What is a Checking Account?

A checking account is one of the most important types of financial tools available to you as a consumer. It provides you with a simple and direct way to manage money – both paying bills and savings. Checking accounts are widely available and provide some of the best access to making payments online or organizing your financial goals. It’s important to know how they work and what they can offer to you.

Checking Accounts and Savings Accounts – What’s the Difference?

Most people will benefit from having a checking account. Most financial institutions, including traditional banks and credit unions, offer them. These accounts are designed to allow you to manage all aspects of your money.

While a savings account is designed for you to put money into and keep it there long term, checking accounts are designed to be more flexible and fluid. You can deposit funds into them and then make payments to others using the account. They work as a type of clearinghouse for you to manage your money. With a savings account, you have fewer opportunities to make payments or withdraw the funds. Checking accounts give you far more flexibility in this area.

There are other differences, as well. For example, with savings accounts, you are paid a set amount of money in interest. Some checking accounts will pay you interest, but only if it is in the terms of the account. Most checking accounts that pay interest require you to maintain a specific balance in the account at all times. Let’s take a closer look at how a checking account works to see the benefits it offers.

How Do You Use a Checking Account?

When you decide to open a checking account, your first step is to visit a bank or credit union (or use one of the online checking account companies available online). You will submit information to prove your identity. From there, you make a deposit into the account to open it.

With money in your account, you can then start to use those funds. For example, you may be able to use your connected debit card to make a purchase at a store. When you swipe your card, the funds are automatically debited from your checking account and paid to the merchant. You can also write a paper check to someone for an amount you owe to them.

It is important to know that checking accounts do not provide any line of credit. That means you can only write a check or make a purchase for no more than the amount you have deposited into your checking account. If you try to pay more than this, the transaction is likely to be denied or, if it is accepted, you are likely to pay an overdraft fee.

When using a checking account, you are able to manage where your money goes with each deposit. For example, you can set it up to allow your employer to automatically transfer funds into the checking account every payday. This allows you to have access to the funds from your paycheck right away as soon as those funds are deposited. You can then schedule payments to be made as well out of your account automatically.

It is important for you to manage the process and manage your budget. That means you need to be sure you deposit enough into the account to make your payments. One of the ways to do that is called reconciling your checking account. To do so, you will need to compare what you have deposited and what you have paid. It is quite important to keep a running track of those transactions. This is usually done using a checkbook, a paper ledger that you carry with you and store your checks in. However, today, it is more common to use online checking access to make payments and track them.

There are a few other things you need to know about how checking accounts work. Consider these aspects.

How Are Deposits Made into Your Checking Account?

In order to make payments, you have to be able to have funds in your checking account to use. There are various ways you can place money into your account. Here are some examples.

Electronic Funds Transfers

This is one of the most common ways to deposit money into accounts today. It is possible to set up automatic deposits like this in a variety of ways – such as through your employer. While your employer has the ability to add money to your account, they have no way to withdraw it. Providing your account information to your employer or another party you trust, then, is usually safe to do.

Cash Deposits

For many people, the easiest way to deposit money into their account is to visit an ATM or a branch for their credit union or bank and to hand the teller cash to be added to the account. Perhaps you won a prize, or you were paid in cash for a task. This is a direct way for you to add the funds to your checking account.


It is also possible to deposit checks that are written to you into your checking account. To do so, you need to endorse the check – which means signing the back of it – and then provide it to your bank either through the ATM or through a visit to the teller. Some of today’s latest checking accounts also allow you to deposit the check with a simple picture of it submitted through the app on your phone.

How Do You Make Payments from Your Checking Account?

You can pay just about anyone you would like using your checking account. To do so, you need to have the routing number – which is a number written on the bottom left-hand side of your checks – as well as your account number, which is written next to the routing number. This tells the financial system where to go to access the funds. Here are a few ways to use the funds in your checking account.

Write a Check

Writing a check is a way to pay funds to anyone. You simply need to add their name to the appropriate line on the paper check. Then, you fill out the rest of the paper check to indicate how much you would like to pay. The other person, then, takes the check to their bank to deposit it into their account. When they do this, the funds transfer from your account to the other one.

