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Guide to Checking Accounts

Guide to checking accounts
Jacqueline DeMarco
Jacqueline DeMarcoUpdated January 16, 2025
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
A checking account is one of the most fundamental tools for managing personal finances. It provides a safe and convenient way to handle everyday transactions, from paying bills to shopping online or withdrawing cash. With features like debit cards, online banking, and mobile apps, checking accounts make it easier to keep track of your spending and stay on top of your budget.Keep reading to learn everything you need to know about checking accounts, including the types available, common fees, and key features to look for.

What Is a Checking Account?

A checking account is a type of bank account designed for everyday financial transactions, such as depositing and withdrawing money, paying bills, and making purchases. It typically includes features like a debit card, online banking, and access to a network of ATMs. Unlike savings accounts, checking accounts prioritize accessibility and liquidity, allowing you to manage your money conveniently. Some accounts may also offer additional perks like interest, overdraft protection, or rewards programs, depending on the bank or financial institution.

How Do Checking Accounts Work?

A checking account is designed to make it easy to deposit and withdraw cash frequently, unlike savings accounts that have limits on how often someone can withdraw cash. With a checking account, consumers can expect to make unlimited transactions each month. On the downside, checking accounts don’t earn interest on deposits like savings accounts do. When someone pays with a paper check, that transaction comes out of their checking account. Nowadays, it’s also possible to make electronic transfers from a checking account or to use a debit card or other form of contactless payment. Many consumers have their employers direct deposit their paychecks into their checking account via electronic deposit, which saves them a trip to the bank every two weeks. 

Pros and Cons of Checking Accounts

Like with any type of financial product, checking accounts have both advantages and disadvantages that are helpful to be aware of. 

Pros

The pros of checking accounts include:
  • Payment flexibility via check, debit card, or electronic transfer
  • Can direct deposit paychecks
  • Makes bill payment simple
  • Federal insurance on deposits up to $250,000
  • Can access cash via ATMs

Cons

Some cons worth keeping in mind include:
  • Account fees may apply
  • Potential to overdraft
  • Can’t earn interest on deposits
Recommended: Cashing a Check Without a Bank Account, Explained

Types of Checking Accounts

There are a few different types of checking accounts that consumers have available to them. 

Basic Checking

A basic checking account is what we previously described. Account holders can make frequent withdrawals and deposits and they can access their cash via a check, debit card, ATM, or electronic transfer. Account holders don’t earn interest on deposits. 

Rewards Checking Accounts

While it isn’t all that common, there are some rewards checking accounts on the market that make it possible to earn cash back on debit card purchases. It’s more common to come across cash back rewards with credit cards, though.

High-Interest Checking Accounts

Again, most checking accounts don’t earn interest. However, there are some select checking accounts on the market that do earn interest on deposits, usually ranging from an APY of 1% to 4%.Recommended: What Are Premium Bank Accounts?

Senior Checking Accounts

A senior checking account is a normal checking account with perks like less fees and free checks to help keep seniors financially fit during retirement. 

Student Checking Accounts

Student checking accounts are designed to meet the financial needs of college students. They are similar to a senior checking account, and often require proof of enrollment in an eligible college. Recommended: Guide to Student Savings Accounts

Checking Accounts for Minors

Minors can’t open checking accounts on their own, but most banks allow them to open a checking account with a joint account owner such as a parent or guardian. Some banks have checking accounts designed for children, as well. 

Second Chance Checking

Banks don’t have to allow new customers to open accounts if they have exhibited bad banking behavior in the past. A second-chance checking account is designed to provide banking services to consumers who made banking missteps so they can rebuild a positive banking history. 

Tips on Using a Checking Account

When using a checking account, there are some best practices that can be helpful to follow. 

Overdrafts

Overdraft means the account holder spent more money than was in their account, typically by using a debit card. Luckily, banks cover this overspending to a certain extent (for smaller overdrafts) so the payment will clear, but do charge a fee for overdrawing whether the payment clears or not. Recommended: Banks That Don’t Charge Overdraft Fees

Debit Card

When someone opens a checking account, they gain access to a debit card. Before using a debit card, it’s helpful to confirm the account balance so an accidental overdraft doesn’t happen. A debit card can be a helpful card to have around in the event someone runs out of cash or doesn’t want to use a credit card. 

Service Charges

Some checking accounts come with a monthly service fee (also known as an account maintenance fee), so it’s helpful to confirm what that fee is before opening an account. Some banks also charge a fee if the account holder’s balance falls below the required minimum, which is another reason it’s a good idea to keep an eye on the account balance.Recommended: Money Market vs Checking Account

5 Uses of Checking Accounts

Now let’s take a look at five common uses of checking accounts. 

1. Making Direct Deposit

Having an employer direct deposit a paycheck into their checking account saves workers the hassle of having to take their paychecks to the bank to deposit them after every single payday. 

2. Doing Wire Transfers

Consumers can use the funds in their checking account to create a domestic or international wire transfer which makes it possible to transfer money to another individual’s account or as a payment, such as a personal loan or mortgage loan payment. 

3. Using ATMs

With a debit card that is linked to a checking account, consumers can use ATMs to withdraw cash when they can’t make it to the bank.

4. Paying Bills

Many consumers directly pay their bills from their checking account using electronic transfers.

5. Making Use of Cashier's Checks

A cashier's check is a very secure form of check payment that guarantees the recipient will receive their payment. Consumers often use cashier’s checks to make large transactions like buying a car. Recommended: Guide to Transaction Accounts

Choosing a Checking Account

Need help choosing a checking account? Keep these different factors in mind when comparison shopping. 

Fees

First, look for a checking account that doesn’t charge fees for things like not maintaining a certain balance. Then look for an account that charges the least amount of fees for overdrafting and monthly maintenance to save as much as possible. Recommended: How to Avoid Bank Fees

Number of ATMs

ATMs can be really convenient, but in order to use one for free it has to be in network with the consumer’s bank. See how many ATM locations a bank offers before opening an account to get an idea of how accessible their ATMs really are. 

Rewards

They are less common, but if a consumer can find a checking account that offers cash back rewards, they can save money on everyday purchases made with their debit card. 

Opening a Checking Account

It’s possible to open a checking account in-person at a local bank branch and in many cases it’s also an option to open one online whether the bank is an online only bank or has local branches. To open a checking account, applicants usually need to provide identifying documentation and a proof of address. They may also need to make a minimum deposit. Recommended: What Is Checkless Banking?

Can You Get By Without a Checking Account?

Most people find it challenging to manage their financial life and keep their money safe without a checking account. While it may be possible to go without one, that isn’t the most convenient route to take. 

The Takeaway

Checking accounts offer a convenient way for consumers to deposit and withdraw cash, while also keeping their money safe. It’s important to understand how checking account fees work and how to use a checking account properly to avoid running into problems such as overdraft fees. Lantern by SoFi offers an online banking marketplace, making it easy to compare high-yield savings accounts based on interest rate, fees, and balance minimums. Shop online savings accounts and find the best rate with Lantern today.

Frequently Asked Questions

What do checking accounts do?
Are bank accounts and checking accounts the same?
Is a debit card the same as a checking account?
Photo credit: iStock/damircudic
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About the Author

Jacqueline DeMarco

Jacqueline DeMarco

Jacqueline DeMarco is a personal finance writer and editor based in Southern California. While she spends the bulk of her time writing about complex financial issues, she also tackles a variety of subjects ranging from food to fashion to travel. Her work can be found across dozens of publications such as Credit Karma, LendingTree, Northwestern Mutual, The Everygirl, and Apartment Therapy.
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