Checking accounts are an important part of the banking system. These deposit accounts give consumers a place to deposit their money, make transfers, write checks, pay bills, and do other routine banking transactions. The money in checking accounts are safe, as they are insured up to $250,000 per depositor by the Federal Deposit Insurance Corporation (FDIC). But there are so many different options available out there, so how do you know which account is right for you?

Key Takeaways

  • Checking accounts are an important part of the banking system, giving consumers a place to do routine banking transactions. 
  • Before you open a checking account, you should know your options and consider things such as monthly balances, fees, interest, and convenience.
  • Regular checking accounts are the most common, giving you all the features you’d expect from a checking account.
  • Premium accounts offer many perks, but often require you to keep high balances.
  • Free checking accounts may not come with a monthly service charge, but still incur fees for other services like overdraft or out-of-network ATM usage.

Know Your Situation

Before you open a checking account, you should know your options. After all, not all checking accounts are created alike. The same applies to your financial situation—it's unique to you, so your checking account should complement it. Here are a few things you'll need to think about before you head into the bank to open up your account include:

Monthly Balance: How much you plan on keeping on average every month will help you decide which type of checking account to open up. Will this balance be consistent throughout the lifetime of the account? Or will you only have a large balance at certain times during the year? Some accounts come with minimum balance requirements—which justify some of their perks—so you should keep that in mind.

Fees: Consider the fees associated with each type of account. You can avoid monthly service charges if you maintain a certain balance every month. Check to see if an account you're interested in charges extra for things like debit transactions and in-branch transactions. Maybe you can avoid certain fees by having automatic payments deducted for bills from your account, or by setting up direct deposits. Knowing about the bank and its fee structures for each account can mean the difference between saving a lot of money or spending hundreds of unnecessary dollars in fees each year.

Interest: Although you may not collect much, some checking accounts do pay interest. If you want to earn a little more—remember, that's a little more—you can find a bank that gives you interest along with a place from which you can do your everyday banking. Interest is generally calculated on a daily basis and deposited directly into the checking account at the end of each month.

Convenience: If you're the kind of person who loves personal interaction, you'll probably want a checking account at a bank that has a lot of branches. But if you can do without, you'll fare with well an online bank. These institutions don't have very many brick and mortar locations—some don't have any at all—but offer the convenience of online and mobile banking with a debit card. Because they don't offer teller service, many of these banks allow you to use different banks' automated teller machines (ATMs) as well, which makes cash withdrawals easier and cheaper.

Now that we've outlined some of the basic considerations that go into choosing one, here's a list of some of the different types of checking accounts offered by most banks.

Regular Checking Accounts

A regular checking account simply lets you do all the things you’d expect from a checking account: Deposit and withdraw money from an ATM, write checks, pay bills, and make purchases using a debit card. You may have to pay a monthly fee for the privilege of being an account holder, but many banks waive the fee if you keep enough money in your account.

A regular checking account usually pays little or no interest on your balance. So if you're looking for a little income, you may consider opening up a companion savings account to your checking account while you're at it.

Premium Checking Accounts

If you have a five-figure sum or more to keep in a checking account, a premium checking account may be right for you. Having that high a balance in your account should allow you to avoid paying a monthly fee, provide perks such as ATM fee reimbursements, free checks, and let you earn a little bit of interest. You may also receive discounts on other services from the bank, such as a slightly lower mortgage interest rate or free financial advice. But that doesn’t mean a premium checking account is your best option even if you can easily meet the minimum balance requirement.

A premium checking account may not be your best option even if you can easily meet the minimum balance requirement.

The extra perks definitely sound great, but remember, don't put all your eggs in one basket. You may earn a better return on your excess cash while still keeping it accessible for emergencies by putting it in a money market account, certificate of deposit (CD), or in government bonds. Most people only need to keep high balances in their checking accounts if they have large, regular outflows such as a high mortgage payment, large student loan payment, estimated tax payments, and/or hefty insurance premiums. As for the discounted services and free advice, you may get a better rate on services or better advice with another institution.

Interest-Bearing Checking Accounts

Interest-bearing checking accounts give you a small return every month for the balance in your account. Some accounts pay a flat interest rate regardless of your balance, while others pay more on higher balances. The interest rate will almost certainly be below the inflation rate, but it might be comparable to what some savings accounts pay, giving you the best of both worlds—unlimited transactions and monthly interest payments—in a single account. However, you may not come out ahead with an interest checking account if its fees are too high. You may be better off with a free checking account, even if it pays less or no interest.

Free Checking Accounts

Free checking means that the account doesn’t charge a recurring fee such as a monthly maintenance fee and doesn’t have a minimum balance requirement to avoid a fee. But that doesn’t mean that every single service associated with the checking account will be free. You may still have to pay for other services including out-of-network ATM fees, check fees, overdraft fees, stop payment fees, and foreign transaction fees. These accounts may not pay any interest since you’re already getting the benefit of not paying a monthly fee. That being said, some free checking accounts pay quite a bit of interest.

Low-Balance Checking Accounts

Low-balance checking accounts, sometimes called lifeline accounts, are for customers who can only maintain a small balance but want to receive banking services. In exchange for allowing you to keep an account with a very low or no minimum balance requirement, the bank may require you to do other things that save it money, such as writing only a limited number of checks each month and receiving monthly statements electronically instead of by mail. Some of these accounts may not even have check-writing privileges—permitting only online or debit-card payments—and may not allow overdrafts. Rather than let you go below a $0 balance, they will decline any transaction that exceeds your available balance.

Second-Chance Checking Accounts

If a bank has closed your checking account in the past because of an unpaid negative balance and you’re ready to start over, a second-chance checking account may give you that opportunity. In exchange, you may have to pay a monthly fee of up to $20 and your account may have restrictions that other checking accounts don’t, such as not allowing overdrafts. These accounts are available in all 50 states through banks and credit unions. Once you’ve maintained your account in good standing for a certain period—perhaps a year—you may become eligible for a regular checking account.

How will a bank know if you’ve had a checking account closed in the past? Just as credit card issuers look at your credit report before letting you open an account, banks look at ChexSystems and Early Warning Services reports before letting you open an account. If banks are denying your checking account applications and you don’t know why, order copies of your bank credit reports and review them for errors.

The Bottom Line

Whatever your financial situation, there’s a checking account for you—as long as you don’t have a history of fraud and meet basic account-opening requirements such as proof of identity. If you’re looking for a specific feature, such as an account for someone who always has a low balance or an account that pays interest, start by looking for accounts specifically marketed toward people in your situation.

But keep in mind: Checking account names are just marketing labels. A free checking account might serve you just as well as a low-balance checking account, and an interest-bearing checking account may pay you more than a premium checking account. Changing checking accounts is a time-consuming chore, so choose carefully and try to get an account you’ll be happy with for years or, in the case of a second-chance account, at a bank you can see yourself staying with long term.