How To Choose a Checking Account: The Basics

By April Dykman

All checking accounts are not alike! When you choose a bank based on familiarity or location only, you could be missing out on better rates and lower fees.

Checking accounts are one of the most basic types of bank accounts. Checking accounts are the ideal place to deposit paychecks and keep money that you need for paying bills or day-to-day expenditures.

It's not the case that all checking accounts are created equal, though. For instance, checking accounts often offer no interest, but rewards checking accounts do offer some interest on your money. Doing a bit of comparison shopping can give your finances a boost.

Not your father's checking account

A generation ago, most people had their checking account at a local bank branch, the same bank that also held their savings account and issued their credit card or mortgage. Since deregulation opened the banking industry to competition, you're much less likely to find one bank that has the best deal on all of these accounts.

Today, with mobile and internet banking, it's standard for consumers to pit their local bank against the best deals available. There are so many online banks to choose from, and traditional banks have in most cases followed suit with their own strong offerings to compete.

Another option is to open a checking account at your local credit union. A credit union is a nonprofit membership organization that offers the same financial services and products as a traditional bank, but pays less in taxes. The savings on taxes then gets passed down to members.

How to find the right bank for your checking account

A checking account is so basic that one might assume they're all pretty much alike. Some people will open an account with a bank that has a name they recognize, and others go with the bank that has the closest ATM or branch.

But familiarity and convenient locations are only part of the picture. For example, big banks with multiple ATMs and branch locations can have higher overhead, and those costs can translate into higher customer fees and lower savings rates. That ATM and branch network may be valuable to you, or it may not be.

If you care less about those networks, find an institution that pays a high interest rate and charges the low fees. In many cases, internet banks without branches have a cost structure that allow them to offer this.

If you do choose an internet bank for your checking account, the downside is that in many cases you have to mail your checks with a deposit slip, and the bank can sometimes take several days to post the deposit. (A small but growing number of internet banks accept online deposits by allowing you to scan in your checks from your home or office.) If your paycheck is direct deposited into your account and you don't plan to deposit a lot of paper checks, an online bank is a good option to explore.

But if you count on quick turnaround transactions or you receive a lot of paper checks, you may decide that it's better to have a branch location nearby for easier deposits and faster access to cash.

And if you have additional savings to deposit, you can probably find better interest rates with another type of account, such as a high-yield savings account, money market account or certificate of deposit (CD).

Shop around for best rates, lowest fees

To find a checking account offering interest yield and low fees, compare bank offers and consider the following tips from the Wall Street Journal on evaluating checking account fees:

  • What is the ATM policy? If your bank doesn't have its own extensive ATM network, you'll have to go to another bank's ATM to withdraw cash, which can cost $2 or more in service fees. Some banks reimburse you for these ATM fees. Know the reimbursement policy, as well as any limits or restrictions on how much money you can be reimbursed in fees.
  • Is there an account minimum fee? Some banks charge a fee if your checking account balance drops below a certain amount. Internet banks and credit unions don't typically have account minimums, but it's important to ask.
  • What is the overdraft policy and fee? Usually a bank will let you overdraw from your account if you have opted in to overdraft protection, so your check won't bounce (good thing), but you'll pay dearly for it (bad thing). Ask about the overdraft protection fee schedule, or better yet, see if there are lower-cost options such as linking a savings account as safeguard against overdrafts. (You'll still incur a fee in those cases, but probably a smaller one.) While it's ideal to not overdraw in the first place, if you're living paycheck-to-paycheck or know you get careless with your finances, it's best to investigate the bank's overdraft policy and assess the cost.

Also, when looking for a bank, know what kinds of customer service access points are available to you. Can you call at any time to talk to a live person? How good is the internet banking portal? Is mobile banking from your smartphone a possibility?

Whatever option you choose, whether it's online, credit union or traditional bank, determine what factors in a checking account are important to you, including a clear picture of any and all fees you might be charged. Then compare checking accounts and banks. That perfect checking account is out there if you know where--and how--to look.