Checking accounts are one of the most underrated financial products despite their immense utility.
Checking accounts are bank accounts designed to provide quick and easy access to funds through regular deposits and withdrawals. Your money lies safely with the bank, making it easier to track and spend your funds.
According to research, an average American keeps his primary checking account for as long as 14 years.
If you’re planning to open a checking account, we have put together this guide to help you choose the right checking account for your banking needs.
How can you use a checking account?
Checking accounts offer convenience.
Instead of carrying cash or keeping the money at your home, you can deposit it in your checking account. The FDIC or NCUA insures most financial institutions for up to $250,000, providing safety to your account.
- You can carry out transactions with your checking account, including electronic transactions and physical checks.
- You can make timely bill payments. Most checking accounts come with auto-pay features, ensuring that you never miss a bill again.
- You can use your debit card for shopping or online purchases.
In short, checking accounts are more of a fundamental banking account that everyone needs at some point in their life.
What are the fees associated with a checking account?
The convenience of checking accounts comes at a cost. Most Americans pay average fees of $7.69 for their checking accounts. If you’re opening a checking account, here are some of the associated fees that you may have to cough up for usage.
- Overdraft fees: If your bank account balance reaches zero, the bank offers a credit limit that allows customers to withdraw funds despite having zero balance. The bank charges a fee against this service, called overdraft fee or overdraft charges. The average overdraft fees in the US stands at $33.36. As a customer, you may want to choose a bank with lower overdraft charges.
- Monthly service fees: These are monthly maintenance charges that banks levy for the checking account. Most banks waive off maintenance fees as long as you maintain the minimum deposit and fulfill monthly deposit requirements. You can expect to pay anywhere between $5.61 to $15.05 in monthly maintenance fees.
- ATM fees: If you’re using an out-of-network ATM for cash withdrawal, you may have to pay additional charges. The average US checking account holders pay an average of $4.72 for out-of-network ATM withdrawals.
- Minimum deposits: Several checking accounts require you to maintain a minimum account balance. Failing to do so may attract some penalties. We recommend you to choose banks that don’t have minimum monthly balance requirements.
What factors should you consider when opening a checking account?
- ATM network: When choosing a checking account, this is the most crucial factor to consider. Nearly one-third of Americans compare the ATM network of a bank before opening a checking account. Not only will it offer easy access to money, but you will also save out-of-network ATM charges.
- Monthly maintenance charges: Are you paying a maintenance fee for your checking account? Banks charge maintenance fees against their financial services. Try to find a bank that has low or nil maintenance charges.
- Account minimums: Since most checking accounts are non-interest bearing or low-interest accounts, you don’t want to put a lot of money in these accounts. Check the account minimum balance requirements. If you have to maintain a balance of $1,000 or above, continue your search.
- Interest or effective APR: Interest-bearing checking accounts can offer you an additional incentive for keeping money in your account. While the national average interest rate on checking accounts is 0.04%, the DollarGeek team was able to identify online checking accounts that offer APYs as high as 4.09% (Consumers Credit Union).
- Online services: With the growing onset of online financial services, you want to make sure that your bank offers the latest features, such as bill pay, budgeting, and smart savings goals, and app-based banking services.
- Additional features: On top of what we have already mentioned, you can seek extra features, such as mobile check deposits, mobile transfers, support for digital wallets, and free check-writing privileges.
Is it okay to choose an online checking account?
Online checking accounts are gaining popularity among the younger generations. Besides offering all the services and features of a traditional checking account, online accounts provide the convenience of doing all your transactions right from your home, office, or even while traveling.
Pros of online checking accounts
- You can access banking services without having to visit the physical branch.
- Online checking accounts have nil or lower management fees.
- You can withdraw cash from any ATM or affiliate ATM networks.
- Online checking accounts support mobile check deposits, bill payments, transfers, and other banking services.
- The APY on online checking accounts is higher.
- You get access to high-end features, such as budgeting, automatic bill payments, custom security alerts, and the ability to connect with various third-party services.
Cons of online checking accounts
- If you’re someone who requires faces-to-face customer service, online checking accounts aren’t meant for you.
- You are more prone to security threats. It is critical to follow basic digital security steps, such as changing passwords frequently, keeping your devices free from malware.
- You will find it hard to deposit cash. The best you can do is deposit checks through the mobile check deposit feature.
Savings vs. checking account: Understanding the difference
A savings account is another financial account that people use to save money. If you’re wondering whether you’re better off with a checking or savings account, here is a short comparison of these accounts.
- Primary purpose: The primary purpose of a checking account is to provide easy access to your funds for spending and purchases. Savings account, on the other hand, are designed for saving money.
- Interest rates: Most checking accounts do not offer any interest, and if they do, these are usually lower than a savings account. Savings accounts offer higher interest rates. You may find higher interest rates with online savings account or high-yield savings account.
- Withdrawals: You can make unlimited withdrawals from a checking account. Savings accounts are limited to only six withdrawals in a statement cycle. Any additional withdrawals may result into a penalty.
- Minimum balance: Minimum balance requirements will vary from one bank to another for both checking and savings accounts. However, savings account may have a tiered interest rate structure. Make sure to find the minimum balance for earning the highest interest rates.
- Fees: Our study reveals that checking accounts tend to carry higher fees in comparison to savings accounts.
How to open a checking account
Now that you understand everything about a checking account, it’s time to find out the account opening process.
First, choose a bank that provides features you need from your checking account and a big ATM network. Depending on the bank, fill the application form online or visit a local branch.
You’ll have to submit some paperwork, including identify documents, address proof, and social security details. In the case of an online account, you can scan and attach these documents with your application.
The account opening process may take a couple of days to complete. Once your account is active, some financial institutions will require you to make a minimum deposit. You’ll also receive a welcome package from the bank, providing a debit card, complimentary checks, and debit card PIN.
A checking account is an essential financial account that everyone should have. The trick is to choose an account that offers all the features you need. Pay attention to additional charges, and always review your account statement for any unnecessary deductions.