First Checking Account: What Are Your Options?

The most important part of managing your money is where you keep it. While you could park your cash under the mattress, a checking account at an FDIC-insured bank can be a much safer choice. You may be unsure if you need one or how they work. There are many good reasons to use checking accounts for paying bills and spending money.

What is a checking account?

 A checking account is a type of deposit account that you can open at a brick-and-mortar bank, online bank, or credit union. You can deposit money into a checking account to be able to use to pay your bills or to make purchases. These accounts can also be called transactional.

Checking accounts are different from savings accounts because—rather than being designed to hold money for the long-term—they’re meant for everyday use. Your checking account money is money that you intend to use for short-term expenses.

How do checking accounts work?

Because you can write checks on paper, checking accounts are also known as “checking accounts.” You can use a check to transfer money from your account to another person or entity.

You could, for example, write a check to a friend to repay money you borrowed from them. You could also write a check to your utility company to pay the amount that you owe. You write the check and deposit it in their checking account. The check is processed by their bank and the money is withdrawn and credited to your account.

A checking account can be used to spend money in other ways than just through checks. These options are available for moving money into or out of a checking account.

• Debit cards: Visa and Mastercard logo debit cards can be used for online purchases or in-store transactions. ATM withdrawals or deposits are also possible.
• ATM cards: ATM cards can only be used for withdrawals or deposits at ATMs. They cannot be used for purchases.
• ACH Transfers: You can schedule electronic transfers (ACH) to make deposits and withdrawals online, as well as bill payments.
• Wire transfers: Wire transfers are used to transfer large amounts of money to bank accounts in the U.S. or abroad.

Checking accounts also can include features like direct deposit and mobile deposit. Direct deposit allows you to have money automatically added to your account by sharing information about your bank account.

You could get your paychecks and government benefits deposited directly to your account without the need for a paper check. You could also start car insurance with your checking account.

Mobile check deposit allows you to take a photo of a paper check and deposit it to your checking account. You don’t have to go to a branch or ATM in order to deposit checks. This convenience is great. To deposit cash into your checking account, you would still need to visit a branch or ATM.

How to choose a checking account

There are some things you should keep in mind as you compare your options, regardless of whether you’re looking to open your first checking account or upgrade your current one.

First, decide whether you want to open a checking account at a brick-and-mortar bank, credit union, or online bank. Brick-and-mortar banks are good for people who need to visit a branch, while online banks may charge fewer fees for checking. You need to decide which is more important to you: convenience or cost.

You should also look at the bank’s fee schedule to see what fees you could pay for a checking or savings account. Here are some of those fees:

• Monthly maintenance fees
• Minimum balance fees
• Inactivity fees
• Transfer fees by wire
• Surcharges and ATM fees
• Fees for insufficient funds
• Overdraft fees
• Overdraft protection fees

It is important to be aware of the fees that banks and credit unions may charge for checking accounts. If there is a minimum balance fee for a checking account, you can avoid it by simply keeping a certain amount in your account at all times.

Consider what benefits or features a checking account offers are most important for you. These could include online and mobile banking, earning rewards on purchases, or a wide network of ATMs, as well as the possibility to earn interest on your account balance. The best combination of features, accessibility, and cost will determine which checking account is right for you.

Online-Only Account

While some brick-and-mortar banks also offer online-only accounts, online accounts are generally available at online banks, which don’t have physical branches you can visit. These checking accounts have the same features as basic bank accounts, but you will need to be comfortable managing your finances online and over the phone. You can’t visit a representative at a bank in person.

If you need to make deposits, you can set up direct deposit with your employer. You may be able to deposit checks by taking a photo with your mobile device or mailing the check to the bank.

Online checking accounts often lack some basic features (such as ATM deposits). But, because they deposit checks by taking a photo or by going to physical locations, customers can enjoy savings in the form of no monthly maintenance fees or higher interest rates on deposits.

Get a Free Account

Although it might be difficult to find these types, checking is still free. Banks continue to offer free checking accounts to drum up business—particularly at smaller banks, credit unions, or online banks.

The features of free accounts are similar to basic checking accounts, but they don’t have to be maintained monthly. However, they may impose other checking account fees—for using the ATMs of other banks or receiving paper statements, for example.

These accounts generally offer what you pay for or don’t pay for. They may lack certain features of basic checking accounts (some don’t come with checks, for example) and generally don’t pay interest on deposits. Still, if you just need an account for depositing paychecks and paying bills, a free checking account is a good option.

Interest checking account

Interest-bearing checking accounts, referred to as interest checking or high-yield checking accounts, are similar to basic accounts but pay interest on your deposits. This allows you to earn a small amount every month just for keeping your money at the bank.

The annual percentage yield (APY) measures how much interest you will receive based on compounding frequency and interest rate. It determines the exact amount you’ll be earning. It may not be much, but it is something, especially when you consider that basic checking accounts make no money.

Interest checking accounts are most often found at online banks, which have minimal overhead, but some brick-and-mortar institutions offer them as well. When shopping for these accounts, make sure to note the account APY and any restrictions regarding account usage. This includes the number of checks you can write and how often they can be written.

Review the fee schedule. Some interest-bearing accounts impose monthly maintenance fees, while others (usually online interest checking accounts) don’t. An alternative to an interest checking account is to withdraw funds from your whole life policy cash value, also known as infinite banking.

Reward Account

 These types of checking accounts offer basic features and additional benefits that encourage customers to open them. They generally pay interest—often at an even higher APY than the bank’s interest checking accounts. Reward account holders may also be eligible for discounts on fees, such as overdraft protection or preferred interest rates on new loans.

It is not uncommon to be “qualified” to receive a higher rate on reward accounts. To qualify, you may need to open a bank credit card, mortgage, invest with the bank, or go through additional steps.

Justin Weinger

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Justin Weinger is a Corporate Finance Manager in private equity with more than 15 years of experience across automotive, banking, consulting, and healthcare. A married father of three and longtime personal finance enthusiast, he has written extensively on practical money management, taxes, loans, retirement planning, and small-business finance. His work appears regularly on SavingAdvice.com, CleverDude.com, and other personal finance sites, where he draws on real-world corporate finance expertise to deliver clear, actionable advice.