What Is A Checking Account And What You Should Look For In A Checking Account?

By: Frank Makrides

Updated on October 16, 2020

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Choosing where you bank is more important now than ever. When I first starting using banking services, it wasn’t clear to me what a checking account was and what specifically I should look for in a checking account. There were so many different bank account types and offerings, it was a bit confusing. I’m going to take the confusion out it and share with you exactly the latest up to date information of what the new checking account model is, what you should look for when shopping around for a checking account, the services, technology, interest rates, bonuses and anything else you should be taking into consideration when looking to open a checking account today.

What is a checking account and what is it used for?

A checking account is that a checking account is a transaction account. It is an account where your funds are either held at a bank or at a financial institution, a brokerage firm for example. The purpose of the checking account is that the funds are available immediately and frequently for the purpose of payment to other accounts. These accounts are primarily used for paying your expenses, your bills and used for commerce for purchasing goods and services.

How to open a checking account in person or online?

To open a checking account, you typically need a government form id, proof of address and a tax id, your social security number. Today this can sometimes be done all through a mobile app and without any human interaction whatsoever, it’s pretty amazing. I have found that account approval sometimes is pretty instantaneous, especially if it’s an online bank.

Opening a checking account for a student or a minor?

If you’re a minor or a student you would typically need proof of enrollment at your qualified school or you might need a parent or guardian to cosign. This might make the account creation process sometimes a bit more complicated but you should still be able to open account relatively quickly.

My recommendation for minors or parents looking for an amazing banking service is Greenlight. They offer amazing budgeting, financial responsibility and other essential banking features to help educate kids and young adults. Check out the link below to learn more about Greenlight.

#1 rated for teaching minors financial responsibility

#1 Rated For Teaching MInors Financial Responsibility

With a lack of financial education for the most part in our society, Greenlight provides a platform that helps fill that void. Real-world lessons in financial responsibility Greenlight kids set their own goals, make tradeoff decisions and learn the power of saving. 89% of their parents said Greenlight has helped teach their children financial responsibility.

Try Greenlight

How to initially fund your checking account?

This can be done through the bank’s mobile app or an ATM machine. It’s pretty simple today to simply sign and deposit a check right through your smart phone today. Most of these deposits can show up the same day in your account. Another way to fund your account would be through direct deposit from an employer or depositing funds through an ATM machine using your newly issued bank’s debit card.

Checking, savings, CDs and money market accounts in the United States are protected by the Federal Deposit Insurance Corporation (FDIC). Click here to learn more information.

When you should use a checking account over a savings account?

A checking account is primarily used as the account for you to pay your bills, expenses are for goods and services. Because whoever you’re paying is looking for instant access or an on-demand payment from you that is where the need for payment through a checking account comes in. A savings account is there for you to store your money, hopefully, earn interest and make limited transactions within that account over a fixed period of time.

Please click on the FDIC guide on “Learning Bank – Checking & Savings Accounts“

How to make payments with a checking account?

There are many ways you can make a payment through a checking account. Still to this day there are a lot of paper checks in use. This is the traditional form of payment through a checking account.

A very popular form of payment from a checking account today is the bill pay portal through the financial institution. Bill pay allows you to either make a one-time or recurring payment to another account from your checking account. This can either be an on-demand, scheduled or even a recurring payment. Rent or mortgage payments are perfect examples of scheduled recurring payments that you could use a bill pay service for.

Other account-to-account methods to make payments include ACH or automated clearing house networks, RTP or real-time payments and bank wires. With these methods, you will need the financial institution’s routing number and the bank account owner’s information that you want to send your money to on-demand prior to executing a payment.

There are also debit cards that allow you to make instant on-demand payments, peer-to-peer payment services like Zelle that are connected to your account as well. Peer-to-peer payments are payments made between two people that know each other, digitally, where are funds are typically transferred almost instantly.

Online checking accounts

If you don’t have the need for large regular cash deposits you should definitely consider an online checking account over traditional local bank offerings. Their overhead is so much lower than traditional banks and they pass that savings on to you in the form of enhanced, lower-cost goods and services.

