Checking Accounts Guide

1. What's a Checking Account?
Checking accounts are some of the simplest - and least lucrative - financial accounts out there. They usually offer pretty low interest rates compared to savings accounts, CDs, and other places where you can easily stash your cash.

Generally speaking, you want to keep only the money that you need to easily access for monthly bills and everyday purchases in your checking account. You should try to keep additional funds (your savings) in another account with a better interest rate, such as a CD or high yield savings account .

Back in the day, most people opened checking accounts at the brick and mortar bank where they also had a savings account, a mortgage, and a credit card. Now, however, there are few, if any scenarios where one financial institution can offer the best deals on all of these accounts.

As a result, fewer people do everything in one place, and the bank that handles a checking account may not be the best credit-card provider.

Back in the 1990's, a number of banks set up shop on the Internet. They sent out ATM cards and checkbooks and paper statements and everything else, but you couldn't go see them in person. Then, they funneled all of the money they saved by not paying rent into offering better deals. Today these Internet banks are thriving and they offer some of the best deals out there.

Credit unions also offer checking accounts. They essentially are non-profit membership organizations that otherwise work just like banks. Since they don't have to pay as many taxes as a regular bank, they can be more generous with customers.

2. Where Should You Open a Checking Account?
Finding a checking account that's adequate is easy enough. Banks long ago mastered the basics of recording our deposits correctly and sending bills that aren't confusing. For this reason, many of people tend to be lazy when picking one.

As mentioned above, it's common to just go with the bank that already has your business. Another often-made mistake is to just go with a bank that's close to your office or home. That convenience can come with a cost. Banks with lots of branches usually spend more on rent and operating those offices. They make up the difference by offering their customers higher fees, lower interest rates and fewer deals.

You should open a primary checking account with whatever institution pays the highest interest rate and charges the lowest fees.Usually, this will be a bank that has no branches and asks customers to call or use its web site for help.

There's one important exception here though - having a bank branch nearby is crucial for people who are paid with paper checks and who don't keep a big cushion of money in their accounts. Freelancers, handymen, and babysitters are a few of the groups that often find themselves in this situation. A nearby branch makes it easy to deposit your check and access your funds quickly. Internet banks require you to mail your checks with a deposit slip. Sometimes it can take a week for these deposits to post to your account.

3. Advice on Getting a Great Deal
Be sure to consider a checking account's interest rate and fees when shopping for a deal.

Figuring out which account offers the best interest rate is usually pretty simple: the higher the interest rate, the better.Internet banks often offer the best rates. Credit unions also have good deals. However, their basic checking deals tend not to be better than online-only banks. Car loans, mortgages, and certificates of deposit are where credit unions really shine.

You need to think about a few factors when evaluating checking account fees:
1.) ATM Fees. Any bank that doesn't have branches won't have many (or any) ATM machines either. Figure on getting hit with a $2 or $3 fee every time you use an ATM that doesn't belong to your bank. The good news is that many Internet banks reimburse you for fees charged by other banks' ATMs. Ask about the reimbursement policy and make sure it isn't capped.
2.) Account Minimum Fees. Many big banks charge you a monthly fee if your balance is below a certain amount. (They make more money off of accounts with high balances.) Most Internet banks don't charge these fees, but be sure to check.
3.) Overdraft Fees. Bounced checks are of a bygone era. These days, banks make a lot of money by letting you overdraw your account and then charging you a $30 fee (or interest on the amount you overdrew, or both). Many banks will automatically sign you up for this overdraft service, without asking you first. It's best to avoid overdrawing your account. But if you're frequently down to the last dollar then figure out what it will cost to use your bank's overdraft features.

4. Grilling Guide: Questions to Ask the Bank
Does your checking account pay interest?
Many still don't. Banks that don't pay interest think that not charging you low-balance fees ought to be enough. It's not. Stay away from these accounts, you can do better. Check out our rates section to get a sense of some of the best rates being offered.

Does the interest depend on how big my balance is?
Some banks reward customers who have large balances with higher interest rates. If you keep a lot of money in your checking account then you might as well take advantage of this perk. But if you keep a low balance then you should bank with an institution that won't penalize you for doing so.

Are there any fees if my balance drops below a certain amount? How often do you charge them?
Many banks charge minimum account fees. Look for a bank that doesn't charge these fees if your balance is going to fluctuate or stay at low levels.

Will you reimburse me for fees I pay at other banks' ATM machines?
Some do, many don't. Find out if the reimbursements are unlimited. Be wary if they're capped at a few withdrawals or a particular dollar amount each month.

Will you still reimburse me for ATM fees if the ATMs are outside of the U.S.?
Here, it starts to get confusing. There are potentially two or more fees levied on foreign ATM transactions. Ask about this if you travel a lot.

What do you charge me if I bounce a check or withdraw more money from the ATM than I actually have?
These overdraft fees come in two basic forms. They often charge a flat fee every time you overdraw your account. These fees can add up if you keep making withdrawals without realizing you've overdrawn your account. Sometimes banks charge interest on the money it lent you (to cover the bounced check or too-big ATM withdrawal).

Can I elect to have no overdraft coverage at all?
Good banks should let you skip this coverage. Others automatically sign you up for it. If you maintain multiple accounts at the same institution, you may be able to link your checking account to another account so that it draws from that second account if you overdraw your checking account funds.

Are there any restrictions on how often I can electronically transfer funds between accounts?
Be sure to ask about this if you'll be transferring funds between accounts often. The answer should be no.

How often are your phone lines open for help?
Some smaller banks and internet-only banks aren't open on the weekends or at night. Ask about the customer service hours if you need a lot of handholding.