What Is a Checking Account? Benefits, Fees and Different Types

Bank checking accounts hold assets for customers that can easily be accessed by personal checks and debit cards -- often through automated teller machines and online payments.

Checking accounts don't pay much interest - the average interest rate is 0.06% - but that's not what attracts financial consumers to checking accounts. The real draw is instant access to cash to pay bills, withdraw cash, and for other everyday basic consumer financial needs.

Benefits of a Checking Account

Bank checking accounts offer financial consumers multiple benefits, especially in regard to convenience and safety. These benefits are at the top of the list:

  • The ability to access money from a bank account without having to carry cash;
  • use of a debit card to buy goods and services and withdraw cash from an ATM;
  • the ability to have your paycheck deposited directly into your checking account by your employer;
  • access to online banking services, like paying bills and moving money around, at the tap of a keystroke;
  • money in your checking account is protected - to a certain limit - by the U.S. Federal Deposit Insurance Corp., FDIC.

Different Kinds of Checking Accounts

Bank checking accounts also come in multiple formats, giving financial consumers plenty of options to manage their money.

Before you choose a checking account, conduct some due diligence and see what type of checking accounts fit your unique needs.

Here are most widely used checking account types:

Free checking

These accounts come as advertised - they have no monthly fees, but can charge fees for account overdrafts and for certain types of bank services, like handling paper bank statements. With the average checking account monthly fee standing at around $160 per month, it's no wonder free checking accounts are in high demand.

Online checking accounts

With the ascent of digital commerce, online bank accounts are growing every year. Most online checking accounts charge no monthly fees and offer 24/7 access to customers.

Joint checking accounts

Married couples often park their cash in joint checking accounts, which allow for multiple users. Having their bank cash in one account can make managing household finances easier to handle.

Student accounts

Banks are increasingly offering special checking accounts for younger financial consumers. These accounts usually offer low fees, low or no minimums, and access to special deals for younger consumers.

Business checking accounts

Businesses big and small park money in business banking accounts, which specialize in handling large amounts of money and large numbers of financial transactions. Banks often link business checking accounts to business lines of credit.

Money market and high-yield checking accounts

Money market accounts and high-yield checking accounts offer banking consumers higher interest rates than traditional checking accounts. They do, however, come with higher minimum account asset limits and may limit a consumer's monthly transactions.

It's also worth noting that there are ample differences between bank savings and bank checking accounts.

The primary difference is calendar-driven. A checking account, known more formally as a transactional account, is designed to help customers move money around on a regular - even daily - basis. A bank savings account, on the other hand, is meant for the long term - to keep money saved up in a single account and keep it walled off from being used to make everyday payments.

Checking Account Fees

Bank savings accounts have fewer fees, as they're easier for banks to manage, and they do pay interest to account holders, albeit at a low rate. Most bank savings accounts pay about 0.08%, according to industry figures.

One of the top issues of concern to banking consumers is the cost of fees - especially checking account fees, as checking accounts are the most widely used banking financial tool.

The good news is that, in many cases, bank checking account fees can be waived if account holders meet specific conditions, like using their debit card on a regular basis or keeping their account holdings above a certain asset level.

Here's a list of the most common checking account fees - and what they usually cost.

  • Checking account fees. These fees cover the costs of managing your checking account. Banks usually charge between $5 and $15 per month for this fee.
  • Minimum balance fees. Banks want to make it worth their while to offer you checking account services, which is why many have minimum account standards. Some banks have minimum balance fees and some don't. These are among the highest bank fees, at $25 per pop.
  • Bank overdraft fees. These fees are a big headache to banking consumers who overdraft their checking accounts (this causes a negative balance as a result of payment and charges totaling more than what is in the account). Bank overdraft fees are the highest of all banks fees, at around $35 per overdraft.
  • Returned deposit fee. When a bank customer deposits a check that bounces, that customer will likely incur a returned deposit fee to cover the costs of handling the missing funds. These fees cost customers about $15 per returned deposit.
  • Paper statement fee. A bank might charge checking account customers if they request paper statements every month. As most banks prefer that their customers go online for secured statements, they issue the fee for the costs incurred by preparing and mailing paper statements. Expect this fee to cost between $2 and $5 per month.
  • ATM Fees. This fee covers a bank's cost of operating automated teller machines, and charge per transaction. Many banks don't charge their own customers when they use the bank's ATM, but outside banks always do. Expect to pay between $2 and $4 for outside bank-owned ATMs. Non-bank-owned ATMs charge more - up to $10 per transaction in some cases.
  • Foreign transaction fees. Banks charge overseas travelers for ATM withdrawals - usually about $5 per transaction.

It's usually worth it to ask banks to waive certain fees. With so much competition from online banks and credit unions, banks want to keep your business, so your chances of having fees waived are actually good.

How Interest Rates Work on Checking Accounts

Interest rates play a key role in bank checking accounts.

Simply stated, interest is the real cost of borrowing money. Interest is paid to someone who lends money and interest is charged to someone who borrows money.

With bank checking accounts (especially money market and high-yield checking accounts), customers earn interest for keeping their money in their checking accounts. In a technical sense, banks are borrowing money from you by having you place cash in a checking account. Thus, they'll pay you a nominal interest rate for doing so.

The bank calculates the rate, based on the health of the economy and benchmark interest rates set by the Federal Reserve.

Numerically, checking account rates work like this. Let's say you have $10,000 parked in a checking account. Let's also say that a bank pays 1% interest on that money. Compounded annually, the 1% interest rate will earn you $100 based on the $10,000 deposit.

How to Choose a Checking Account

Choosing a checking account is a fairly straightforward process. You can so easily by taking the following action steps:

  • Step 1. Research different checking accounts. Do you want a traditional checking account? Do you want an online account and pay lower fees? Start the checking account sign-up process by finding the checking account that meets your unique needs.
  • Step 2. Go to the bank (or go online to the bank's website) and get a checking account application. Be prepared to show your driver's license or another form of identification. You'll be asked for your Social Security number, as well and likely, your date of birth. Many banks often ask for a proof of address, so bring along a copy of your electric bill or phone bill to validate your residency status. You'll also need a nominal amount of money - at least $25 will do the trick - to make a necessary opening deposit.
  • Step 3. Fill out the application to the best of your ability and return it to the bank. If you have any questions along the way, the bank will be glad to lend a hand.
  • Step 4. Wait for the bank to review your application (it should only take a day or so). You may undergo a credit check to pass muster with the bank. Once the bank approves your application, you'll receive a bank routing number, a bank checking account number, a debit card, and a box of checks. You'll need to sign off on the checking account contract terms, as well.
  • Step 5. The capper on the jug is setting up direct deposit with your bank and your employer so your paycheck is deposited straight into your checking account. That saves you a trip to the bank on payday, and faster access to your payroll check money.

Should You Use a Credit Union for Your Checking Account?

Credit unions are emerging as a genuine option for bank customers.

That's mainly because credit unions offer lower fees and more personalized service than bigger banks.

As credit unions are considered to be non-profit enterprises, they can afford to offer checking accounts with higher interest rates. Also, by going with a credit union, you'll become a member of that credit union (most credit unions are owned and operated by members). You'll need to pay an upfront membership fee to join a credit union.

On the downside, credit unions don't offer as many physical bank branches as larger banks, and also don't have the massive online presence of bigger financial institutions.

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