What Is a Checking Account?

A checking account is a deposit account that allows you to easily make withdrawals, deposits and fund transfers. Also called demand accounts or transactional accounts, checking accounts can be accessed using checks, automated teller machines (ATMs), and electronic debits, among other methods. They are often used to keep money for short-term expenses.

Key Takeaways

  • A checking account is a deposit account that allows you to easily make deposits and withdrawals.
  • Checking accounts typically don’t provide much, if any, interest.
  • Checking accounts can have fees, such as overdraft fees.
  • Money in a checking account is typically insured for up to $250,000 by the Federal Deposit Insurance Corp. (FDIC).
  • Checking accounts can provide an ideal place to keep your funds for short-term or everyday spending.
Checking Account Definition

Investopedia / Zoe Hansen

How Checking Accounts Work

Setting up a checking account at a bank or credit union is generally easy. You can apply online, or visit a bank branch, and often get a checking account immediately. You will just need to provide basic personal information such as your Social Security number and identification.

Then, you can deposit funds into the account with cash or a check. (Some checking accounts charge a fee if you do not meet their minimum deposit amount.) You will typically receive a debt card. After that, you can deposit and withdraw your money as you like using ATMs, checks, or in-person transactions. You can also use your checking account to make balance transfers or pay bills online.

Funds in a checking account are guaranteed by the Federal Deposit Insurance Corp. (FDIC) up to $250,000 per individual depositor, per insured bank. That means if you have less than that amount and your bank fails, your money will be safe. Any amount over the FDIC limit is at risk.

Checking accounts typically do not offer high interest rates, if they offer interest at all.

Types of Checking Accounts

Checking accounts come in several types for designed for different purposes. For example, a commercial checking account is used by businesses. The business’ officers, managers, or employees will have authority to use the account for business expenses.

Some banks offer a student checking accounts for college students with perks like not having maintenance or minimum balance fees as the students learn how to manage finances.

A joint checking account is one where two or more people, often spouses can write checks and make deposits.

Other types of checking accounts include second chance accounts, which are accounts designed for people who don't qualify for a traditional checking account. They often have more restrictions and charge a fee. They also typically do not provide overdraft protection.

Checking Accounts and Banks

Banks make money through the fees on checking accounts. They can also use checking accounts to attract consumers who may then be more likely to take out personal loans, mortgages, and certificates of deposit (CDs) with that bank.

Aggregate balances of money held in checking accounts are used to calculate the M1 and M2 money supply.

Checking Accounts and Overdrafts

If you make a purchase for more than you have in your checking account, your bank may cover the difference through overdraft protection, then charge you a fee.

For example, if you have a $50 account balance, and you make purchases for $70 using your debit card, you will be allowed to complete the purchase transaction. However, you may be charged a $20 overdraft fee for that purchase or any purchases after that until you make a deposit to bring your account balance positive.

If your account remains overdrawn, your bank also may charge you daily interest.

You can avoid overdraft charges by choosing a checking account with no overdraft fees. You can also set up balance alerts to notify you when your checking account balance is low. Or, some banks allow you to link another account to your checking account, so the funds from the second account can be used to cover any overdrafts.

Checking Account Features

Direct Deposit

Direct deposit allows a company, such as your employer, to electronically deposit money like your paycheck into your bank account. The funds are then immediately available to you.

Banks also benefit from direct deposits because it gives them a steady flow of income to then use to lend to other customers. So, many banks will provide benefits like free checking if you set up direct deposit for your account.

Wire Transfer

A wire transfer is an electronic funds transfer that moves money from one account directly into another account. They allow money to be moved securely without the need to exchange cash.


ATMs allow you to access cash any time. They are machines located at branches or in other public locations such as malls, airports, or convenience stores. Make sure you fully understand the fees your bank charges for using ATMs that are out of their network.


Automated Teller Machine Definition

Debit Cards

Debit cards provide a convenient way to make purchases. They are often be accepted as a form of payment where credit cards are accepted. Debits cards draw from the funds in your bank account and not on a line of credit, so you will not be charged interest on purchases.

You can also use a debit card at an ATM to withdraw cash. Many banks offer zero-liability fraud protection for debit cards to help protect against identity theft if a card is lost or stolen.

Checking Accounts and Interest

Checking accounts usually have low interest compared to savings accounts, if they have any interest at all.

Some checking accounts are considered "high yield," and they pay higher interest rates than the average checking account. Interest rates on high yield checking accounts can range from about 3% to 5% as of April 2023. In contrast, a regular checking account often pays less than 1%.

Accounts that pay higher interest may have requirements that you must meet to get the higher rate. For example, you may have to maintain a minimum balance or make a minimum number of withdrawals.

Checking Accounts and Credit Scores

Most basic checking account activities—such as making deposits and withdrawals and writing checks—do not have an impact on your credit score. Unlike credit cards, closing checking accounts in good standing also will not affect your credit history.

Overdrafts on checking accounts being overdrawn do not appear on your credit report as long as you repay the money you overspent. If you do not pay back a line of credit extended to you for an overdraft, your bank could send the items to collections and it could negatively impact your credit score.

Keep in mind that some banks do a soft inquiry, or pull, of your credit report to find out if you have a decent track record of handling money before they offer you a checking account. Soft pulls have no impact on your credit score, although they may appear on your credit report.

If you apply for checking account overdraft protection, the bank may make a hard inquiry to pull your credit since overdraft protection is a line of credit. Hard inquiries can negatively impact your credit score.

Being Denied a Checking Account

Banks and credit unions look at your checking account report before they will allow you to open a new account. If they see you have a history of writing bad checks, they could deny you a checking account. You may also be denied a checking account if you cannot provide the proper identification.

Chronically bouncing checks, not paying overdraft fees, committing fraud, or having an account “closed for cause” can all result in a bank or credit union denying you a new account.

Federal law allows you to request a free checking account report once per year from each of the nationwide agencies, which include Certegy, Chex Systems, Early Warning Services, and Telecheck. You have the right to dispute any inaccurate information.

If a bank has closed your checking account or you can't qualify for a new one, you could turn to second-chance checking accounts offered by many banks and credit unions. After you've maintained the account in good standing for a certain period of time, you may qualify for a traditional checking account.

Is a Debit Card a Check Card?

A debit card and a check card are considered the same thing. This card allows you to make transactions using funds in your checking account. You can also use the card to make cash withdrawals from automated teller machines (ATMs).

What Are the Different Types of Checking Accounts?

Different types of checking accounts include regular (basic) checking accounts, premium checking accounts, student checking accounts, senior checking accounts, interest-bearing accounts, business checking accounts, and rewards checking accounts.

What Is the Difference Between a Checking Account and a Savings Account?

A checking account is meant to be used for more frequent deposits and withdrawals, or routine spending. A savings account is designed for holding money for longer-term needs and often offers higher interest rates than a checking account. Many savings accounts have maximum number of withdrawals you can make per month, whereas a checking account typically has limitless withdrawals.

The Bottom Line

A checking account, as a highly liquid account that has FDIC protection, can be a great place to keep your money for short-term purchases. If you are considering opening a checking account, compare the terms of checking accounts from several different banks. Make sure you fully understand the fees, benefits, and interest rates associated with them.

Article Sources
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