cash or use it as a down payment, an FDIC-insured bank offers up to $250,000 in protection per depositor, per bank.
- Business Transactions — If you are a business owner, you might need a checking account for financial transactions or payroll services. If you are an employee, your employer might require a bank account for direct deposit.
- Third-Party Connections — Some platforms, such as PayPal and Zelle, partner with banks to move money and require an account to do so. You can also link checking accounts to personal finance software and apps to help you stay on track with budgeting, spending, and saving money.
Some transactions will require an account number and a routing number. While a checking account historically provides such information, apps such as Square’s Cash App are starting to offer account and routing numbers, as well. That said, they might not offer options like stop payment.
Types of Checking Accounts
There are several types of checking accounts, including:
- Basic Checking — Offers basic features and often has a monthly maintenance fee, although meeting certain account conditions might result in the fee being waived.
- Premium Checking — Usually requires a higher average daily balance to avoid maintenance fees, but also includes additional perks and services.
- Business Checking — Available for registered businesses and offers features to address corporate banking demands.
- Rewards Checking — Provides incentives for the account holder when certain conditions are met. Such incentives include getting cash back or earning points for purchases.
- Online-Only Checking — This type of account is managed online and might not offer access to a brick-and-mortar bank.
- Free Checking — Offers banking options with no maintenance fees and might provide free services or paid interest on your monthly balance.
- Interest-Bearing Checking — Offers an annual percentage yield (APY) on your balance, but might require you to maintain a minimum balance or meet other requirements.
Additionally, banks might offer age-based checking accounts that cater to the needs of college students and seniors. These accounts have a mix of features and perks.
Traditional vs. Online Accounts
A traditional checking account at a brick-and-mortar bank might also have an online account-management option, but online-only accounts might not have physical branches. These online-only options are designed for the autonomy and convenience of the account holder.
If you prefer walking into a bank or speaking to a bank representative, a traditional account might be the better choice and could still give you the flexibility of having online features depending on the bank. Both options usually have a large network of ATMs.
Best Ways to Use a Checking Account
Having a checking account is one of the best places to keep money you need on a day-to-day basis. You can use a checking account to:
- Pay one-time or recurring bills
- Send donations to causes you support
- Link to and automatically fund a savings, retirement, or investment account
- Receive ACH deposits from your employer
- Cash paper checks
- Provide a paper trail for proof of payment
- Link to money management software
In general, having an FDIC-insured account helps you plan for and tend to everyday expenses with the added benefit of financial protection.
2 Places to Open a Checking Account
You can open a checking account at a local, national, or international bank, provided you have the required credentials. You can also open an account at a state or federal credit union.
Here are two of our favorite places to open a checking account:
Axos Rewards Checking — Axos Bank offers a rewards checking account where you can earn up to 1.25% APY. There are no minimum balance requirements, and they are FDIC-insured. Additionally, you find no monthly maintenance fees, no overdraft fees, no insufficient funds fees, and no ATM fees. Learn more here.
Betterment Checking — Long known for their robo-advisor investment services, Betterment now offers a number of banking services, including their new checking account. With Betterment Checking, you’ll enjoy no ATM or foreign transaction fees, no overdraft fees, and no minimum balance requirements. You’ll be able to access your funds using a “tap to pay” debit card, and accounts are insured by the FDIC for up to $250,000. Learn more here.
Looking for more options? Check out our full list of the best checking accounts in 2020.
Alternatives to Checking Accounts
If you decide that having a checking account is not the best option for your lifestyle and needs, here are four alternatives worth checking out:
Money Market Account — A money market account is a mix between a checking and a savings account. While you can earn a higher interest rate on your money market account than you can on most checking or savings accounts, it has usage restrictions and balance requirements. You only have access to a limited number of transactions each month, such as transfers or withdrawals. While some money market accounts offer a debit card, not all of them do.
Money Transfer Platforms — You can use options such as Cash App, PayPal, and Square to hold balances, but you’ll have to check for compatibility with bill pay for your specific service providers. All three options offer debit cards.
Reloadable Prepaid Cards — You can get a reloadable debit card — such as those provided by Green Dot Bank — at most stores and use it for purchases and some bill payments. Some of these types of cards accept direct deposits, and you can often load them by putting cash on your card at the register of a drugstore or other retailer.
Cash — Keep your funds in a fireproof safe and use a ledger to keep track of your funds. You can pay bills with money orders and, in some cases, via wires such as Western Union. Walmart customer service also has some options for in-person bill pay and is connected to more than 15,000 billers. You can also opt for a paper check from your employer and take it to a check-cashing business to get your funds.
These days, there are tons of options to handle your everyday expenses and long-term financial obligations. If you’re concerned about fees, look for banks that have low- to no-fee checking accounts, but that still offer robust features to help you manage your money. If money is no object, look for premium services that reward you for carrying high balances. Think about what you need and take your time to find the best account for your lifestyle.
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