Swipe Your Debit Card

Most checking accounts provide the account holder with a debit card. The debit card works much like a credit card – but there is no available line of credit. For example, when you want to may a merchant, you swipe your card in their card reader. The information is transferred to your bank account, and the funds are moved from your account to the merchant’s account. You can only make payments for the amount within your account at the time of your purchase.

Electronic Transfers

It is possible to transfer funds from your account to others using an electronic transfer or other wire transfer method. Most banks and credit unions provide you with an online bill payment system to make this easier. You simply fill out the information to identify the merchant, such as their account number, and the bank or credit union handles the rest of the process.

Understanding Checking Account Fees

Many checking accounts have fees. Fees are the way the bank or credit union pay for the services they provide to you through the checking account. Some companies do not have fees. They may, for example, reduce or eliminate fees to you if you open a savings account and you maintain a set amount of money in the account. Many times, this is an excellent way to reduce your costs overall and to open both a checking and a savings account at the same time.

Maintenance Fees

The most common fee associated with a checking account is a maintenance fee. It is a specific amount charged to your account each month for using it. Some banks charge an annual fee rather than a monthly fee. In all cases, these fees can add up, which is why it is worth finding a financial institution that does not charge any fee.

Overdraft Fees

As noted, with a checking account, you can only withdraw as much money as you have in your account. If you try to take out more than this amount, and the transaction goes through, you are likely to be charged an overdraft fee. These fees can range from $25 to $100 or more. The costs are high because most companies want to ensure you do not do this as it can become a financial problem.

Fees for Balances

Some financial institutions do not charge a typical fee to manage the account. However, they may require that you maintain a specific amount of money in the account at all times. For example, you may need to have $1,000 in your account at all times. If your balance drops below this amount, you may be charged a fee.

It is important to look at all fees associated with the account before deciding to open it. Yet, it is also important for you to recognize that some companies do not charge any fees because they pay lower interest rates on their savings accounts – it is important, then, for you to compare all of your options to determine which is the best route to take for your specific needs.

Checking Account Features to Look For

The more featured your checking account is, the more likely it is to provide key services that can make managing your money easy to do. It is important, though, to monitor for features you may not need or use. Some checking accounts have higher fees because they offer more features.

Ability to Write Checks

Some banks and credit unions are doing away with writing paper checks. This may mean you can only make payments using an electronic funds transfer or using your debit card. If you know that you will use this feature, then it is important for you to choose a company that offers this benefit.

Overdraft Protection Services

The threat of an overdraft – taking out more money from the account than you have in it, is very real. Yet it can also happen very often. One of the ways to avoid this is to choose a checking account that offers overdraft protection. For example, if you make a payment above the amount of money that is in your account, the protection goes into place. It will ensure that the payment is made and then will transfer funds into the account from your savings account – if available – to cover the costs. Keep in mind that some offer this service with a fee. For example, every time you use it, the purchase you made goes through, but you may be charged a fee for the transfer of the funds from one account to the other.

Direct Deposit

As noted, your employer is able to transfer funds into your account. You can do this with a wide range of services. For example, government checks, payroll checks, and other organizations paying you can make these deposits. Most of the time, they are for routine deposits that will be made over time.

Online Banking

Many checking accounts allow you to use online banking, a feature that lets you make payments to your utility companies, cell phone provider, and other businesses using the system. This can make it very easy for you to keep up on all of your payments in one place, and it makes it very easy for you to track those purchases as well.

Joint Accounts

If you’re in a committed relationship, you might be interested in opening an account with your partner. Luckily, you have a few different options when it comes to managing your accounts as a couple. For example, you can have completely joint accounts and manage money as a couple.

Mobile App

Today, having access to your checking account online is important, and it is possible. Many companies offer mobile apps that allow you to log into your account safely. Once there, you can see which transactions have occurred, set up payments, transfer funds between bank accounts, and manage your money in various other ways.


ATMs are one of the best tools for accessing your money at any time. Using your debit card, you can withdraw cash from them or deposit funds into them for your use.

Bottom Line

Checking accounts are a significant and beneficial tool that meets the needs of most consumers. They can be paired with other investment accounts, including savings accounts, to give you a robust way to manage your money and to make payments to those who you need to do so. Most often, checking accounts are a must-have type of financial account.