A checking account is an essential part of modern life. Your paycheck gets deposited there, and your debit card provides convenient purchasing, earns rewards, and eliminates the risk of carrying large amounts of cash. More important, your checking account is the most efficient and accurate way to monitor your finances. But let’s be honest: when was the last time you sat down and thought about your checking account? When did you last spend some time researching the best checking account rates for your current financial needs?
There are hundreds of checking accounts to choose from, each with its advantages and disadvantages. The good news is that this article condenses and explains the current state of checking accounts, so you can make sure yours is healthy.
What is a Checking Account?
If you’re among the 6.5% of US households that do not yet have a checking account, it is best to familiarize yourself with the basics.
A checking account is a bank account you can use to pay bills and other expenses. You can make payments using a card, check, or by paying online. The majority of people who have a checking account use it for all kinds of daily expenses. These include purchasing gas, buying groceries, paying utilities, dining out, and paying for parking.
You can also have your paychecks automatically deposited directly into them and make as many withdrawals as necessary without paying an extra monthly service charge. You could even earn some interest on your account balances, although these accounts are hard to find.
Is a checking account the same as a savings account?
No, because savings accounts, offered by credit unions and banks, provide a nominal interest rate on your account balances, unlike most checking accounts. What’s more, if you have a sizable surplus in a high-yield savings account, you can probably earn a higher rate. And the interest you earn is never withheld or taken from you.
Another critical distinction is that although you can withdraw your money from a savings account at any time, there are limits to the number of times you can. With a checking account, there are no such restrictions provided you have adequate balances to cover your withdrawals.
Is a money market account the same as a checking account?
Although there are several similarities, such as making payments via check and debit card, a money market account pays a higher interest rate than a savings account. However, this advantage comes with a limitation – you can only make a limited number of transactions each month.
Why Checking Accounts Are Essential
You might ask, “If they earn little to no interest, why do I need one?” If you want to manage your money successfully, a checking account is essential for the following reasons:
Gone are the days when someone stored spare cash under the mattress because the likelihood of loss or damage, i.e., theft, fire, natural disaster, etc.) is higher than ever. If you deposit your money in a federally insured institution, such as a bank, it’s protected since the Federal Deposit Insurance Corporation (FDIC) covers up to $250,000 per person, per bank.
Also, paying by check or debit card is more secure than using cash. The post office doesn’t even accept envelopes with money in them. So, if you’re going to be old school, send a check for shopping and special occasions, such as an anniversary, graduation, holiday, or birthday.
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Having a checking account makes life so much easier. There’s no need to worry about cashing your paycheck. If you haven’t got a checking account, you have to find the right bank to cash the check and sometimes pay a fee for doing so. With a checking account, you can avoid such costs and skip the cashing process altogether by setting up a direct deposit.
Nobody likes having to pay bills, but they’re a part of everyday life. If you haven’t got a checking account, you have to make the payments physically, often traveling long distances to do it. A checking account allows you to make automatic payments, pay online, or pay via the service provider’s website.
Usually, your bank will offer you as a checking account holder, a debit card for making payments. If you carry a debit card, you can avoid taking large sums of cash. Your card is also protected if it’s lost or stolen.
Money management and budgeting are much easier if you’ve got a checking account. You can track all your withdrawals and payments with a monthly statement. And this accurate report allows you to see and adjust where your money is going. Additionally, if you open a checking account, you can track and organize your budget instantly, making the process even faster and more useful.
If you make payments using cash, there’s no paper trail or written proof that you made the payment. With a checking account, you write checks or use your debit card, so there are records of each transaction. You never need to worry about claims of no payment or even late payment. Everything is timestamped.
If you choose a checking account with online access, you can track all your income and expenditures in real-time. To make the most out of it, try adding financial account software to manage your money.
Types of Checking Accounts
As mentioned above, checking accounts come in many formats with distinct benefits and options. These options are great because you’ll likely find one to meet your specific needs and requirements. So, whether it be for your household or your business, the list below highlights the main types:
Personal Checking Accounts
This term is general and encompasses all kinds of checking accounts opened at a bank or credit union.
Online Checking Accounts
A bank with no physical presence provides only financial services online. This financial institution typically offers free checking accounts because of the savings they make on low overhead.
Business Checking Accounts
If you run a small business, it’s vital to separate your personal and business finances. You may have to pay a monthly fee for this type of account and meet opening deposit or daily average balance requirements, but the added cost is worth it.
