What Is a Checking Account and How Does It Work?

Kyle Delicata, Relationship Manager, First Republic Bank
November 10, 2021

  • A checking account is a deposit account at a financial institution offering easy deposits and withdrawals.
  • Interest-bearing checking accounts generally feature lower interest rates than savings accounts in exchange for greater flexibility.
  • There are many variations of checking accounts offering a range of advantages and disadvantages.

A checking account is an essential part of financial planning and is the most common personal banking tool for managing day-to-day transactions. A checking account serves as the central hub for much of your financial management by allowing you to easily pay bills, make purchases and receive payments.

Understanding the benefits and features of checking accounts, how they differ from savings accounts and how to open a checking account online or in person is key to choosing the right checking account for your financial needs.

Checking account definition

Banks offer checking accounts, a type of deposit account, to individuals who are looking to make frequent withdrawals and deposits. Checking accounts are intended to cover day-to-day transactions, including making purchases, paying bills and withdrawing cash.

Checking accounts are usually paired with a debit card, which allows you to make purchases at a point of sale and pay with funds that come directly from your account. Many financial institutions also provide a number of ways to conveniently access your checking account, including mobile or online banking and wire transfers between bank accounts.

Understanding how checking accounts work

Checking accounts allow you to easily complete day-to-day transactions, including depositing and withdrawing funds. Understanding the basics of how checking accounts work will position you to make the most of your account's benefits and features.

Checking account benefits

Checking accounts offer a range of advantages for sending and receiving money. With a checking account, you can:

  • Use your debit card for ATM withdrawals
  • Use your debit card for daily purchases
  • Set up automatic bill payments
  • Send and receive money between banks via automated clearing house (ACH) transfers and wire transfers
  • Set up direct deposits to receive payments automatically
  • Write personal checks

Checking account features

Some checking accounts offer additional features that make sending and receiving payments even more convenient. As you research potential banking partners, consider whether they offer checking accounts with added features, such as:

  • Online and mobile banking, so you can check your balance anywhere
  • Overdraft protection to shield against bounced checks—and the stress that comes with them
  • Interest-bearing checking accounts allow you to earn interest on the balance in your checking account
  • Transfers between accounts
  • Customer service for help and support in managing your money to meet your financial goals
  • Other rewards or bonuses, such as benefits for students and seniors

The features available with your checking account vary by bank and the type of account you have. Check with your financial institution to see which features apply to you.

Checking account fees

Many financial institutions may have requirements and charge fees associated with checking accounts. These may include:

  • A one-time minimum deposit for opening the account
  • A monthly maintenance fee/monthly service fee for maintaining the account (which may be avoided when following minimum account balance requirements, if applicable)
  • ATM fees for withdrawing funds from third-party ATMs not associated with your bank
  • Foreign transaction fees for sending or receiving money in other currencies

The fees associated with a checking account vary depending on the bank and the type of checking account.

Some financial institutions may waive or reduce your fees if you maintain a minimum balance. Consult your financial institution to make sure you understand the fees associated with your checking account.

Checking account vs. savings account

A checking account functions differently than a savings account, and you may ask yourself some common questions, including: What is the main benefit of a savings account? How does a checking account work, and do checking accounts earn interest like savings accounts?

Understanding the difference between a checking and a savings account can help you use both optimally. Some key differences include:

  Checking account Savings account

Financial planning

Designed for short-term financial planning, to cover day-to-day deposits and withdrawals Designed for longer-term financial goals and long-term storage of money
Financial use Used to pay bills, make purchases and receive deposits Used to meet various savings goals, such as building and emergency fund or saving for retirement
Transaction limitations Allows for several (or unlimited) transactions monthly without added fees Can have a limited number of withdrawals allowed from accounts during each statement period without added transaction fees
Interest May or may not earn interest Earns interest

Which type of bank account is best for everyday transactions?

A high transaction limit and flexibility make checking accounts optimal for everyday transactions. Some checking accounts often allow for unlimited transactions during each statement period, so you can cover your expenses without added per-transaction fees.

Savings accounts, conversely, sometimes have low transaction limits or per-transaction fees, making them less than ideal for handling multiple, everyday transactions.

How to choose a checking account

Most of your day-to-day money management will likely involve a checking account, and selecting the right banking partner and the right type of checking account is important. As you research and evaluate your options, consider which checking account features are most important to you.

Once you've narrowed down the most useful benefits and features, you'll want to select a checking account that can help you meet goals established in your financial plan.

Types of checking accounts

Financial institutions often offer several options for checking accounts, and it’s important to choose the right account to suit your needs.

Some of the checking account types available to you, the account holder, may include:

  • Traditional or common checking account: an account best suited for handling everyday transactions
  • Student checking account: an account that that can offer options like interest-free overdrafts and lower minimum balances for students
  • Senior checking account: an account that can offer features like free checking and money orders.
  • Business checking account: designed for businesses to manage their everyday transactions

The type of account available to you will vary based on the financial institution you choose to bank with. At First Republic, we offer Basic Checking, Classic Checking, ATM Rebate Checking and Business Checking accounts to meet your needs.

How to open a checking account

Once you’ve decided on the right checking account for you, you will need to take steps to confirm your identity for security.

Here are some of the basic steps you complete as you set up your account:

  1. Complete an application
  2. Provide a photo ID and/or other identification, such as a social security card or birth certificate
  3. Provide your social security number
  4. Provide proof of your mailing address
  5. Provide a signature
  6. Deposit initial funds, if required by your chosen financial institution

This process and its requirements may vary by the type of account you choose to open, so be sure to connect with your banker to learn what to expect from your bank.

Can I open a checking account online?

Whether you can open a checking account online depends on the bank, credit union or other financial institution.

Some banks may allow you to complete the entire process online, allowing you to scan and upload your supporting documentation and provide your signature electronically. Other banks may allow you to start applying for an account online, but ask that you visit a local branch to complete setting up a checking account.

Some institutions offer specialized services to ensure your information is secure. These services can use a passive approach where others offer both passive and active monitoring services.

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