What is a checking account and how it works – Forbes Advisor


One of the most important parts of managing your money is deciding where to keep it. While you can park your money under the mattress, a checking account at an FDIC-insured bank may be a much safer choice. If you’ve never had a checking account before, you might be wondering how they work or if you really need them. But there are many good reasons to rely on checking accounts to spend money and pay bills.

What is a checking account?

A checking account is a type of deposit account that you can open at a physical bank, online bank, or credit union. Checking accounts allow you to deposit money that you can then draw on to pay bills or make purchases. They can also be called transactional accounts.

Checking accounts are different from savings accounts because, rather than being designed to hold money for the long term, they are intended for everyday use. The money you keep in your checking account is money that you plan to use in the short term to cover your expenses.

How does account verification work?

They are called checking accounts because, traditionally, they give you the option of writing paper checks. A check is a financial instrument that you can use to transfer money from your bank account to another person or entity.

For example, if you borrow money from a friend, you can write them a check to pay it back. Or, if you have to pay your electric bill, you can write a check to the utility company for the amount you owe. The person or business to whom you write a check to deposit it into their checking account. Their bank processes the check and the money is withdrawn from your account and credited to theirs.

However, checks aren’t the only way to spend money with a checking account. You also have these options for transferring money into or out of a checking account:

  • Debit cards. Debit cards with a Visa or Mastercard logo can be used to make in-store or online purchases and to make deposits or withdrawals at ATMs.
  • ATM cards. Bank cards can be used to make deposits or withdrawals from ATMs, but you cannot use them for purchases.
  • ACH transfers. ACH or wire transfers allow you to schedule deposits or withdrawals, including bill payments, to and from your checking account that take place online.
  • Electronic transfers. Wire transfers can be used to deposit or withdraw large sums of money to other bank accounts in the United States and in foreign countries.

Checking accounts can also include features like direct deposit and mobile deposit. With direct deposit, you can automatically add money to your account by sharing your bank account information. For example, you could have your paychecks or government benefits you receive deposited directly into your account without needing a paper check.

Mobile Check Deposit allows you to take a photo of a paper check and deposit it into your checking account. This feature is convenient because you don’t need to go to a branch or an ATM to deposit checks. However, you will need to go to a branch or an ATM to deposit money into your checking account.

Different types of chequing accounts

Checking accounts are not all the same and you can choose from several different types, depending on where you decide to do your banking. Here’s a look at some of the more common types of checking accounts and how they work.

Standard or traditional verification

A standard checking account is a basic checking account that you can use to pay bills, write checks, and make purchases with a debit card. This type of account may have minimum balance requirements, which means that you need to maintain a certain balance daily or monthly to avoid paying maintenance fees. There may also be a minimum deposit required to open a standard checking account.

The standard check usually doesn’t come with additional bells and whistles. The main features are most often unlimited check writing capabilities, debit card access, and access to online and mobile banking services to manage your money.

Verification of interest

Interest checking accounts are very similar to standard checking accounts, with one key difference: you can earn interest on your balance. Although interest checking accounts do not require a higher minimum to open the account, at some banks the interest rate you earn may vary depending on the account balance you maintain. Many credit unions offer competitive interest rates on checking accounts.

The rate you can earn is usually lower than what you would get with something like a high yield savings account or a certificate of deposit. But these accounts are a simple way to grow your money while having the added benefit of being able to write checks and pay bills.

Note that some interest-bearing chequing accounts may be referred to as high yield chequing accounts or even reward chequing accounts, which also has another meaning.

Checking rewards

Rewards chequing accounts may or may not pay interest and offer the opportunity to earn rewards when you spend. Similar to a rewards credit card, you can earn points or a fixed percentage of cash back for making purchases, paying bills, or scheduling direct deposits to your account each month.

These accounts are less common than standard or paid checking accounts. It will pay off to shop around, as any minimum required, and the rate at which rewards are earned will vary.

How you redeem your rewards usually depends on the bank. For example, if you get cash back rewards on debit card purchases, your cash rewards may be automatically deposited into your checking account or linked savings account. If you earn points, however, you may be able to redeem them for cash back, gift cards, merchandise, or travel.

Verification of students and adolescents

Student chequing accounts are designed for students new to the use of checks. These accounts generally have a minimum and maximum age range to qualify. For example, teen chequing accounts are typically designed for children ages 13-17, while student chequing accounts may be for students ages 17-24.

The biggest advancement of student and teen chequing accounts is that they often have little or no fees. Or if they charge a monthly fee, they offer simple ways to avoid it, like keeping a low minimum balance or setting up a monthly direct deposit.

Senior verification

Senior checking accounts are designed for older bank customers, and like students and teens, there may be age requirements. For example, you might have to be 55 or older to open one of these accounts.

Senior verification can offer some unique benefits, such as free premium checks, personalized debit cards, fee waivers, or higher interest rates on savings accounts. Some senior checking accounts also pay quarterly interest or dividends as an added benefit.

Second Chance Check

Second Chance Chequing Accounts are non-traditional bank accounts for people who may have had difficulty managing a chequing account in the past. This type of account is usually best for someone who may have a negative audit history on ChexSystems files. ChexSystems collects information related to banking activity, such as bad checks or overdue charges.

These checking accounts can be a good way to get back into the habit of using checking if you can’t be approved for a standard bank account. They may have higher fees than regular checking accounts, but they can give you all of the same features, including check writing capabilities and debit card access. And if you can use a second chance account responsibly, it can help you qualify for a standard account down the line.

Verification without control

Another type of alternative chequing account is non-chequing chequing accounts. As the name suggests, these accounts do not allow you to issue checks; all transactions are made via debit card, mobile banking or online.

If you don’t normally write checks or maintain a large balance, this type of account can be appealing.

How to choose a checking account

Whether you are looking for your first checking account or the next, there are a few things to keep in mind when comparing options.

First, decide if you want to open a checking account at a physical bank or a credit union or at an online bank. Traditional banks are good for people who need to visit a branch, while online banks may charge less verification fees. So you need to decide what matters most to you: convenience or cost.

Speaking of fees, take a look at a bank’s fee schedule so you know exactly what you might be paying for a checking account. This includes finding these fees:

  • Monthly maintenance fees
  • Minimum balance charge
  • Account inactivity fee
  • Bank transfer fees
  • ATM fees and surcharges
  • Insufficient fund charges
  • Overdraft fees
  • Overdraft protection fees

If a bank or credit union charges any of these fees for a checking account, it’s important to know how to avoid them. For example, if there is a minimum balance fee, getting around it can be as easy as keeping a certain amount of money in your account at all times.

Finally, consider which features or benefits of a checking account are most important to you. These can include things like accessing online and mobile banking, earning rewards on purchases, an extensive ATM network, or the ability to earn interest on your balance. Choosing the right checking account ultimately comes down to finding the best combination of features, access, and cost to meet your individual banking needs.


About Joan Ferguson

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