Rewards Checking Accounts
Wouldn’t it be great to get rewarded for opening and using a checking account? There are a few banks, such as Chase, Bank of America, and Discover, offering rewards checking accounts. The offers differ, so make sure you read the small print. The rewards you might receive include 1% cashback on a maximum of $3,000 debit card purchases and checking account bonus for new account holders.
Interest-Bearing Checking Accounts
One downside of a regular checking account is that you don’t get to earn any interest on your balance. An interest-bearing checking account is an exception. However, you must meet specific requirements like average daily balance requirements, debit card usage restrictions, and a direct deposit requirement.
Second-Chance Checking Accounts
This checking account is for those who have previously had problems with a checking account but want to try again. For this second-chance, you may have to pay a monthly fee as high as $20, and your account will be restricted. After a certain length of time, however, the bank may allow you to open a regular checking account.
Money Market Accounts
We’ve already covered money market accounts above. Their main attraction is that they are mainly savings accounts acting as checking accounts. Just be sure to watch the number of withdrawals; the federal government sets these limits because, technically speaking, a money market account is a savings account.
Student Checking Accounts
Students wanting to open a regular checking account can have problems due to a lack of credit or banking history. A student checking account waives these requirements because a parent typically opens the account and uses their credit and banking history to qualify. This type of account is also known as a minor checking account, but it still allows check-writing and debit card privileges. An account holder can be as young as 13, and you reach the maximum age limit, you can convert it into a regular checking account.
Joint Checking Accounts
A joint checking account is an account that two people hold. Both parties own the funds in the account and are responsible for fees, penalties, charges, and overdrafts. They are most typically used for minors, spouses, business partners, relatives, seniors, and caregivers.
Premium Checking Accounts
Often referred to as a high yield checking account, this account is for people with five-figure incomes or more who need easy access to their funds. With a high balance, you can avoid paying monthly fees and enjoy fantastic extras, such as ATM fee reimbursement, free checks, and possibly even a small amount of interest. Additional benefits may include free financial advice and preferential mortgage interest rates.
Interest-Bearing Checking Accounts
This account gives you something back, usually in the form of interest. It won’t be a considerable amount, but it’s better than nothing. Generally, you’ll receive a flat interest rate no matter your balance. Some banks may pay a higher rate for large balances. A checking account opened with a credit union also enables you to earn a dividend. The dividend rate depends on the institution.
Low-balance Checking Accounts
It’s not always possible to keep large amounts of money in a checking account, so there are low-balance checking accounts. If you know that you’ll struggle to maintain a precise balance in your checking account, then consider this option. You can still use checks and a debit card for purchases and payments. However, there are limitations such as a limit on the number of checks you can use or only receiving electronic statements.
Free Checking Accounts
The words “free” and “banking” rarely, if ever, go together. So, don’t be surprised if your “free” checking account still imposes some restrictions, requirements, and yes – charges. You may have to maintain a minimum balance, and failure to do so will result in charges. You may also have to pay for services, such as checks, overdrafts, foreign transactions, stop payments, and using ATM’s out of the network. As always, read the fine print first.
The Fine Print
Finding the best checking account for your current financial needs takes some planning. As the above list shows, there are so many types to choose from, and so many factors to consider. No matter which type you, however, you’ll need to know the following elements:
Be wary of these because they add up over time. If possible, choose an account with low or no monthly fees.
Minimum Balance Requirements
The best accounts should no minimum balance requirements.
With a checking account, you should have no restrictions on the number of monthly transactions. If an account does limit basic operations, such as withdrawals, deposits, and transfers, then look for another checking account.
It’s unusual for banks to charge you for using a bank within its network. When choosing your bank, find out what this network is and whether ATMs are widely available. Some banks may charge you a fee for using ATMs out of their network.
Online and Mobile Access
Online and mobile banking capabilities are the reality of modern banking. Most banks offer free apps for mobile devices, which make paying bills and deposits so much easier.
One potential fee is an overdraft fee for taking out more money than you have. Ideally, you should add overdraft protection because no one is perfect, especially on joint accounts.
Most likely, you’re going to use your checking account regularly, so the overall user experience is essential. Online and mobile apps need to work all the time, and customer service needs to be impeccable.
Things can get very complicated if you spread your money around several banks. Be careful not to chase temporary perks and rewards. It’s better to choose a bank that has advantages across the board versus several banks with lots of exciting offers you never get to enjoy.
