A checking account is also known as a ‘current account’ or ‘demand deposit account’, or a ‘share draft account’ at credit unions. It is a type of bank account that allows you to deposit and withdraw money regularly.
Available to the account owner on demand, a checking account gives customers the option to withdraw cash, use a debit card, write checks and transfer money electronically. Daily transactions can be achieved quickly and easily through this useful financial product which is extremely popular, as shown in a 2020 Federal Reserve Survey whereby 95% of the adult population had this type of bank account.
This guide will delve deeper into explaining the different features of checking accounts, with further information on what they entail, their uses and important fees to look out for.
What Is A Checking Account?
A checking account is a type of bank account that allows users to make easy transactions whenever they wish and for any amount that they wish, providing that they have the funds available and are not subject to any spending limits.
A checking account is different to a savings account as they are designed to be used for everyday purchases and regular bill payments, whereas a savings account is used to store money to grow your funds. As a result, a checking account will usually receive no interest or much lower interest than a savings account since the money is more likely to be moved around in this type of account. So the money in a checking account is often referred to as ‘liquid funds’ in economic terms, allowing for lots of deposits and withdrawals, as opposed to the money in an investment account.
Checking accounts are useful to those looking to make frequent transactions. A further advantage of this financial product is that you can track your monthly expenditures clearly by monitoring your checking account via your bank statement which can be received in the post, accessed online or through a designated banking app. This will help you identify if you are overspending on certain areas and enable you to budget or stick to a money diet which can help you save dollars.
Are There Different Types of Checking Accounts?
Yes, there are many different types of checking accounts available. As well as individual classic accounts, there are also:
- Business or commercial checking accounts
- Kids and teens checking accounts
- Student checking accounts
- Senior checking accounts
- Joint checking accounts
- Checkless checking accounts
- Reward checking accounts
- Second chance checking accounts
Is A Checking Account Needed To Borrow Money Online?
When looking to borrow money online, lenders will want to deposit your funds into a checking account. So whether you borrow a $255 payday loan or a $1000 installment loan, it will be much easier if you have a live checking account.
Other criterion often required by lenders include being a US citizen aged over 18 years old. As well as this, a regular income of at least $500-800 a month and a stable job will also be reassuring to lenders who will then feel confident that you will be able to meet your loan repayments.
What Should I Consider When Opening A Checking Account?
Before opening a checking account, it is worth checking if there are any important terms and conditions. For instance, some banks may charge maintenance fees, require you to keep the account balance above a certain amount or have withdrawal daily limits.
It is also essential to find out about overdrafts which is when the bank will cover your purchase if it cost you more than you currently have in your checking account. So in theory you are borrowing money through your account. However, you will need to repay this and so it is important to check the banks conditions when it comes to overdrafts, for instance, whether the bank will charge you an overdraft fee, as well as a subsequent fee for each additional transaction that you make whilst remaining in your overdraft.
It is possible to avoid overdraft fees with some banks so it is worth doing your research before opening a checking account. Some banks offer an overdraft protection service for checking account holders which means that even if the account has insufficient funds, your bank will cover the shortfall so that your transactions will still go through, and with no overdraft fees.
When choosing a checking account, it is also worth looking if there are any banks that offer interest or cash back so that you can earn a top up on your spendings. Check if there are balance limits or spending requirements, as well as if you will have free access to nationwide ATM networks as having easily accessible cash machines across the US will make withdrawing money extremely convenient. Ideally there may even be a sign-up bonus or reward for setting up a checking account with some banks.