Checking accounts take center stage in your day-to-day finances, and you can choose one of several styles.
To pay your rent, cover your credit card, cable, and utility bills, buy your groceries, and repay your loans, you almost certainly need a
checking account. It's the only way to authorize the transfer of funds, whether you do it in writing or handle everything electronically.
Choosing the checking account that's best for you can be complicated, since accounts come in several varieties. You can visit a couple of bank lobbies or scroll through a few bank websites to get a sense of the products that are available.
IN THE BANK
A
regular checking account is likely to cost you some money to maintain. Most banks charge either a monthly fee, a fee for each check or ATM withdrawal, or sometimes a combination of monthly and per-use fees.
Some banks may offer free checking and ATM use for a short time to attract your business. And most banks waive their fees if you keep a minimum balance in your checking account or in a combination of accounts in the bank. The catch here is the minimum can seem pretty maximum, though amounts vary from a few hundred to several thousand dollars. You may also qualify for free checking if your paycheck is deposited directly into your account or if you use a credit card the bank issues.
You should ask about all the possible ways to qualify for reduced cost checking. You can usually count the money in an interest-paying or investment account towards your minimum. Some banks also count your mortgage or other loan balance toward the minimum.
A SCALE OF FRILLS
Some banks offer a scaled-down version of their regular checking account, called
no-frills or
basic checking. If you write only a few checks a month and you don't withdraw money from an ATM very often, it's something to consider. But for many working people, it's too restrictive — and the fees can be steep if you go over the limits.
At the other end of the scale, some banks offer combined accounts, called
relationship accounts, that provide a full range of services: no-fee credit cards, loan discounts, and free bank checks or money orders. If the required minimum balance for this kind of account also gets you free checking, there's probably nothing to lose, provided you need enough of the features the account offers.
CHECKING, CREDIT UNION STYLE
If you have your accounts at a
credit union, you handle transactions in the same way you do at a bank. But instead of writing checks, you write what are known as
share drafts.
The big difference is in the cost. Most credit unions don't impose fees for checking beyond the modest annual charge for membership, which is sometimes as little as $25. And if they require minimum deposits at all, it's much more likely to be hundreds rather than thousands of dollars.
A NEW INTEREST IN CHECKING
Like regular checking, an
interest-bearing checking account lets you write as many checks as you want each month and use the bank's ATMs. The added benefit of these accounts is that you earn interest on your balance at the rate the bank sets, often about the same as you'd earn on a savings account.
So why wouldn't you choose to earn while you spend? There is a catch in most cases. Unless you maintain the minimum balance — an amount the bank determines — you not only forfeit the interest but typically owe more — sometimes much more — in fees than you would for a regular account at the same bank. Those fees can kick in for any month your balance drops below the minimum, sometimes even if it's just for a day or two or just a few dollars.
In most cases, even one month of unexpected fees can outweigh what you could earn in interest over several months. So as great as interest-bearing accounts may sound, you'll want to figure out if you can earn as much some other way, without the pressure.
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