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How to shop for checking accounts
A checking account is one of the most basic financial products, but also one of the most complex. Apply for a checking account online or at a branch, and you’ll get a small booklet covering all the terms and conditions. The amount of information involved can make it difficult to pick the right account for your needs. Understanding how checking accounts work will make your life easier and help you save money along the way. Here’s everything you need to know.
Checking account basics
You probably don’t want to walk around with a big wad of cash on you at all times. A checking account is a safe place to keep your cash until you need it.
What you need to open a checking account
You will need to bring specific documents and have certain information to complete the process.
- Basic personal information. The bank will ask for your date of birth, address, phone number, and employment information to complete your checking account profile.
- Two forms of ID. You’ll need to provide two forms of ID to verify your identity. For example, bring a driver’s license or passport plus another item, such as a credit card, with your name on it.
- Utility bill or other address verification. Having third-party verification of your address is important to ensure that you actually live at the address listed on your account.
- Initial deposit. When you open an account, the bank will require you to make an initial deposit. This can be cash or a check. A bank will place a hold on checks with new accounts.
How to deposit money in a checking account
- Deposit in a bank branch. Simply walk into a branch and hand your money to a teller. The teller will take care of the rest. But be careful: some basic checking accounts charge for in-branch deposits.
- ATM card. Walk or drive up to an ATM and deposit your cash or checks. This is a convenient option because you can deposit funds 24/7. It’s also cost-effective for the bank because they don’t have to pay a teller.
- Electronic deposits. These deposits are made without any activity by you. Terms like ACH and EFT also refer to this method. The most common form of an electronic deposit is receiving a paycheck directly into your account.
- Mobile banking. With the rise of smartphone use and functionality, depositing a check via your phone or tablet is becoming a popular option. You can deposit with mobile banking wherever you are. This is a good way to ensure you don’t lose a check before you have a chance to deposit it.
How to withdraw money from your checking account
- Write a check. When you write a check, it’s viewed much the same as handing someone cash for payment, except that only the designated payee can legally cash it, deposit it, or sign it over to a third party. (Huntington Bank provides some useful guidance on the last point.) Check usage is declining, but this method is still common.
- Withdrawal in a branch. When you visit a branch, you can withdraw cash from your account. You can also request a cashier’s check or money order made payable to someone.
- Cash from the ATM. The 24/7 access to cash is very popular. Before ATMs, if you needed cash after hours, you had to find an open business willing to cash your personal check (or let you write a check for more than a purchase in order to get cash back). Often, you’d end up waiting until the branch reopened again in the morning.
- Electronic withdrawals or bill pay. An electronic withdrawal is when you authorize payments, for example, to your credit card, auto or home loan, or investment accounts. Apps like PayPal and Venmo are popular tools used to make electronic payments for various reasons.
Checking account types
There are several types of checking account to choose from, including one that is actually a form of savings account with limited check-writing privileges. Each account type has its own set of features, as well as pros and cons. Here’s a quick summary.
As the name suggests, this type offers the most basic features of a checking account. You can write checks, pay bills, and transfer money to and from other accounts. These accounts typically don’t offer interest on your balance. And you may have to pay a monthly fee. This fee will often be waived if you receive a direct deposit or satisfy a minimum-balance requirement.
These checking accounts function much like basic checking accounts. They do no charge a monthly fee, however, regardless of your direct deposit activity or account balance. You may be charged other fees, though. For example, you’ll have to pay a non-sufficient funds (NSF) fee if you bounce a check. And make sure you’re aware of any ATM fees before you withdraw cash from an ATM outside of your bank’s network.
Some checking accounts offer interest on your deposits. Often, these require a minimum balance to avoid a monthly fee. This fee is generally higher than what you’ll pay for a basic checking account. While some free checking accounts offer interest on your checking balance, many don’t.
What’s more, most interest-bearing checking accounts don’t offer a high interest rate. If you can’t avoid paying the fee entirely, the added interest won’t make one of these accounts better than a lower-fee account without interest.
Senior or student checking
These accounts typically provide all the same benefits of a checking or interest-bearing account, but they waive the fee or offer other special deals to customers who qualify. For example, seniors will get special features once they reach age 55, and college students can keep their account fee-free until they graduate.
Some people think money market accounts are a variety of checking account because they allow you to use a debit card or write checks. They are more properly thought of as savings accounts, however. When federal law still limited savings accounts to six withdrawals each month, that limit applied to money market accounts, as well. Though the rule changed in 2020, many banks retain the six-withdrawals limit and charge account holders fees when they violate it. Keep this in mind if you sign up for a money market account.
