Picking the right type of checking account can help you magnify benefits and convenience and minimize fees and potential issues. There are multiple types of checking accounts, so it is critical that you choose an account that fits your need. Armed with the right knowledge, you can be confident that you are choosing the right checking account for you.
Basic Checking Account
This run-of-the-mill account is the most basic type of checking account you can get. You can open this type of account at most physical banks and credit unions. It provides consumers with fairly limited features and it works well for everyday banking.
Basic checking accounts usually cover the basics: allowing you to access and transfer your cash, withdraw money from an ATM, use a check card, pay recurring bills, and view and manage your checking account online. Some banks even offer a mobile app to monitor your account.
The banks that offer these checking accounts usually charge higher fees. You will likely have to pay your bank a monthly maintenance fee to keep your account open. When you make a purchase through your checking account and don’t have the money to cover it, you will be charged overdraft fees.
Some banks will waive your maintenance fees if your employer deposits your paychecks through direct deposit or maintain a relatively high monthly balance or pay a bill. However, you may not want to commit to an unfamiliar bank.
These accounts offer little to no interest payments. This means that you won’t garner any additional money from the money you deposit in your checking account. Make sure that you do your research on what your bank offers before opening any checking account.
Free Checking Account
While free accounts are becoming rarer and rarer, you can still find them. Some credit unions and banks still offer checking accounts free-of-charge as a strategic marketing tactic. You will be most likely to find a free checking account at a small bank or credit union, or an online bank.
Free accounts offer features that resemble most basic checking accounts, besides the fact that they don’t charge a monthly fee. However, free accounts aren’t totally free. If you sign up for a free account, you are still vulnerable to ATM fees and expenses from paper bank statements. These are only a few of the expenses you could be charged with, even when making use of a free checking account.
In some cases, you get what you pay for. In this case, you would be paying nothing. Free accounts sometimes lack basic features that other checking accounts have. Some free accounts don’t even offer checks, and they usually don’t offer any interest to people that bank with them. If you are just looking for a free account to deposit money into and pay bills with, a free account might just be for you.
Important: Free checking accounts don’t always equate to being free from fees. Some banks will tack on additional fees to make up for the lack of maintenance fees.
Online-Only Checking Accounts
Some physical banks offer online-only checking accounts. However, online accounts are almost exclusively available through online banks. These checking accounts offer all of the basics of an online checking account. In order for this type of account to be beneficial to you, you will need to be proficient in using technology and the internet. You will have to be comfortable doing all of your banking online or over the mobile phone app since you will not be able to visit a bank representative physically. You will need to be able to fill out forms online (using a bank website or mobile application) and make sure they are accurate. It is easy to overdraw your account or transfer cash to the wrong account when online banking, which means you need to be extra mindful.
If you need to deposit money into your account, you can set up direct deposit through your employer or mail your paychecks to the online bank. If your bank is extra high-tech, you may be able to deposit checks by taking a picture of it with your phone.
Withdrawing money is also pretty straightforward. Use your bank’s bill payment system to finance your bills or write a check to yourself. If you need your money immediately, you can withdraw it from an ATM for a small fee using your ATM or debit card. If you are extra fortunate, you’ll be able to pay for restaurants and retail stores using your card. Transferring money is also simple. Use a wire transfer or set up a link between two accounts to transfer funds between multiple accounts.
However, there are some features that an online bank just cannot replicate. For example, you cannot make ATM deposits through an online bank. Since the bank has no brick-and-mortar stores to pay for, you will usually pay less in fees and expenses. This means lower monthly fees and higher interest rates for consumers.
Note: Physical banks that offer online banking will usually let you open your online checking account in person, but after this, the account will be totally online in the future.
Interest Checking Account
The popularity of checking accounts with high interest rates has skyrocketed in recent years. They are also known as high yield checking accounts or interest checking accounts. These accounts function similarly to basic checking accounts, except they pay interest on your deposits. This means that the money in your checking account garners more money. You earn a little extra money each month just for keeping your cash at the bank.
How much you earn depends on the APY (annual percentage yield) that your bank offers. APY calculates how much money can earn from the interest rate and how much the interest compounds. You likely won’t earn much, but something is infinitely better than nothing. After all, most basic checking accounts don’t pay anything.
Interest checking accounts are most commonly offered at online banks, but some physical banks also have them. As you shop around at different banks, make note of which institutions offer the highest APY. This will equate to more money for you. Make sure there aren’t many restrictions on your new account (like how often you can write checks and how much money you are allowed to “put in” a check). View the account fee schedule, since some interest checking accounts make you pay maintenance fees. Online interest checking accounts are the most likely to have no maintenance fees.
Tip: if you like the idea of making some extra money through interest and writing checks to purchase things, you might be interested in money marketing accounts. While they aren’t checking accounts, they allow checks to be written (in small amounts) and might even feature a debit card. They are perfect for people who buy big-ticket items infrequently or saving up for an unexpected emergency.
These accounts offer all of the basic features of a checking account. In addition to added benefits, reward accounts are created to draw new customers to the bank. They generally have great interest rates (sometimes, they offer higher APY than a bank’s interest checking account!) and have low interest rates on loans. They also protect you from overdraft fees and closing costs. Occasionally, you’ll get a discount on these fees.
A reward account isn’t for everyone. You have to qualify for these prestigious accounts. You might have to get a credit card, hold investments with the bank, or do something else to quality. It isn’t always worth it. Weigh the pros and cons before getting a reward account.
These accounts usually have the highest monthly maintenance fees. You can sometimes work around them if you have met the minimum balance requirement. Read the terms and conditions before committing to a reward account long-term.
The Bottom Line
When looking for a checking account, know that each type caters to a different type of consumer. Find an account that fits both your needs and your budget.
Don’t be tempted by sign-up bonuses. The benefits of having an account that suits your lifestyle will be far better in the long run. Compare features among different banks.