What is a checking account?

In a nutshell

When it comes to bank accounts, there are two main types: checking and savings.

• A checking account is a type of banking account you’ll use in your daily life to deposit paychecks or other income and pay for everyday expenses like utility bills, food, and gas.
• Checking accounts are necessary for most people in today’s world, and finding the right one is important.

What is a checking account?

A checking account is a type of bank account that allows customers to easily deposit and withdraw money. Checking accounts are widely available at most banks and credit unions and typically come with a debit card that can be used to withdraw cash from an ATM or to pay for goods or services. When you open a checking account, you will also get a checkbook to pay for things using physical checks if needed.

Most people use debit cards for their day-to-day expenses. If your job pays via direct deposit, the money can be transferred directly from your employer into your checking account so you can use it immediately, eliminating the need to cash your paycheck and wait for the funds to clear. You can then use checks or your debit card to pay for groceries, utilities, restaurant meals, clothes, or whatever else you need to purchase.

It’s important to note that some checking accounts may have fees associated with them. For example, some financial institutions may charge a monthly maintenance fee, though they may waive the fee if you keep a minimum amount in the account or set up a direct deposit for your paycheck to guarantee money will come in regularly. In addition to monthly maintenance fees, you may be charged a fee if you withdraw more money than you have in your account. This is called an overdraft fee, and it can be quite hefty.

Related: What are NSF fees?

How to use a checking account

Once you’ve opened a checking account, it’s easy to get started using it. First, you’ll want to provide your employer with your checking account number so you can get your paychecks deposited directly. If you receive any additional income from benefits, child support, or alimony, you can usually have those paid directly into your checking account as well. If you have a bank or credit union branch close to you, you can also deposit cash by visiting the branch and either paying it in via ATM or by visiting a physical teller to pay the money in.

Once you have your deposits set up, you can use your debit card to pay directly for things or to withdraw cash if you prefer. Many people prefer to use their debit card to pay for items like groceries and gas since it just takes a simple swipe or insert into the chip reader to make a payment. Additionally, you may be able to add your debit card information to your digital wallet on your cell phone or smartwatch so you can pay for things without using your physical card. While it may initially be a little nerve-wracking to make the move to paying with a digital wallet, the Identity Theft Resource Center reports that it may actually be safer to pay with a mobile wallet than with a card or with cash.

Finally, you can pay for items using a checking account by setting up automatic payments for things like utility bills or cell phone bills. All you need to do is set up autopay with the provider by entering your checking account or debit card information and approving the service to withdraw money every month for a specified amount. Automatic payments using your checking account are a good way to simplify your life by removing the need to remember to pay bills each month.

What’s the difference between a checking and a savings account?

One of the main differences between a checking and a savings account is that savings accounts generally don’t come with debit cards like checking accounts do. Some savings accounts may come with an ATM card that allows you to withdraw cash from savings easily, while others may require you to go into a bank branch in order to make a withdrawal. Consider highly rated accounts such as SoFi Checking and Savings, the Chime Spending Account, or, if you’re a college student, a Chase College Checking Account.

Additionally, many savings accounts have a limit of six withdrawals per month, whereas checking accounts usually don’t have a limit on the number of withdrawals. The reason savings accounts are capped like this is to help encourage people to save rather than spend their money.

Finally, savings accounts tend to earn more interest than checking accounts. The current average annual interest earnings on a savings account is 0.47%, according to the FDIC. Many checking accounts don’t pay interest on your deposits, though some do, particularly those offered by online-only banks. Savings pay interest to encourage you to save, but checking accounts are mostly a place to keep money for regular transactions.

How to open a checking account

When you’re ready to open a checking account, the first thing you should do is research a few different accounts to see which one is right for you. Look for benefits like low maintenance fees and overdraft protection to help save you money. You should also check to verify that the institution is insured by the Federal Deposit Insurance Corporation (FDIC, for banks) or the National Credit Union Administration (NCUA, for credit unions). Once you’ve decided on the right account, you’ll need to apply either online or at a local branch.

When you apply for a checking account, the financial institution may run a credit check, but it will not hurt your credit. You may also be asked to prove your identity with a piece of government ID and proof of residency (for example, a bill mailed to your house). Once approved, you’ll need to make a deposit to formally open the account. It’s a good idea to check with the bank or credit union to see their deposit requirements to open a checking account so you can make sure you have at least that amount on hand.

Once you’ve opened your checking account, you can begin linking up direct deposits and auto pays to help automate your finances each month.

Related: Checking vs Savings account