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What Is a Checking Account? How To Open One

What is a checking account and what is it used for? If you’re looking to instill better financial management techniques, a checking account is basically a requirement in today’s modern age. Simply put, a checking account is a type of bank account which enables the account owner to write checks, autopay bills, and spend money using a debit card.

Checking accounts bring simplicity and safety to one’s personal finances. Without them, paying for everyday expenses, or monthly recurring expenses, would be challenging. Opening a checking account is easy! You can do so at your local brick and mortar bank, a credit union, or even through online banks. 

What Is a Checking Account Used for?

A checking account has numerous uses and benefits. The three most common uses are:

  • First and foremost, a checking account provides the account owner with a great deal of safety. Instead of carrying around cash to purchase items, groceries, gas, clothing, etc. – someone who owns a checking account can either carry a debit card or a checkbook. They can use the debit card or write a check for their purchase, and the money will be pulled from the checking account automatically. Additionally, if the bank is FDIC insured, or the credit union has NCUA insurance, the account is insured up to $250,000 – meaning you cannot lose the money you deposit in the account if it’s $250,000 or less. 
  • Secondly, a checking account allows you to set up recurring bill payments. Your cable bill, mortgage, utility bill, car payment, etc. can all be automatically paid each month. This helps you avoid late fees and helps boost your credit score. 
  • Additionally, a checking account can receive paycheck direct deposits. You’ll no longer need to cash your check or physically deposit it. 

How To Choose the Right Account

All checking accounts are not created equal. There are some nuances you’ll want to consider and compare against numerous banks/credit unions before making your decision. 


Some checking accounts come with fees. There is not a universal fee, nor is there a universal fee interval. Some banks have a monthly fee, some banks have a yearly fee, and other banks have no fee. Most commonly the fees can range from $5 – $15/month. 

Annual Percentage Yield

The annual percentage yield, or APY, is how much the bank pays the account holder for the money kept in the account. For example, if the APY is 0.25%, and you kept $10,000 in the account for the duration of the year, the bank pays the account owner $25. Annual percentage yields are minimal, and if you’re looking to earn interest on your money, you should likely look towards various saving or investing options

Ongoing Balance Requirement

Similar to fees, some checking accounts will require an ongoing balance requirement. Oftentimes, if the account value dips below this balance requirement, the bank reserves the right charge a fee. Some common balance requirements range from $25 – $100. 

Types of Checking Accounts

There are various checking account types, each with their own pros and cons. Let’s review the different types you may have access to.


A traditional checking account typically offers the standard service. A debit or ATM card will be issued, direct deposit will be an option, and the account owner can write checks against the account. 

These types of accounts are great for everyday transactions/purchases. Families and individuals can all benefit equally from a traditional checking account. 


Autobill pay, safety/security, and direct deposits are all benefits present in traditional checking accounts. 


The lack of interest is a major downside to checking accounts. The APY a bank provides on checking accounts doesn’t even keep up with inflation

Pricing or Fees

There may be a monthly or annual fee, and there will likely be an ongoing balance requirement as well. If the account owner happens to spend more money than what the account had, an overdraft fee is often associated with that overage. 


A premium checking account comes with all the benefits of a traditional checking account, but will likely have a few additional perks. These perks often include a free safe deposit box, free checks, and various benefits on money orders. 

A premium checking account is mostly categories for those who are going to keep a larger account balance at the bank. Many banks have a minimum balance requirement before a premium account is offered, ranging between $20,000 – $50,000+. 


There are extra perks to premium accounts. A free safety deposit account is always helpful. Additionally, the bank may provide discounts on loans for their customers who have premium accounts. Free checks and money orders are often a common benefit for premium accounts. 


You’ll have to keep a large account balance to be welcomed to the premium community. Keep in mind, having the funds to keep a large account balance isn’t a bad thing, but actually keeping all that money in a checking account can present an opportunity cost that you weren’t able to take advantage of. 

Pricing or Fees

Premium accounts have more strict fees. The minimum balance requirement is strictly enforced. If the account value dipped below the minimum balance requirement, the account owner will likely get hit with a fee. 


A senior checking account is designed for folks who are typically over 55 years old. They function like a regular checking account, but come with some additional perks. By nature of these accounts, they are only an option for those who meet the age requirement, typically 55 years or older. 


Many banks offer senior checking accounts a handful of benefits. Free checks and money orders are typically at the top of the list. The minimum balance requirement is also generally low. 


There’s nothing inherently wrong with a senior checking account. A common recurring theme is checking accounts do not earn terrific interest rates, but by no means does a senior checking account present downsides above and beyond a traditional checking account. 

Pricing or Fees

Many banks have a more lenient fee structure for seniors. The minimum account balance is typically lower, and if a monthly fee is present, it’s generally discounted. 


Student checking accounts are a great way for college students to get experience managing money. These accounts are for college students, typically 18-23 years old. 


One of the biggest benefits of a student checking account is the flexibility in fees it provides. These accounts have a low minimum balance requirement, low maintenance fee, and it’s even common for a bank to reimburse the ATM fee. 


Student accounts are often ‘owned’ by the parent/guardian. Although a loan or credit card poses more risk to one’s credit score, a student who goes rogue spending money can still have a negative impact on the parents financial situation. 

Pricing or Fees

Most student checking accounts offer very low fees. Banks understand students are just starting out, and would like to reduce the barrier of entry to earn them as a customer. Their thought process is, if they can get them as customers while students, they likely won’t change banks when they are older. Therefore, their fees are reduced for students. 


