According to Unbanked America, 62 million Americans are unbanked or underbanked, which is roughly twice the population of Texas.
One aspect of being unbanked is not having a checking account.
So, living without a checking account changes basic routines. Getting paid through direct deposit may require extra steps, paying bills may take more work, and everyday purchases may stay cash-based.
What Is a Checking Account?
A checking account is a bank account designed for frequent deposits and withdrawals. People use it to manage spending, pay bills, and track everyday transactions in one place.
Many banks provide online banking and mobile banking apps that let you check your account balance, transfer money, pay bills, and deposit checks from your phone.
Common uses include:
- Paying bills through bill pay
- Making debit card purchases
- Setting up direct deposit for paychecks
- Using an ATM to withdraw money
- Sending wire transfers and person-to-person payments, such as Zelle or Venmo
- Moving money by transferring funds to savings or investment accounts
How Does a Checking Account Work?
Money enters through deposits like direct deposit or transfers, then leaves through debit card purchases, bill payments, ATM withdrawals, and transfers.
The account balance updates as transactions post, which helps you track spending and plan upcoming payments.
Some banks offer overdraft protection that can cover transactions when the account balance falls short. Banks may charge overdraft fees depending on the account terms.
Types of Checking Accounts
Banks and credit unions offer these types of checking accounts.
Traditional Checking
Traditional checking is a straightforward deposit account for daily use. You can deposit funds and use the balance to pay bills or make purchases.
Free Checking
Free checking accounts focus on basic access with fewer routine charges. People choose them to handle spending and bill payments while keeping ongoing fees low.
Interest-Bearing Checking
Interest-bearing checking works like a standard checking account and also lets you earn interest. The interest rate stays lower than rates offered by savings accounts, CDs, or money market accounts.
Rewards or Cash Back Checking
Rewards checking includes cash back along with standard checking features. Some banks require a certain level of monthly activity to qualify, and some accounts include perks like overdraft protection or rebates on ATM fees.
Student Checking
Student checking accounts target high school and college students who want to manage money independently. These accounts usually keep fees low and avoid strict balance requirements.
Senior Checking
Senior checking accounts serve older adults and may require age verification, which varies by bank. Many include perks such as unlimited check-writing, waived monthly maintenance fees, reduced minimum balance requirements, and discounts on other services.
Business Checking
A business checking account separates business funds from personal spending. Some banks add features like multi-user access and multiple debit cards so employees can use the account for business expenses.
Common Checking Account Fees
- Monthly maintenance: Monthly maintenance fee for keeping the account open.
- ATM: Out-of-network ATM service charge.
- Overdraft: Overdraft fees after the bank pays a bill or purchase beyond the available balance.
- Insufficient funds: Service fee after the bank declines a bill payment or purchase due to low balance.
- Inactivity: Fee after 6 to 12 months with no deposits or withdrawals.
- Stop payment: Fee for stopping a check or an ACH transfer after scheduling it.
- Statement: Paper statement fee.
- Wire transfer: Fee for sending money by wire.
Requirements to Open a Checking Account
Banks and credit unions ask for details to confirm identity and open a bank account. Bring a government-issued photo ID, such as a driver’s license or passport, plus a Social Security number or an ITIN.
Some institutions also request a supporting document, such as a Social Security card, a bill showing your name and address, or a birth certificate. Many accounts also require an initial deposit.
How to Open a Checking Account
- Choose an account: Compare options at a financial institution and select one.
- Complete the application: Apply online or in person and provide personal information plus a government-issued ID.
- Prepare funding details: If you fund it from an old account, gather the routing number and account number for the old account.
- Make the first deposit: Deposit by transfer, or deposit by check or cash if you open in person.
- Move bill payments: Transfer automated payments from the old account to the new one.
- Update payroll: Give the new account details to payroll or HR so direct deposit goes to the correct account.
Pros and Cons of Checking Accounts
Checking accounts offer practical everyday access and safeguards, but the benefits come with limits and potential fees worth reviewing.
Pros
- Debit card access: Pay in stores and make online purchases using money from your account.
- Direct deposit: Receive pay electronically from an employer on payday.
- Early direct deposit: Some banks provide access to direct-deposited pay up to two days sooner.
- Spending record: Transactions create a record of deposits and spending for tracking.
- Deposit insurance: Many checking accounts at an FDIC-insured bank include coverage up to allowable limits.
- Multiple access options: Withdraw cash at an ATM, write checks, or make an online transfer.
Cons
- Interest: Some accounts earn interest, and many do not; interest-paying checking accounts can pay less than savings accounts.
- Fees: Banks may charge a monthly maintenance fee and other maintenance fees.
- Minimum balance rules: Some accounts set a minimum balance requirement, and falling below it can trigger a fee.
How to Choose the Right Checking Account
List the services and features you plan to use, then screen accounts using that list. Compare options from traditional banks, credit unions, and online banks since fees, rates, access, branch locations, and ATM availability vary.
After you narrow it to one or two accounts, check the institution’s reputation and read customer feedback on review sites. Pick the option that meets your must-haves and keeps maintenance fees low.
Should You Have Both a Checking and Savings Account?
For most people, yes. Using both separates everyday spending from long-term savings, reduces the temptation to spend money set aside for goals, and helps you earn interest on savings while keeping checking funds accessible.
Some credit unions offer bundled checking and savings options that make it easier to transfer funds between accounts.
Checking vs. Savings Accounts: What’s the Difference?
| Checking account | Savings account | |
|---|---|---|
| Main purpose | Handles day-to-day spending and immediate money needs. | Stores money for future goals and longer-term savings. |
| Access to funds | Gives fast access to money. | May limit withdrawals. |
| How it’s used | Supports frequent payments and everyday expenses. | Supports saving and accumulation, not frequent transactions. |
| Interest | Does not earn interest. | Can earn interest, which helps savings grow. |
| Best for | Short-term cash flow and immediate spending needs. | Future plans, emergencies, and larger purchases. |
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Frequently Asked Questions
What is the most you should have in a checking account?
FDIC insurance covers deposits up to $250,000 per depositor, per FDIC-insured bank, per ownership category. If your balances exceed that at one bank in the same ownership category, the amount above $250,000 may be uninsured.
What happens if I don’t use my checking account?
A bank or credit union may treat the account as dormant after a period of no activity, and some charge a dormant or inactivity fee. Experian notes this can happen after six to 12 months, and the institution may close the account after a much longer period.
Can I use a checking account as a savings account?
You can store money in a checking account, but checking accounts are mainly for everyday spending, while savings accounts are for saving and growing money. Savings accounts tend to offer higher interest rates, making them better suited for keeping money set aside for goals.
Conclusion
A checking account should align with your pay schedule, bill timing, and the purchases you make each week. Choose terms you can maintain each month, so fees stay predictable and access stays convenient.
Before opening an account, confirm current requirements and charges with the bank or credit union.
Getting the right information about financial services will help you make the correct choice that aligns with your lifestyle and goals. Subscribe to Financial Daily Update today for more expert resources and insights on personal finance.
