What is a Checking Account? (Psst, It’s Not Just About Writing Checks)

Although a checking account is one of the most common financial products offered by the best banks and credit unions, have you ever really stopped to think about what a checking account is? Whether you already have one of these accounts or you’re thinking about opening one for the first time, we’ve got you covered.

There are several different types of checking accounts, which I’ll explain in more detail later. But before I do, let’s take a look at what a checking account is in the first place.

What is a checking account?

A checking account, also known as a demand deposit account, is a type of bank account that is designed with frequent transactions in mind. Because deposited funds can be withdrawn at any time, people use checking accounts to manage money that is used for everyday expenses — such as gas or groceries — or to pay bills.

Checking accounts typically offer convenient ways to deposit, withdraw, and transfer money from the account, such as direct deposit, checks, and debit cards. This gives people more options and flexibility for paying for things aside from using cash. In addition, most debit cards that are issued with a checking account can also be used to withdraw cash at ATMs. Although there is no limit to how much money you can withdraw from your account — granted you have the money in the account to withdraw — there may be certain limits for withdrawing cash at an ATM.

Now, you might be wondering whether checking accounts are free or if you have to pay for them. And, yes, free checking accounts do exist. The term free checking usually means there is no monthly maintenance fee. This is a monthly fee banks charge to customers just for having the account. Some banks allow customers to avoid paying a monthly maintenance fee if certain requirements are met, such as maintaining a minimum balance in the account. Because fees vary from one bank to another, it’s always best to shop around as you’re looking for the best checking account for you.

The 6 most common checking account types

There is no one-size-fits-all checking account. Banks and credit unions may offer several different types of these accounts for personal and business use.

1. Personal checking

A personal checking account can come in many different varieties, but the term personal checking is pretty much a blanket term for different types of basic checking accounts you might find at most traditional banks. A personal checking account can include regular checking accounts that require a minimum balance and offer unlimited check-writing privileges, as well as low-cost or free checking accounts.

2. Business checking

This is a type of checking account used solely for business purposes. It may offer many of the same features as a personal checking account, such as writing checks and debit card use, but the requirements for opening a business checking account are different. Generally speaking, you typically need an Employer Identification Number and other business documents in order to open a business checking account. You may find many of the same fees you would find with personal checking accounts as well, such as monthly maintenance fees.

3. Student checking

Some banks and credit unions offer student checking accounts with discounted fees. The requirements for opening this type of account will vary from bank to bank, but many banks have age requirements and require proof of student status to be eligible for this financial product.

4. Rewards checking

Rewards checking accounts give customers the chance to earn cash back on a debit card. The amount of cash back varies but is generally around 1%. Banks or credit unions that offer rewards checking accounts may set spending caps or limit the number of transactions that earn rewards.

5. Online checking

Online checking accounts are usually offered by financial institutions that function solely online. Some traditional brick-and-mortar banks, however, may offer an online version of their checking account at a reduced cost. Online checking accounts usually have lower fees or are entirely free as the overhead costs of in-person banking don’t apply. Aside from being online, these types of checking accounts usually offer many of the same features as regular checking accounts, such as debit card use and unlimited checking writing.

6. Interest-bearing checking

Although money in most checking accounts doesn’t earn interest, some banks, usually  the best online banks, offer interest-bearing checking accounts. According to the Federal Deposit Insurance Corporation (FDIC), the average interest rate on interest checking accounts is 0.07% (as of Feb. 8, 2024). However, it’s not hard to find online banks that offer between 0.10% and 0.50%, depending on the account balance. Some banks may require you to maintain a minimum balance with these accounts, whereas others don’t charge any fees at all.

What to consider as you’re shopping for a checking account

If you’re shopping for a checking account, you may be wondering where to begin. There are countless banks and even more checking account options, which can be overwhelming. On the plus side, there’s no obligation to stay with a bank just because you opened an account with them. So if you open a checking account and don’t feel it’s right for you, you can switch to another bank.

Here’s what to consider when shopping for a checking account:

Checking account fees

From monthly maintenance fees to ATM and overdraft fees, banks that charge fees sure do love them. In fact, America’s three biggest banks — JPMorgan Chase, Bank of America, and Wells Fargo — earned more than $6 billion in 2015 just from ATM and overdraft fees. Before you open a checking account, make sure you know what kind of fees are attached to it — and consider an account with overdraft protection.

Better yet, you may just consider opening a checking account with a bank that feels the same way about fees as the rest of us. Current Bank, an online-only bank you access using a mobile app, is one such example. Simply put, Current Bank offers a banking experience that isn’t riddled with fees — no hidden fees, no minimum balance fees or requirements, no instant transfer or bank transfer fees, and no overdraft fees.

Minimum balance requirements

Like checking account fees, minimum balance requirements get old pretty quickly. Checking accounts are designed for frequent use, and minimum balance requirements can get in the way. If the idea of being required to maintain a certain balance or jump through hoops to avoid such a requirement doesn’t sit well with you, an online bank may be the way to go. With an online bank, chances are you won’t have to worry about this type of thing.

ATM access

When choosing a bank, consider how often you need to withdraw cash. Many banks offer ATM cards that offer you easy access to your money, but be careful. If you use an ATM at a bank other than your own, you might get hit with an out-of-network ATM fee. Some banks use their own ATMs; others partner with ATM networks, such as Allpoint. Some banks will even let you use ATMs outside their network a few times a month without incurring any fees. If ATM access is important to you, make sure to understand your bank’s ATM policy.

Checking account APY

When comparing a checking vs. savings account, you probably won’t find a checking account that pays as high an interest rate. That being said, some interest is better than nothing. Although you may not find too many interest-bearing checking accounts at traditional brick-and-mortar banks, you won’t be hard pressed to find them online. Online banks don’t have all the overhead costs associated with physical banks. These savings are then passed to you in the form of lower fees and higher interest rates (or no fees at all). Even if you’re frequently using the money in your account, why not earn a little something until you do?

How to sign up for a checking account

The process for signing up for a checking account might be a little different if you sign up in person at a bank or if you sign up for an account online. It will also vary from bank to bank. In general, if you plan to sign up for a checking account at your local bank, you can expect to need the following information and documentation:

• Photo ID
• Social Security number
• Date of birth
• Address
• Opening deposit (in some instances)

If you choose to bank online, the process is usually easier and much faster given that you can do it from the comfort of your home. To sign up for an online checking account, you will typically need:

• Name
• Date of birth
• Address
• Social Security number
• Email
• Opening deposit (in some instances)

These lists aren’t exhaustive as the exact information you will need will vary from one bank to another. But whether you sign up in person or online, the process for opening a new checking account is pretty straightforward.

The bottom line on checking accounts

Checking accounts are a good option for anyone looking for a safe and convenient way to manage their money. You can withdraw any amount of money that you deposit into the account as often as you want, which makes it an ideal place to keep the money you need to access on the regular.

Although you’ll find plenty of checking accounts that are weighed down with monthly maintenance fees, ATM fees, and minimum balance requirements, these are fees you should never pay. There are plenty of free checking accounts — even interest-bearing checking accounts — that offer all the perks without the constant worry of being hit with a fee.