Money market accounts also require a minimum balance. On the negative side, this minimum is often much higher than that of a checking account. On the positive side, this higher balance requirement is generally accompanied by higher interest rates. So, if you don’t write many checks and can maintain a high balance, a money market account may be worth considering.
Institutions that offer checking accounts
You can get a checking account with a traditional bank, credit union, or online-only bank. Depending on which type of institution you choose, you may get different account features.
Traditional banks — whether they’re a local community bank or a national retail bank — usually charge more fees on their checking accounts. That’s because they have the overhead costs of brick-and-mortar branches and seek to maximize profits for their shareholders. In exchange for the higher fees, these banks tend to offer great resources for their customers. They also make it easier to have all of your finances under one roof. Some even offer discounts on their loan products and extra credit card rewards if you have a checking account with them. Additionally, national banks have large ATM and branch networks that make it easy to get access to your funds, regardless of where you are in the country. Some even have international branches.
Credit unions are not-for-profit organizations owned by their members. Any profits a credit union receives it returns to its members in the form of lower fees and higher interest rates on deposits. “Credit unions tend to offer more attractive rates and have a high emphasis on customer experience,” says Megan Luke, operations director and a senior vice president at PNC. “That being said, drawbacks include membership requirements, a thin or nonexistent network of ATMs and branch locations, and lack of technology.”
These banks typically don’t have physical branches, instead offering all their banking features through their mobile app or online. While online-only banks are for-profit institutions, they don’t have the same overhead expenses that traditional banks have. As a result, they can usually offer free checking accounts and higher interest rates on deposits. “Rates can look attractive with an online bank. But if you’re a heavy cash user, it can be difficult to conduct transactions,” says Luke. “If you require in-depth customer service, online-only banks lack the ability to provide personal, one-on-one, in-person assistance.”
New federal rules have made it more difficult for online-only banks to take full advantage of their lower overhead when setting interest rates. Even so, you may find that the best online-only banks offer appealing rates and features.
Checking account costs
Depending on the type of checking account you get, you may need to worry about certain fees. Here are some major fees that you might run into as you search for the right account:
- Monthly maintenance fee: Some banks charge this fee just for the privilege of having an account. You can often get it waived by having a certain amount directly deposited into your account each month or maintaining a minimum balance. Some even waive it if you use your debit card a certain number of times.
- Early termination fee: If you close your checking account within three to six months of opening it, some banks will charge you an early termination fee. This is especially the case with checking accounts that offer sign-up bonuses.
- Research fee: If there’s a discrepancy between your records and the bank’s records, the bank will typically charge a per-hour fee to research the issue.
- ATM fee: There may be a fee if you withdraw cash at an out-of-network ATM. You may even have to pay a surcharge to the bank that owns the ATM.
- Check-printing fee: Many banks offer free checks when you first open the account, but not all do. Even if you get free checks up front, you may need to pay a fee for future orders.
- Inactivity fee: If you don’t use your checking account for a few months, some banks will charge you a fee for inactivity.
- Non-sufficient funds fee: If you bounce a check, your bank may charge you an NSF fee and refuse to honor the check.
- Overdraft fee: If you overdraw your account and the bank decides to cover the shortfall, it may charge an overdraft fee.
- Stop-payment fee: If you use a check to pay for something and then change your mind, the bank can void the check for a fee.
Average bank account fees
When you use your checking account, be careful of the fees that they charge. Here are the average costs for the most common fees.
By using SuperMoney’s checking account comparison tools, you can find a better bank to avoid these fees that can drain your wallet.
How to choose the right bank
You are no longer limited to the banks within a short distance of where you live or work. The Internet allows you to open a bank account anywhere in the world. Here are some factors to consider when choosing a bank:
- FDIC (or NCUA) insurance. The Great Recession taught us that banks can, and do, fail. FDIC Insurance protects your bank account balances up to $250,000. If you bank with a credit union, NCUA insurance gives you equivalent protection.
- Number and location of branches. Even though most people rarely step foot in a branch, studies show that having a branch nearby is the number one factor when deciding where to open an account.
- Hours of operation. If you ever need to go into a branch, you want to pick a bank that’s open on days (and times) most convenient for you. Customer service availability when branches are closed is also important.
- Additional products available. Does the bank offer other services like savings accounts, money market accounts, investments, credit cards, and loans? Although it’s important to shop around, sometimes all of your banking needs can be managed under one roof.
