What is a checking account? A step-by-step guide to opening a checking account

Using cash may seem like a convenient way to manage your money—until you want to make an online purchase or visit a cashless venue. This is where having a checking account can come in handy. Your checking account and attached debit card can help you make purchases online and in the real world.

Not sure what a checking account is or how to use it? No problem. As the complete guide to checking accounts, this post covers all the basics and provides step-by-step instructions for opening a checking account.

What is a checking account, and why should you have one?

A checking account is a secure, safe place for you to hold your money until you need to spend it. Instead of walking around with a roll of twenties in your pocket, you deposit money into the account, and your bank tracks those amounts and issues on-demand withdrawals at your request.

If you need cash, you can just go to an affiliated ATM and take money out of your account. If you’re at the store, you can pull out your debit card or checks to complete the purchase on-site (called a "point-of-sale transaction" if you're interested in being official). And, if you’re shopping online, you can use the information on your checking account-linked debit card to check out.

Benefits of having a checking account

You can enjoy tons of advantages with a personal checking account, such as the following:

Convenience at cashless events

Let’s say you’re heading to a baseball game. Most Major League Baseball (MLB) stadiums are now cashless. You can avoid the hassle of lugging along cash or trying to retrieve money from a savings account by withdrawing some money from your checking account. That might mean dropping by the ATM at the ballpark or pulling out your debit card and swiping it so you can claim that hot dog or a big bag of peanuts.

Make online purchases

Most online retailers require you to have a debit or credit card in order to make a purchase. You could transfer your cash to a prepaid card, but many prepaid cards have multiple transaction fees that can make you feel like you're being nickeled and dimed. And some online vendors don’t accept prepaid cards at all, which could leave you out of luck entirely.

Using a debit card attached to your checking account can help you avoid these issues. With a debit card, you can quickly make online purchases and have the money taken immediately from your checking account. Look for banks that are upfront about fees and that ditch unreasonable surcharges entirely.

Online bill pay and a clear-cut record of payments

Without a checking account, you’re likely paying all your bills (rent, utilities, or car payments) in cash or with a money order. While most vendors still accept at least one of these forms of payment, you should save all your receipts just to be safe. Otherwise, you might be unable to prove you made a payment in the event of a disputed charge.

Once you open a checking account, you don’t have to worry about making cash payments or purchasing money orders. You can use checks, skip paying postage, and make eligible payments online. Most importantly, your bank statement lists all transactions, so you always have records of your payments, including how much you paid and when you paid them.

For even more convenience, you can set up automatic payments. Most utility companies and landlords have online integrations that allow you to pay bills virtually. This process usually involves scheduling the payment through your bank, which then automatically pays the bill on the due date using money held in your account.

If you sign up for automatic payments, it’s critical to make sure you have enough money in your account to cover these bills on the due dates. Otherwise, the transaction might not go through. However, automatic payments can be very convenient and help you avoid late fees.

Prompt deposits

One of the best benefits of having a checking account comes on payday. If your employer offers direct deposit, you won’t have to rush to the bank after work to try to cash your check before closing.

Instead, your money automatically transfers to your account on payday. You’ll often have access to your money as soon as you wake up. Some banks even offer access to your direct deposit money up to two days early.

Choosing the right checking account

It’s important to realize that not all checking accounts are the same. A few features you should consider when determining which checking account is right for you are:

• Minimum deposit requirements:

  Does the bank require a minimum deposit to open a checking account? If so, are you comfortable depositing at least this much money in your bank account?

• Monthly maintenance fees:

  Does the bank charge a monthly maintenance fee, and how much is it? You can sometimes avoid these fees by keeping a minimum balance in your account, signing up for a direct deposit, or some other conditions. Try to find a bank with no monthly maintenance fees or one where you qualify for no fees.

• Overdraft fees:

  Overdraft fees occur when you spend more money than you have in your account. These fees can be $35 or higher per transaction. Not all banks charge overdraft fees, and some offer lower-than-average fees.

• Federal Deposit Insurance Corporation (FDIC)-insured:

  Always make sure you work with an FDIC-insured bank. This insurance helps protect the money in your checking account in the event the bank should fail.

How to open a checking account: a step-by-step guide

Opening a checking account is quick and easy. Some banks require you to open a checking account in person, but you can handle this process in many cases online. This step-by-step guide can help you get started.

1. Gather your information

It’s important to understand what is required when opening a checking account. While every bank has its own list of must-have paperwork, you typically need proof of your identity, age, and address.

Start with this list of commonly requested documents:

• Official government-issued identification, such as a passport, state-issued driver’s license, or ID card

• Proof of physical address, such as a copy of your utility bill or lease

• Social Security card

2. Complete a bank account application

Once you have all the required documents, you’re ready to open a checking account. To do this, you need to fill out an application. In most cases, you can complete the checking account application process online, either uploading your documentation into the application or sending it by email afterward. You also must sign the application to confirm that everything you've provided is truthful and authentic.

Be sure to carefully read each question on the application and answer it as accurately as possible. If you're unsure about something, don’t hesitate to ask the bank associate or reach out to customer service.

3. Make your first deposit

Before you can start using your checking account, you must first have money in it. You can deposit money in your account using whatever methods your bank offers, including depositing money in person at a nearby banking location or by making an online check deposit.

4. Download the mobile app

Downloading your bank’s mobile app can make tracking your checking account quick and easy. You can check your account balance, make mobile check deposits, and track any automatic payments through their mobile app. While keeping track of your checking account transactions is still important, the mobile app can also help you stay up to date.

Using your checking account

Once there is money in your checking account, you are free to spend it however you want, using any of the methods mentioned above. However, you must have money in your account, or your debit card may not work. Plus, it's much easier to lose track of "virtual money" than to keep an eye on the cash you have in your wallet or purse.

Consider keeping a running balance of your checking account by writing down all your deposits, withdrawals, checks, and debit card payments. This way, you'll always know exactly how much money is in your bank account (and where the money is going if your balance is a bit lower than you thought it would be).

Checking account vs. savings account

Most banks offer both checking and savings accounts, but those accounts serve different purposes. Checking accounts are ideal for day-to-day transactions. They provide easy access to your money through a debit card or checks.

On the other hand, savings accounts are best for stashing money you're saving up for a special occasion, rainy day fund, or even retirement. Typically, these accounts do not offer a debit card or easy access to withdrawals. Instead, you have to transfer money to your checking account or contact your bank to move money around via other methods.

Checking accounts can make your life easier by offering a convenient way to buy the stuff you want, virtual or in person. Some accounts come with added perks, too, like giving you early access to that long-awaited paycheck. Use this step-by-step guide to set up your own personal checking account and start paving the way for a financial future that truly fits your needs.

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