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What is a Checking Account? - Definition, Types & Advantages

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  • 0:02 Checking Account Overview
  • 1:09 Types
  • 3:23 How It Can Help You
  • 5:14 Lesson Summary
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Lesson Transcript
Instructor: Aaron Hill

Aaron has worked in the financial industry for 14 years and has Accounting & Economics degree and masters in Business Administration. He is an accredited wealth manager.

Find out what a checking account is and the different types available. Learn what the advantages of checking accounts are and why they can be important to have.

Checking Account Overview

Have you ever been nervous to carry a large amount of cash in your pocket? Have you had a job that required direct deposit? Ever wondered if there was an easy way to pay monthly bills or track your expenses? If you answered 'yes' to any of these questions, a checking account is probably a good idea for you. Let's explore checking accounts so that you can understand the different types and pick the one or two that are best for you.

A checking account is a financial account that offers easy access and security of your money for daily transactional needs. It allows you to deposit your paychecks and withdraw money for vacations, going out to eat, or anything else you would like to spend your money on. If you want to utilize a debit card or get cash out of an ATM, you must have a checking account opened at a financial institution. These accounts usually have a minimal fee or no fee at all and are an essential part of most people's financial lives.

Checking accounts have different options or packages to help meet the needs of different individuals. To determine the best choice, it's important to understand the different types of checking accounts and some of the unique features of each.

Types

Basic Checking

As the name implies, these accounts offer the basics. If you're looking to use a debit card, get cash occasionally at an ATM, and write a few checks, this may be the account for you. These accounts are likely to have a small monthly or yearly fee which can be waived if you have a minimum balance or if you direct deposit your check every month. These accounts usually pay little to no interest.

Interest-Bearing or Money Market

These accounts are similar to basic checking accounts, but will usually pay a higher rate of monthly interest on your account balance. The trade-off is that you usually have to maintain a higher minimum balance in your account to avoid monthly service fees and get the stated interest rate. For example, a basic checking account may only require a $100 balance to have monthly services fees waived, whereas an interest-bearing account may require a $1,000 balance to have fees waived and to collect interest.

These types of accounts are best for individuals who are not worried about maintaining a higher balance and do not write a lot of checks or plan a lot of monthly withdrawals. Sometimes it may make sense to have a basic checking account for daily transactions and a money market or interest-bearing account with your extra money.

Free Checking

For obvious reasons, this is a popular type of checking account. Free checking accounts have no monthly service charges or additional fees regardless of balance, number of checks written, or other activity. You can direct deposit, usually pay bills online, and write checks through these types of accounts, just like you could with a basic checking account. However, these accounts will usually pay the lowest amount of interest compared to any other accounts.

Joint Checking

If you are married or want someone else to have equal access to your account, a joint account may be a good option. Most types of checking accounts offered by banks have a joint option.

Student checking

Many banks have special accounts for students. These accounts usually include various perks that can range from free checks, no charges for using an ATM, and special rates on other loans or accounts through the bank. A similar account can be offered for seniors over 55 or 60 years of age.

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