What Is a Checking Account?

November 8, 2021

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What we’ll cover:

A checking account is a type of bank account that lets you make deposits and withdrawals
You can use a checking account to help you pay bills and make everyday purchases
You usually have different types to choose from: premium checking, interest checking, student checking, business checking and more
Checking accounts often come with fees, but you may be able to avoid some of them if your account meets certain criteria

With so many flashy digital payment tools to choose from these days, a checking account can seem like a banking relic of yore. This may lead some people to wonder: Do I even need a checking account anymore?

Well, a checking account can be a good place to keep your money to help you pay for everyday expenses.

Need to pay someone or get paid? The first place you probably look to is your checking account. And those digital payment tools we mentioned? You might be asked to link your checking account to use some of them.

So it’s time to give checking accounts some love. Ahead, we’ll go over how a checking account works, some common account fees and things to keep in mind when opening an account.

What is a checking account?

At its most basic, a checking account is a type of bank account that lets you make deposits and withdrawals with relative ease. We say “relative” because depending on who you bank with, some checking accounts have a limit on how much you could withdraw or debit in a day.

That being said, once you put some money in your checking account, you could access your funds in a variety of ways: by using a debit card, initiating an online transfer or writing a check. (Yes, some of us still use old-school paper checks!)

Because you could tap into your account almost whenever you want, checking accounts are considered liquid accounts. But the liquidity or ease of access to your money also means that checking accounts - unlike savings acounts - typically don’t offer interest (though some do).

That shouldn’t be too surprising. After all, a checking account is not meant to be a savings account where you stash your money until you need it for a rainy day. It’s more of a “transactional account” used to help you cover your day-to-day expenses and receive deposits (like your paycheck).

Now, like other types of deposit accounts, such as savings accounts and CDs, a checking account is FDIC-insured as long as you open an account at a FDIC member bank. This means that your deposits are protected up to a certain dollar amount.

The standard insurance is $250,000 per depositor, per insured bank, for each account ownership category. (Check out our FDIC insurance article to learn more.)

What is a checking account used for?

The answer: Lots of things! A checking account can be a good place to keep your money for whenever you need it. You can use it to pay bills and make everyday purchases. If your checking account comes with a debit card, you could use it at an ATM to get cash. (Hey, we all have that one favorite food truck that only takes cash.)

You could also use a checking account to set up recurring or automatic transfers. Say…to your savings or retirement account. Yep, we get really excited about automating your finances!

So far, we’ve mostly talked about using a checking account to spend money, but you could also use it to receive money. For instance, instead of having to physically deposit your paychecks, you could sign up for direct deposit (if this is an option at your job). You could then direct those paychecks to be electronically deposited into your checking account.

A checking account can also be helpful if you use a payment processing or money transfer app. Some mobile apps allow you to link your checking account and then use the app to facilitate certain digital transactions (like paying back your friend who bought you those food truck tacos).

Types of checking accounts

Not all checking accounts are the same. You usually have different types to choose from: basic checking, premium checking, interest checking, student checking, business checking and more.

Each account type will have different features, fees, deposit requirements and withdrawal limits. That’s why if you’re looking to open an account, it’s a good idea to do a little comparison shopping.

Common checking account fees

It’s hard to talk about any type of bank account (or other financial products) without mentioning the F word: fees.

This is probably not a surprise to many: Checking accounts often come with fees. But you may be able to avoid some of them if your account meets certain criteria (more on this later).

It’s important to pay attention to your account details because a fee here and there can really add up over time. And remember, the more you have to pay in fees, the less you have to put towards your financial goals.

Checking account fees will vary from bank to bank, but here are three common ones you’ll see:

Monthly maintenance fee. As you can probably tell from the name, this is a fee to maintain your checking account at the bank. Some banks may waive this monthly fee if your account meets certain requirements – like having a certain amount of direct deposits or maintaining a minimum balance each month. When shopping for a checking account, don’t hesitate to ask about fee waivers.

Minimum balance fee. Some banks may expect you to maintain a certain account balance. And if you fall below the minimum, the bank could charge you a service fee.

Overdraft fee. Sometimes you may accidentally spend more than you have in your checking account. When your account balance drops below zero, it means you have an overdraft. Overdraft fees can be quite high – often around $35. If you want some peace of mind, you may want to consider signing up for overdraft protection if that’s an option at your bank.

We know talking about fees is no fun. But here’s the thing: It’s possible to find checking accounts with no fees. You have to do some shopping around, which brings us to our next point.

Choosing and opening a checking account

When it comes time to choose a checking account, think about what features you’d like to have. Are you looking for an account with low or no fees? One that earns interest? A big ATM network? No limit on withdrawals? Or a little bit of everything?

Point is: You definitely have options, so figure out what features are most important to you and see whether the fees make sense for the services you’re getting. And when you’re ready, you can either open a checking account online or go to the bank in person.

You’ll usually need to provide some basic personal information like a valid ID, mailing address, date of birth, Social Security number, etc. Some banks may also want you to make a minimum opening deposit. And after opening an account comes the fun part: Picking out the design for and ordering your personal checks!

This article is for informational purposes only and is not a substitute for individualized professional advice. Individuals should consult their own tax advisor for matters specific to their own taxes and nothing communicated to you herein should be considered tax advice. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of Goldman Sachs Bank USA, Goldman Sachs Group, Inc. or any of their affiliates, subsidiaries or division. Goldman Sachs Bank USA does not provide any financial, economic, legal, accounting, tax or other recommendation in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA or any its affiliates. Neither Goldman Sachs Bank USA nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.