Interest-bearing checking accounts earn a greater interest rate than a traditional checking account. If you’d like to maximize your interest rate of return, and have a large account balance, an interest-bearing account is likely suited for you. 


In addition to all the benefits a traditional checking account provides, an interest-bearing account will provide a greater APY to the account holder. 


There are a few downsides to these accounts. First and foremost, the APY is still not very strong. Do not expect to look at this APY as a second income stream. Additionally, these accounts come with higher fees. 

Pricing or Fees

Given the fact that the bank is willing to pay more interest on these accounts, these accounts come with higher fees. There is generally a higher minimum account balance requirement, and if the account dips below the minimum, you’ll get hit with a fee. 


A business checking account is essential for a business to operate! These checking accounts are designed for businesses of all sizes. 


Business checking accounts allow a business to pay bills, deposit money in, fund payroll, and make various investments. Without a checking account, running a business would be near impossible. 


Some business checking accounts, depending on the bank, have high fees. 

Pricing or Fees

As mentioned above, business checking accounts can come with higher fees. Be careful when selecting this account type to ensure it is most aligned with how your business operates. A business with a lot of cash deposits may prefer a checking account from bank A, whereas a business with a lot of electronic deposits may prefer a checking account from bank B. 


In today’s modern world, checks are becoming a thing of the past. These checking accounts have all the benefits of a normal checking account, but you cannot write checks. A checkless account is best suited for people who do not write checks. All their bills are paid electronically, or by way of a debit card. 


One of the biggest benefits of a checkless account is the fact that there are no overdraft fees.


Despite how uncommon they are, sometimes a check transaction is hard to avoid. If you have this account type, you won’t be able to write a check. 

Pricing or Fees

The overall fee structure tends to be low with checkless checking accounts, considering a checkbook and overdraft fees are not included. 


Reward accounts are more common in the credit card world, although, some banks do offer reward checking accounts. These accounts allow the account owner to earn cash back even with debit card purchases. Anyone can benefit from a rewards checking account! 


Earning cash back for everyday purchases is a huge benefit! 


Oftentimes, the reward structure on a cash back checking account is less than what a credit card would provide you. There are also fees associated with these accounts, above and beyond a typical or standard checking account. 

Pricing or Fees

The fees can quickly offset the rewards you received. If your balance dips below a certain amount, or if you overdraft money, expect to pay a fee. 

Private Bank

Private bank checking accounts is a tremendous type of account, but you’ll need some serious cash to be invited to this banking community. A private bank checking account is for high net worth individuals. Many times, banks have a $3,000,000 liquid asset requirement to be eligible for these accounts. 


There is a long list of benefits with private banking! These include; free wire transfers, a larger withdrawal limit at an ATM, a dedicated account rep, free checks, and even a higher interest rate on the account. 


The biggest downside to a private bank checking account is the fact that you need to keep a lot of cash in the bank. Opportunity cost becomes a major concern when you have a lot of cash stored in a checking account. Typically high net worth individuals want their money to work for them, and will often invest it in various investments. Banks are now blending a private bank account with a wealth management account to attract those customers. 

Pricing or Fees

Generally speaking, the fees are light with the private banking division. Banks benefit from having these customers as it gives more liquidity to the bank. The biggest variable one will need to consider is what is the minimum requirement to open an account. Some banks are $1M, some are $3, and there are a few that are $5M+. 

How To Open a Checking Account 

Opening a checking account can be done in just a few easy steps! 

Step 1: Compare Options

First and foremost, you’ll need to determine what bank or credit union you’ll want to use. You can use a brick and mortar bank, online bank, or credit union. Each institution may have different checking account types, and different fees associated with the account. Be sure to find a convenient option that fits your needs. 

Step 2: Start & Complete Your Application

Once you’ve determined where you want to bank, start the checking account application process. You’ll need to present some identification, and fill out some basic information to complete the application process. 

Step 3: Make a Deposit 

Once your application is approved, you’ll need to make your first deposit. Some banks have a $25 minimum balance, other’s have a $50 or a $100. This can all be identified during the ‘comparing options’ phase. 

Step 4: Activate Your Card

Now that you’ve completed your initial deposit, you’ll be issued a debit card. It may be issued right there on the spot, or it may come in the mail a few business days later. Once you have the card, it’s time to activate your debit card. Doing this is easy! Either call the number on the card, or visit a local banking branch. 

Step 5: Setup Direct Deposit

Don’t forget to set up direct deposit! This is an easy thing to do with your employer and your paycheck will automatically be deposited into your bank account each pay period. 

Checking Accounts vs Savings Accounts

Keep in mind, a checking account is designed for transactions. You can automatically pay bills, withdrawal money via an ATM, and spend money via your debit card. A savings account is designed to help you save money. You won’t want to enroll in auto bill pay with your savings account, and you won’t use a debit card to spend the money within the account. 

Checking Accounts Are a Must Have

Checking accounts are essentially a requirement in the world of personal finance. The benefits a checking account provides far outweighs any of the cons. Most of the fees can be avoided if you do not overdraft your money, or spend more than what your account has in it, and if you keep your balance above the minimum threshold.

Instead of carrying around cash or keeping it stored under your mattress, a checking account gives you access to all your money via a debit card, and your cash will be insured up to $250,000. If you need assistance with which type of checking account is right for you, feel free to reach out to your financial advisor.