Understanding Checking Accounts: Everything You Need to Know

Wondering what a checking account is? Well, stick around! In this article, we will explain everything you need to know about this account.

Defining a Checking Account

Checking accounts are offered by banks to allow customers to make deposits and withdrawals. Moreover, these are used for making in-person or online purchases and electronic transfers. In other words, a checking account covers everyday expenses like medical bills, rent, and utility.

How Do Checking Accounts Work?

Checking accounts are necessary to cater to short-term cash needs. To add funds to these accounts, customers use their paychecks, transfers, and even make direct deposits. In addition, you can withdraw money from your checking account through ATMs, electronic transfers, and checks. The best thing about checking accounts is that you can automate bill payments.

Checking Account Insurance

In the United States, all checking account holders at insured banks enjoy insurance coverage of up to $250,000 from the Federal Deposit Insurance Corporation. That means in the event your bank is declared bankrupt, you won’t lose your funds as long as the account balance does not exceed $250,000.

Checking Account Interest

Most checking accounts do not attract interest. Those that do have lower interest rates than savings accounts. As of March 2024, the average interest rate on savings accounts is four times higher than for interest-bearing checking accounts.

Checking Account Bonuses and Rewards

Although most checking accounts do not provide interest, many credit unions and banks offer debit cards that attract cash-back rewards, meaning when customers pay for purchases using their debit cards, they earn back a certain amount of the total spent. Furthermore, some financial institutions offer bonuses for new clients opening checking accounts.

Checking Account Fees

Do checking accounts attract any fees? Yes! Banks and credit unions generate revenue by imposing charges on checking accounts. Some of the fees you should expect include withdrawal and account maintenance fees.

What Are the Various Types of Checking Accounts?

Here are some of the checking accounts offered by banks:

Traditional Checking Accounts

These are regular checking accounts that usually offer no interest. Additionally, most traditional accounts do not charge maintenance fees as long as the holders maintain the required minimum account balances.

Premium Checking Accounts

In case you have a significant amount of cash you want to deposit in a bank, you should go for a premium checking account. This account allows you to enjoy perks like free withdrawals and high interest.

Joint Checking Accounts

These accounts allow two or more individuals, usually couples, to make deposits and write checks. Before opening a joint checking account, ensure you fully understand what typically happens to your funds when you separate or divorce your spouse. It is worth mentioning that joint checking accounts get higher insurance coverage from the Federal Deposit Insurance Corporation.

Business Checking Accounts

Banks offer business checking accounts to legitimate companies. This means as a business owner, you must provide the required documentation to open a business checking account.

Student Checking Accounts

These checking accounts are offered to students. They have no minimum account balance requirement and charge low maintenance. In most cases, parents are required to be co-owners of student checking accounts.

How Do You Open a Checking Account?

Follow these steps to open a checking account:

1. Select a bank. When choosing a financial institution with which you wish to open a checking account, consider aspects like account fees and minimum balance requirements.

2. Verify identity. All regulated banks require customers to prove their identity when opening checking accounts. Therefore, your bank will require you to provide a government-issued identification document.

3. Submit your application. Your bank will provide you with an application form, which you must fill out.

4. Make your first deposit. After getting a checking account number, you can fund your account using electronic transfer, cash, or a debit card.

Can a Bank Block You From Opening a Checking Account?

Yes! Before a bank approves your application for a checking account, it will take a look at your credit report. The bank is likely to reject your application if you have written bouncing checks on several occasions.