There are a few types of checking accounts to choose from. For example, you can open a personal checking account, a student account for your young adult at college, or a joint checking account with your partner or spouse.
How a Checking Account Works
Checking accounts have very few limitations when it comes to accessing your funds. You can make purchases and payments using your checking account as long as you have enough money in your account to cover them. However, you may have a daily ATM withdrawal limit, and your debit card may limit the amount you can debit from your account on a given day. As a trade-off for this availability, checking accounts typically don’t pay much in interest, if they pay any at all. In addition, many banks offer checking accounts with monthly service fees but waive them if you meet specific requirements like maintaining your minimum balance or using direct deposits to avoid service fees.
Opening a Checking Account
You can open a checking account by going to a bank or credit union branch or signing up online. There are a few items you’ll need to bring or provide:
Your Social Security numberPersonal information like your address and date of birthA valid form of identification to open an accountYou may also need to make a minimum opening deposit.
When you open up a checking account, the bank will run a quick background check using a service like ChexSystems, which maintains information about closed bank accounts. If you have been reported to ChexSystems or a similar company for having an account with a long-term negative balance, you might not be allowed to open an account until you resolve the negative balance.
Overdraft Options
If you write a check for more than you have in your account, it’s called an “overdraft.” Your bank may offer overdraft protection, which covers these transactions for you, but they generally charge you a fee for the protection. If you choose overdraft protection, you may be able to link another account to your checking account and automatically transfer money over if you have a negative balance. Some institutions will allow you to overdraw up to a specific limit, after which they begin returning checks and declining transactions. According to the Consumer Financial Protection Bureau, the average overdraft fee is $34. Any transactions that could exceed your checking account balance will be rejected if you decline overdraft protection. This prevents you from being charged overdraft fees, but it could mean not being able to complete purchases if you don’t keep an eye on your balance.
Checking Account vs. Savings Account
Savings accounts typically limit the number of “convenient” transactions you can make in a given month. Convenient transactions include automatic transfers from savings accounts to other accounts and online and phone transfers out of your savings account. Financial institutions may also limit the number of withdrawals you can make from a savings account at an ATM or in person. Savings accounts also limit direct purchases. You may be able to pay bills online using your savings account information, but you can’t use a debit card or a check to make purchases using funds directly from a savings account. You would need to transfer the money to a checking account first.
