Before you open a checking account, you should know your options. Not all checking accounts are alike. It’s important to consider an account’s fees and interest rate as well as other features and benefits before you apply. Here are your options.
Regular Checking Accounts
A regular checking account simply lets you do all the things you’d expect from a checking account: deposit money, withdraw money from an ATM, write checks, pay bills and make purchases using a debit card. You might have to pay a monthly fee for the privilege of being an account holder, but the bank might waive the fee if you keep enough money in your account. (See The Ins and Outs of Bank Fees.) A regular checking account will usually pay little or no interest on your balance.
Premium Checking Accounts
If you have a five-figure sum to keep in a checking account, a premium checking account might be right for you. That high a balance should allow you to avoid paying a monthly fee, provide perks such as ATM fee reimbursements and free checks, and let you earn a little bit of interest. You might 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. (See Is a Premium Checking Account Worth It?)
You might 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 or government bonds, for example. 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 hefty insurance premiums. As for the discounted services and free advice, you might get a better rate on services or better advice with another institution.
Checking Accounts That Pay Interest
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 might not come out ahead with an interest checking account if its fees are too high. You might 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. However, it doesn’t mean that every single service associated with the checking account will be free. You may still have to pay out-of-network ATM fees, check fees, overdraft fees, stop payment fees and foreign transaction fees. In addition, 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.
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, click on the links below, order copies of your bank credit reports and review them for errors.
Early Warning Consumer Report
Low-Balance Checking Accounts
Low-balance checking accounts, sometimes called lifeline accounts, are for customers who can only maintain a small balance but who 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 might not even have check-writing privileges (permitting only online or debit-card payments) – and might not allow overdrafts, instead declining any transaction that exceeds your available balance. The bank may also charge a monthly fee for this type of account.
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 characteristic, such as an account for someone who always has a low balance or an account that pays interest, start by looking for accounts that are specifically marketed toward people in your situation.
But keep in mind that 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 might 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.