Five Essential Tips for Getting and Using a Checking Account
Reading time: 5 Minutes
June 22nd, 2023
A basic checking account is the core of most people’s finances. You might not spend much time thinking about yours, but it would be hard to manage your money or plan for the future without it.
That's why it’s essential to understand the ins and outs of checking accounts, so you can make the most of yours. Use these five tips to ensure your checking account is working for you.
1. Know your checking account basics
A checking account, sometimes referred to as a transactional account, gives you a place at the bank to store your money in an easily accessible way. You can write checks, pay bills electronically, have your paycheck deposited automatically, transfer money to and from other accounts and use a debit card to make purchases. You can also cash checks without fees and take out cash at an automatic teller machine (ATM).
Think of a checking account as a parking lot for your money. Money comes in and sits for a while before leaving to pay bills, cover day-to-day living expenses or be transferred out to savings or investments.
2. Understand how a checking account compares to other kinds of accounts
Checking accounts are not the only type of account you may use to handle your finances. So let's compare it to a few other common accounts so you know when to use a checking account and when another type of account might be a better fit.
A savings account is designed for depositing money and leaving it until you need it for a rainy day or to pay for a big ticket item.
While still available when you need it, the money in your savings accounts is slightly less accessible than the money in a checking account because you generally can’t write checks from a savings account or use a debit card to make purchases. In exchange for letting the bank hold your money, the bank pays interest on your balance. These type of accounts typically earn more interest than checking accounts because the money remains in place longer.
Credit cards let you make purchases today and pay them off later. If you manage your credit cards well, they help you build credit. A strong credit score can help you qualify for a car loan or mortgage and qualify for better interest rates.
Unlike a checking account, credit cards let you spend more than you actually have, making it easy to rack up a balance. If you can’t afford to pay your balance in full each month, the credit card issuer will charge interest on your balance, which will compound over time when you don't pay off the balance.
Prepaid cards mimic the features of a checking account but often come with high fees. You load the card ahead of time with cash, then use it to make everyday purchases. It works much like a debit card but isn't linked to a bank account. Prepaid cards may charge a fee to activate the card, check or reload your balance, or every time you make a transaction. They might also charge a fixed fee for every month you don't use the card. As a result, the average prepaid cardholder pays nearly $12 per month in fees.
If you typically use a prepaid card, consider an EASE account, which comes with a handy debit card, secure online and mobile banking, and free online bill pay, with no overdraft fees.
Check cashing services cash checks—usually paychecks or Social Security checks—for people who don’t have access to a checking account. Check cashing services charge a fee for processing checks, and while local governments and the Consumer Financial Protection Bureau have made efforts to regulate check cashing businesses and cap the fees they charge, those fees can still be extremely high.
Typically, these types of accounts earn more interest than checking accounts because the money remains in place longer.
3. Keep track of fees and minimum balance requirements
Many banks charge fees for their checking accounts, with the average U.S. customer paying $10.77 per month.
Many banks waive their monthly fees if you meet certain requirements, such as maintaining a minimum balance, using direct deposit or going paperless with online statements.
Before opening an account, look at the bank's fee schedule so you know exactly what you need to do to avoid monthly service fees.
4. Use checking accounts responsibly
A checking account is an excellent way to learn money management skills, but it’s possible to get carried away, too. If you spend more than you have in your account, your bank may decline the transaction or assess overdraft fees. If you are worried about overdraft fees, consider finding a bank account with no overdraft fees, such as EASE by Bank of Hawaii.
5. Stay safe
One of the main benefits of keeping your money in a checking account is that it is insured by the Federal Deposit Insurance Corporation (FDIC) for amounts up to $250,000. But the FDIC doesn’t cover money that is stolen through identity theft.
Identity theft happens when someone takes personal information, such as your Social Security number or bank account number, and uses it to impersonate you for financial gain. This might include writing fraudulent checks from your account, using your debit or credit card number for in-person or online purchases, or withdrawing money from your account at an ATM.
Often, identity theft occurs offline, through credit-card skimming at a gas station or restaurant, dumpster-diving for discarded financial documents, or even just a lost purse or wallet. But it can also happen online, with thieves carrying out phishing and malware attacks to gain access to your data.
Banks spend a lot of time and money on cybersecurity, but you can help do your part to keep your funds out of the wrong hands by following these tips.
- Never give out sensitive information, such as your Social Security number, account numbers or passwords
- Shred bank documents
- Monitor your accounts frequently and report any suspicious transactions to your bank immediately
- Use strong, unique passwords for your bank and other financial accounts
- Enable two-factor identification, which requires you to provide an additional authentication factor, such as a randomized pin code texted to your cell phone by the bank
Cozy up to checking
While there are other options for managing your money that don't involve a bank, it's hard to beat the safety and convenience of a checking account.
Yes, banks charge fees. But if you're careful, you can avoid many of them by managing your finances well, spending only the money you have and practicing good money habits to maintain the minimum balance requirements for your account.
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