- Relationship discounts. Does a bank reward you for having multiple accounts by waiving fees or providing discounts on loans or other services?
- Great customer service. The bank can have the best products, but if customer service staff makes you cringe every time you have to call, the savings may not be worth the mental or emotional anguish you could avoid by banking elsewhere.
What to look for in a checking account
Below are important features to look for when choosing a checking account that works best for you.
- Unlimited transactions. Even if you usually don’t make many transactions, make sure you won’t be charged extra if your activity is higher one month.
- No minimum balance requirements. Is there a minimum balance required before a bank will charge you a fee?
- Debit card. Having access to your account with a debit card for ATM usage or for debit transactions is critical in today’s society.
- Online banking and statements. Being able to check your account balance, view your transaction history, and download electronic copies of your statements is also a must.
- Free bill pay. Instead of writing checks, licking an envelope, and adding a stamp, bill pay takes care of all that for you. Simply pick your vendor, designate the payment account, and choose a date for your payment to arrive.
- No or minimal fees for services you use. What other services will you use and how much does the bank charge for them? For example, how much is it to send or receive a wire transfer?
- Perks and benefits. What other perks and benefits are available? For example, some banks provide free credit scores.
- Overdraft protection. What happens if you overdraw your account? Overdraft protection ensures that payments are approved, even if you don’t have all of the money necessary to cover them. Because of associated fees, this can be a mixed blessing. We’ll look at overdraft protection in more detail in the next section.
A closer look at overdraft protection
Overdraft protection is a feature that banks and credit unions offer to help you avoid bouncing a check or having your debit card declined if you don’t have sufficient funds. While that sounds like a generous offer, it probably isn’t. A bank typically charges a $30 overdraft fee when it covers you, and credit unions aren’t far behind at $29. Fortunately, there are ways to get overdraft protection without paying a hefty fee.
Get an account with no overdraft fee
Some banks don’t charge an overdraft fee at all. These banks are few and far between, though. So you’ll have to do your research to find the right one. A great place to start this research is our list of the best checking accounts without an overdraft fee.
Opt out of overdraft protection
Banks and credit unions are required to ask if you want overdraft protection. By opting out, you can avoid the fee. However, you can still get hit with an NSF fee if you don’t have enough cash to cover a check or debit card swipe. So make sure you always have a buffer.
Connect your savings account or credit card
Some banks allow you to avoid an overdraft fee by connecting your savings account or credit card to your checking account instead. In this situation, if you overdraw your account, the bank will use your savings account or credit card to cover the shortfall. There’s usually no fee when this happens.
Apply for an overdraft line of credit
Instead of charging a fee, some banks will offer you a line of credit. These products typically charge interest. But if you get your account back to a positive balance within a few days, you’ll likely end up paying pennies instead of a steep fee.
How to get the best interest rate on your checking account
According to the National Credit Union Association, the average interest rates on checking accounts are 0.07% for both credit unions and banks (as of the third quarter of 2021). If you carry an average balance of $10,000, that’s only $7 per year. Surely you can do better than that.
People expecting interest rates to rise, in part because they can’t imagine them getting any lower, keep getting disappointed. In today’s low-rate environment, savvy savers know it is more important than ever to shop around before committing to a specific financial institution or account type. This SuperMoney checking account comparison page is designed to help you find the banks and accounts that offer the highest interest rates and lowest fees.
Filter the search results for the highest interest rates. As the results populate, filter down even more based on the average balance required to avoid any monthly fees. Interest is nice, but monthly fees will eat away at the earnings. Focus on a minimum balance requirement that you know you can maintain.
How to find the right checking account for you
With so many checking accounts on the market, it’s important that you do your due diligence to find the right one. Start by considering the type of checking account you want. Then think about what type of institution you’d like to bank with. Look at the overall money management experience. The account should offer mobile features and a variety of servicing options. Also, look at the size of the financial institution’s network if you want broad access to ATMs and branches.
Consider how you plan to use your checking account — look at the features and fees that different accounts offer. Depending on your needs, an account that charges a monthly fee may be better than a basic account with no fee. While you’re at it, check with the bank to see if it offers a sign-up bonus to new customers. Some banks will offer from $100 to $300 if you open an account and complete one or more activities. Examples include setting up direct deposit and using your debit card a minimum number of times.
If you’re switching from one checking account to another, keep in mind that it isn’t always a smooth process. If you have recurring charges coming out of your original checking account, for instance, you’ll need to update all of those with the new account information. But don’t let the process scare you away from getting a better checking account than you currently have.