Talk to people about their banking experiences, and you’ll hear some shocking stories. Much like any business, a company’s reputation is an essential factor to consider when deciding whether to do business with them. It’s also helpful to read customer reviews online and consider customer feedback.
How to Open a Checking Account
Opening a checking account is relatively easy. In the US, there are plenty of banks to choose from, but some are more popular than others. The top banks have physical locations you can walk into and speak to a representative about opening an account. Other banks conduct all business virtually, so you’ll have to go to their website to start an application.
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In addition to banks, credit unions offer checking accounts, but many of them require you to open a savings account first. There are also specific requirements to comply with if you want to bank with a credit union.
Although the process is easy, you do need to be prepared by having the required documentation handy. Whether you open an account online or visit a physical location, you have to provide a government-issued ID, such as a passport or driver’s license. Your Social Security number is also required, and they may require proof of your address. A lease for the property or a current utility bill should work.
Another part of the application is a credit check. The bank or credit union does this to understand your banking history. If your banking history is weak, then they may refuse to open an account.
Finally, you might have to make a deposit when you open your account, depending on the financial institution. Some banks stipulate a minimum deposit amount, while others may not as long as you deposit something. Find out what this amount is so that there are no problems at the bank.
A key difference between physical banks and virtual ones is obtaining a debit card. If you apply for your account online, you’ll have to wait for the bank to mail your debit card, which normally takes a few days. On the other hand, if you open your account in person, they should issue a temporary debit card immediately.
There is usually no charge for opening a checking account at a bank, but you will have to deposit some cash.
Opening an account with a credit union is different. All accounts holders own several shares in the union, and you have to buy one of these when you open your account. Don’t panic, though, because they range in price from $5 to $25. This amount has to stay in your account as long as it remains open.
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Securing the Best Checking Account Rates
If you already have a checking account, did you know that there are ways you can earn some extra cash by getting the best checking account rates? What you receive isn’t going to make you rich, but every dollar helps. A checking account has money coming in from your paychecks and money going out from your monthly expenses. With an inevitable fluid balance, it is hard to earn extra money from this account. There are, however, some ways you can do it. Let’s explore them.
Interest-Bearing or Savings Account
When you’re looking for a checking account and comparing checking account rates, you have to decide on your priorities. Do you want an interest-bearing checking account or will a savings account suffice? Do you want to leave a higher amount in the account? If so, a high-interest deposit account might be right for you.
If you’re sure you want an interest-bearing checking account, it’s often best to start with your current bank. Don’t just look at the large banks though; small financial institutions often offer very competitive checking account rates.
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Other Banks to Consider
Also, consider other banks outside your zip code. With so many offering mobile banking, there’s no need to choose a bank with its headquarters in your local town. Credit unions and regional banks, however, are worth checking out because they sometimes keep their best checking account rates for people who live in the area.
Larger banks may offer the most standard checking account rates, but they often run the most attractive special offers and promotions. You might be lucky enough to find as much as $500 for opening a new account.
Beware of the APY
No matter if it’s a physical or virtual bank, always beware of their APY, which stands for Annual Percentage Yield. Banks have to display this figure for their savings accounts, CDs (Certificates of Deposit), and checking accounts if they pay interest. The APY is the rate of return on the money you deposit.. The higher the APY, the more money you earn. On average, you can expect around 0.09% APY, but if you look around, you might find a bank offering one higher…
Top 5 Best Checking Account Rates for 2019
First Financial Credit Union
With its headquarters in Chicago, First Financial Credit Union offers one of the highest checking account yields. Its High 5 Checking Account has several benefits:
- 5% APY on balances up to $2,500
- Up to $10 in ATM fees refunded every month
- No monthly service fees and no minimum balance requirements
If you want to earn the highest yield and qualify for reimbursement of ATM fees, you need to complete a minimum of 15 signature-based debit card transactions every month. You also need to sign up for eStatements.
Anyone can open an account, as long as they donate to a nonprofit organization.
La Capitol Federal Credit Union
Based in Baton Rouge, Louisiana, La Capitol Federal Credit Union offers a range of checking accounts, one of which is the Choice checking account. Benefits include:
- 4.25% APR on balances up to $3,000
- Up to $25 in ATM fees reimbursed every month, provided you sign up for eStatements
To open this account, you need to join the Louisiana Association for Personal Financial Achievement, pay a $20 membership fee and deposit a minimum of $50 when opening the account.
To qualify for the highest yield, you need to complete at least 20 non-ATM debit card transactions every month. If your balance exceeds $3,000, the APY drops to 2%.
