A checking account is used for day-to-day banking, including depositing your paycheck, withdrawing cash, and paying bills. It offers multiple ways to access your money—such as debit cards, ATMs, and personal checks—and it does not limit the number of monthly transactions you can make.
Funds in checking accounts are insured up to $250,000. This means that, in the event of a bank failure, the federal government will make your funds available, up to the $250,000 limit. For banks, this insurance is provided by the Federal Deposit Insurance Corporation (FDIC), and for credit unions it is provided by the National Credit Union Administration (NCUA).
Checking accounts are fairly straightforward to use—and chances are you already have one—but things can get hairy when you run out of funds. Most banks charge overdraft fees when you spend beyond your current balance. The average overdraft fee runs to $34, according to the Consumer Financial Protection Bureau, and it can be charged several times daily. Many banks won’t warn you if you’re running out of funds (because they stand to profit considerably from the overdraft fees), so it’s important to keep a close eye on your balance to avoid getting charged. One option is to set up an email alert on your online banking settings, which will notify you when your balance approaches zero.
What to look for
Some checking accounts offer interest, but your money doesn’t sit there long enough to earn it. Instead, look for an account that charges no monthly maintenance fee, requires no minimum balance, reimburses fees from ATM transactions outside the bank’s network, and has a lenient overdraft policy.