Checking Accounts: Your Spending Money

Definition and Tips

A check
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A checking account is one of the most important accounts you use in day to day life. It is where you keep cash that you’re ready to spend, and it’s most likely where money comes into your household as well. Checking accounts are found at banks and credit unions.

Checking Account Basics

A checking account is a transactional account, meaning money generally won’t stay in the account for very long. These accounts are designed to make it easy to spend and move your money. There are no restrictions (in most personal accounts) on how many transactions can take place in your account; other accounts, like savings accounts and CDs, limit your access to cash.

Because checking accounts keep your money liquid, they’re often used like an “inbox” for your financial life: you’ll often deposit your pay in a checking account (or have your employer do it electronically) and then move the money around from there. Some of it might get moved over to a savings account or retirement account, and the rest will be spent.

Spending the Money

Just how easy is it to spend the money from your checking account? You've got several options:

Get cash: you can always withdraw cash from your checking account for spending. You can do this with a bank teller, or at pretty much any ATM in the world.

Write a check: it is called a "checking" account, after all. See how to write a check.

Debit card: you can also make purchases with your debit card, which is a plastic card similar to a credit card (for more on how they work, read this). The money will come from your checking account electronically, and you won't have to deal with any change.

Pay bills online: most banks and credit unions include online bill payment with every checking account. Instead of writing checks and dropping them in the mail, you can arrange payments online – you can even automate your payments so that they go out automatically.

Pay electronically: instead of having your bank initiate payments, you can also provide your checking account information to whoever you need to pay. They can then deduct funds from your account (as a one-time transaction, or a recurring payment).

Checking Account Safety

The cash in your checking account is ready to go, but it is still safe. Assuming your bank or credit union is federally insured, your money is protected and can only be spent by you (read more about bank deposit insurance and credit union insurance). It doesn't matter if the bank gets robbed or goes belly up – you won't lose any insured funds.

If you keep cash around instead of leaving it in a checking account, you're taking a risk. You could get robbed, you could misplace the money, or your cash could be destroyed (in a fire, for example). Checking accounts put all that risk on the bank.

Types of Checking Accounts

Checking accounts come in various forms. Your bank might offer several options with different features (like a free book of checks, online bill payment, and various services). Most banks provide a debit card at no charge.

Checking accounts can be personal accounts – owned by an individual or owned jointly by several individuals – and they can be owned by organizations (businesses, governments, nonprofits, and other entities).

Checking Account Costs

Traditionally, checking accounts have been "free," but three accounts are less common than they used to be. Whether you pay monthly fees or not, you generally pay an opportunity cost to use a checking account: you'll earn little or no interest unless you use something like a reward checking account.

If you want to checking account without monthly fees, you should be able to find one. Small institutions and online banks are good places to look. Even at big banks, you might qualify for a fee waiver by setting up direct deposit into your account (or meeting some other requirement).

Where to Open an Account

It's pretty much essential to have a checking account, so where should you open one? Find a bank that keeps fees to a minimum and that is easy to work with. For most people, a brick-and-mortar account is a necessity: you'll need a place that you can visit in-person (even if you don't plan to do that often). Start looking for accounts at small local banks around your community – they're most likely to offer free checking accounts.

Be sure to include credit unions in your search. These institutions sometimes have lower fees on checking accounts (and they've often got good rates on loans as well). Plus, if the credit union is part of a shared branching network, you'll have lots of branches available for use nationwide.

Online checking accounts are also a good deal (but some require that you also have a brick-and-mortar account before opening your online account). Ally Bank and Capital One 360 are two popular online banks that offer free checking, and you might even earn interest on your deposits. If you're tech-savvy and you rarely need help from a teller, an online checking account can help you earn more while keeping your cash liquid.

Tips for Using a Checking Account

Use it daily but sparingly: again, the idea is to only use a checking account for money that you intend to spend in the near future. Everything else should go into your savings account or another account designed for longer-term goals.

Keep it funded: in order to actually use your checking account, you’ll need to have money in it. If you write checks or sign up for payments with insufficient funds, you can get into trouble and wind up paying extra fees. Make sure you know that money is available before you spend (you can figure that out if you balance your account).

Know your overdraft options: what happens if you try to spend more than you have in your account? It depends whether or not you signed up for overdraft protection. Read any overdraft policies carefully so you know how much it will cost if you go over (overdraft protection can be expensive, so only sign up for it if it makes sense).