I have never had an issue that I couldn’t resolve through the phone, online chat or email with an online bank. Their banking technology stack is also typically far superior in many ways to your traditional local bank. This can be seen in industry-leading mobile applications, ways to transact and ways to receive immediate support digitally.

They also have a lot of smart and intelligent features built in to help you save more and provide you insight into your spending habits. Some of my favorite enhancements are integrated budgeting tools, setting goals and spending alerts, so I have a pulse of what’s going on in my accounts.

The best part of all is that online banks usually offer no-fee checking accounts, higher interest rates and bonuses to new customers as they’re aggressively growing and expanding their customer base. That is great for all of us looking to get the most out of our money today.

Please click on the link to the free “Tips For Safe Banking Over the Internet” guide from the FDIC, Federal Reserve and Office of the Controller.

No fee and no minimum checking accounts

You should avoid checking accounts with minimum balances and fees associated with them at all costs, if you can avoid it. You want to build your wealth and always get your costs under control. The last thing you want to do is park your money in a checking account somewhere where the financial institution is taking a cut of your money away from you in the form of fees.

You want a bank that you can grow with and you that you can trust. Some banks even offer no-cost overdraft fees, bounced check forgiveness and more on their accounts. It doesn’t hurt to ask what all the perks are prior to opening account and parking your hard-earned money there.

Be sure to check out my personal finance pages, free monthly budgeting tools and guides so you get your checking account in good order when you open it.

Checking account interest rates, promotions and offers

It doesn’t hurt to ask what all the perks are prior to opening your checking account and parking your hard-earned money there. If you can get any interest on your money in a checking account go for it. Checking account interest rates are usually significantly lower than their savings account counterparts. Some banks offer high interest checking introductory rates and others offer high-interest rates for a specific deposit or monthly spending amounts for example.

Bank accounts, checking, savings, CDs and money market account interest are subject to taxation. Please click the link to the IRS website for additional information.

Other services to take into consideration

Ask to see if they offer free paper checks, bank or money order checking services, the cost for bank wires, bank transfers like ACH and more. Find out how you can reach them if you need help? Are they available by phone or online 24/7 for example? Can you do a check deposit by phone? Do they offer free debit cards linked to your account? What are the ATM fees if any associated with the account? Think of the way you plan on using your checking account, ask the questions that best fit your needs and narrow down your choices.

If you want to take the guesswork out of it, the two financial institutions below, Axos Bank and Chime are by far the best two options depending on your needs. If you want some of the highest interests offered in banking today, then check out Axos Bank. If you’re looking for all the bells and whistles from an online banking standpoint, then check out Chime. You can’t go wrong with either choice.

#1 rated high interest checking & savings

#1 Rated For High Interest Checking & Savings

After researching banks nationwide for high yield savings and checking accounts, Axos Banks tends to always be close to the top. Their technology and online banking products are amazing as well. If you want high interest accounts, modern banking services and some of the best banking technology out there, then you have to check out Axos Bank.

Try Axos Bank

#1 rated for online & automated checking & savings

#1 Rated For Online & Automated Checking & Savings

If you’re looking for banking with no fees and automated savings then you have to try Chime. They offer no hidden fees like monthly fees, overdraft fees or minimum account balance fees. They also offer a service to get you paid up to 2 days early through direct deposit. With Round Up, you automatically transfer spare change to the dollar into your savings account. Try Chime today.

Try Chime

Summary

A checking account today is more of a digital on-demand payment vehicle than ever before. Be sure to shop around and take into consideration your spending needs and goals. Steer away from accounts that have high fees and find the financial partners that are in line with where you are at today and where you plan on moving forward in regards to your overall financial goals.

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Frank Makrides

Is a former financial technology industry executive, licensed realtor, real estate investor, an award-winning speaker, has been published, holds multiple patents and is passionate about all things personal finance and entrepreneurship. He is also a proud husband and father of 2 amazing children.