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One American Bank
One America has branches in Centerville and Sioux Falls, South Dakota. It also allows anyone to open an account online. The benefits of its high-yielding Kasasa Cash checking account include:
- 3.50% APY
- No monthly fees
- No minimum balance requirement for earning rewards
- $25 ATM fees reimbursed every qualification cycle
There is a balance cap of $10,000 and some other conditions if you want to qualify. These include having a minimum of 12 debit card purchases and signing up for online banking and eStatements. The minimum opening balance is $50.
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Open up a new Individual and Shared Protected Goals Simple account, and you can earn a 2.02% APY benefit from a $250 bonus for both parties. Other benefits include:
- No overdraft fees
- Free ATM withdrawals at more than 40,000 location
- Instant push notifications for every swipe
- Budgeting and saving tools built-in
- No monthly maintenance fees or minimum balances
The downside of this account is that there’s no way to deposit cash directly as it is an online bank.
Consumers Credit Union
The Consumer Credit Union‘s Free Rewards account provides customers with an opportunity to earn up to 5.09% Annual Percentage Yield APY. Other benefits include easy membership and a vast ATM network that’s free. There are, however, some requirements you need to meet.
One requirement is the number of purchases must make to qualify for one of the three tiers. You can earn 3.09% APY on up to $10,000 if you make at least 12 monthly debit card purchases totaling $100 or more. A direct deposit or ACH transfer of at least $500 also has to be made every month, and you need to sign up for eStatements.
To earn 4.09% APY, you have to make $500 in Consumers Credit Union credit card purchases, together with all the previous requirements. To obtain the top APY of 5.09%, you have to make an additional $500 in credit card purchases every month. Many customers are going to struggle to meet these requirements, especially if they don’t have a credit card.
Checking Account Interest and Fees
Traditionally, checking accounts didn’t pay any interest on account balances. But if you’re going to maintain a significant balance in your account, it is worth hunting for. However, while a checking account that earns you interest is very attractive, it’s possible to make interest on your money in another way.
A no-fee checking account, on the other hand, is often far more attractive. You can be charged fees for a range of different things. For example:
These are charged by many banks automatically. The amounts can range from $5 to $20 per month, and it’s what you pay for merely having an account. There are plenty of banks that don’t charge maintenance fees, so look out for them when choosing.
Overdraft and Insufficient Funds
These can sometimes be significant, often more than the total of any maintenance fees that they charge you. If you allow your balance to run low, you’re at risk of having to pay these charges.
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These can be very annoying charges to have to pay, but they’re all too usual. Paying to get your own money out seems ridiculous, but many banks make this charge. Be prepared for this type of charge to amount to as much as 5% or 10% of the amount you withdrew. The only way to avoid this type of fee is to use ATMs that are owned or affiliated by your bank.
If you want to send money quickly doing it by wire transfer is one option, but you’ll have to pay a sizeable fee.
Some checking accounts have a limit on the number of credit and debit transactions you can perform every month. If you exceed this limit, you’ll have to pay a fee.
Account Closing Fee
If you change your mind about a bank you’ve opened an account with, try to wait at least six months before closing your account. Banks like to slap on a charge if you close your account shortly after opening it.
Paper Statements Fee
Yes, you can be charged for wanting to receive a paper statement rather than an electronic copy. To avoid the $2 or $3 charge, sign up for receiving your monthly reports online. If you want a paper copy, then invest in a printer.
You pay one if you do not use your checking account regularly. Fail to use it for one or two years and as well as getting charged an escheat fee of $50 you’ll find any assets transferred to the state treasury. If you want to get these assets back, you have to make an application.
Card Replacement Fees
If you need to replace a bank card before it expires, you may have to pay a fee. This charge can be as much as $7.50, and then there’s an additional charge for expedited shipping of a replacement one.
Returned Item Fees
If your bank is unable to make a payment because you have insufficient funds in your checking account, you’ll have to pay a fee. This fee can be as high as $35 for every item returned.
There’s no getting away from the fact that you may find yourself paying a certain number of charges when you’ve got a checking account. Manage your money wisely, choose the right checking account rates and types, and you can keep these charges to a minimum.
If you’re one of the 6.5% of households who don’t yet have a checking account, you’ve now got enough information to help you make the right decision. There are many benefits to opening a checking account, and one of those is the checking account rates.
If you found a tremendous interest-bearing checking account or have a question, then please comment below.