A checking account is the most basic personal finance tool, and it is important that you understand how it works, how to use it, and how not to use it.
What is a Checking Account?
A checking account, or a demand deposit account, is a consumer or business bank account used for daily transactions. There is no limit on the number of daily or monthly transactions in a checking account, though some banks charge fees for high activity volumes.
How to Deposit Money into a Checking Account
You can deposit or withdraw money via a variety of methods. You can deposit cash or checks in person at your bank or at your bank’s ATM. Many banks also allow checks to be deposited through a mobile phone app.
You can also make deposits to your account via ACH (automated clearing house). ACH deposits are electronic transfers between your account and an external account. This includes electronic transfers that you send from other bank accounts, investment accounts, or direct deposits from your employer.
You can also add money via a bank wire, though wires generally have high transaction fees.
Side note: If you've found an old check that never got deposited, you might be wondering if you can still cash it. Here's your answer!
How to Withdraw or Send Money from a Checking Account
The easiest way to withdraw money from a checking account is its namesake, with a paper check, or with a debit card. However, checks are becoming less popular, as most consumers and companies prefer electronic transfers. I urge you to avoid using a debit card. I will explain a bit more about why below.
Virtually all banks now offer a free online bill pay feature. I highly recommend you use this to pay all of your bills that do not accept a credit card. Credit card and utility companies will accept the payment electronically. The bill pay feature also allows for a paper check to be mailed at no cost.
You can also initiate electronic withdrawals through other companies or to transfer to other accounts. For example, I use the electronic transfer feature in my bank account to send money to my investment account.
You are also able to withdraw cash from an ATM or send a bank wire. Again, most banks charge a substantial fee for a wire transfer.
How to Use Your Checking Account
Your main checking account should be the single entry and exit point for money going into or out of your possession. This allows you to easily track and manage your income and expenses. The only exception I encourage is for automated investments.
It is important to keep a small cushion in this account to prevent overdrafts on your account. I plan and understand every single payment that comes in and goes out of all of my accounts, so I never have a surprise expense or fee.
Once the cash comes into that account, you can use transfers and bill payments to get the money where you want it for the long-term.
How to Not Use Your Checking Account
Keep in mind, a checking account is not a savings account or investment vehicle. Even if you get interest, you should not use a checking account to store your money. Savings accounts always have better interest rates for your quickly accessible emergency fund, and investment accounts are better for the long-term.
Also, don’t assume everything is working in your account. Monitor it regularly to ensure you will not overdraft or pay any fees. Your checking account shouldn’t cost you any money. If your bank is charging you, look for better options elsewhere, whether it is online or at a local credit union.
More Tips on Checking Accounts
While your debit card may seem the easiest way to spend your money, I suggest you put 100% of your spending on a credit card. Credit cards get you awesome rewards for things like free flights and hotel nights. If you are not excited by free travel, you can always get cash back.
Another reason to use a credit card to pay over a debit card is fraud protection. If someone steals your debit card number and drains your account, you are likely going to be in a bad situation until you get the money refunded. That can easily take several weeks. You would also have to change your account number. A credit card gives you better protection and you are not responsible for paying for fraudulent transactions.
Don’t pay ATM fees. If you have a good bank, they will not charge you any fees. If you plan correctly, you will not have to pay other bank’s fees. If you have an awesome bank, they will refund other bank’s fees. In a worst case scenario, get cash back at the grocery store. Don’t pay to get to your own money.
I rarely use cash at all. As I wrote above, I use my credit card nearly 100% of the time to get points and miles. The only exception is when I am traveling abroad. If you have a good bank that doesn’t charge foreign use fees, you can get money for free at a fair exchange rate from an ATM. Just make sure you read the fine print on your accounts to know what kinds of charges your bank imposes before you use an ATM abroad.
My Favorite Checking Accounts
Capital One 360
Capital One 360 (formerly ING Direct) is the go-to online bank for most personal finance bloggers, and for good reason. I opened my ING Direct Electric Orange Checking account on November 28th, 2007, the week I stopped working at a local bank. I knew all the tricks traditional banks pulled to make more money from us, and decided it was time to find a better option.
I still have my 360 Checking account today, and I have the 360 Savings account to go with it. If you are looking to start with online banking, they have a great product suite and features including free transfers to other banks, automated savings plans, and mobile check deposits. You can also order a check book if you still need to write paper checks.
Charles Schwab Bank
In addition to my other accounts, I also have a checking account at Charles Schwab Bank. I was already a customer of their brokerage products, so adding on a quick way to move money in and out of my accounts made sense for me. They charge no fees and reimburse all ATM fees worldwide, so it is my first choice when traveling abroad.
If you already have a brokerage account, check with your broker about their checking account options.
Make Sure to Track Your Account
I track my bank accounts with free money management tools that manage my budget, transactions, and all of my accounts for me.
I suggest taking a look at Personal Capital or Power Wallet to track your transactions and Manilla to file away your statements. I use those sites regularly and love how they help me manage my accounts and keep track of balances.
How Do You Do Checking?
What bank do you use for your checking account? Do you have multiple accounts for different purposes at different banks? Share your strategy, what you like, what you don’t like, and any questions in the comments.
This post was originally published on March 11, 2013 and updated on June 16, 2021.