What is a checking account?

Bank accounts offer a safe place to store your money when it isn’t being used and a reliable way to access your funds when needed. There are many different types of bank accounts to choose from, though. So you’ll want to select the account type that best fits your needs, depending on your financial goals and spending habits.

One of the most common options is the checking account, which is offered by banks, credit unions, and other financial institutions. But what is a checking account, and how does it differ from other options such as savings or money market accounts? Find the answers to all of your biggest questions about checking accounts below.

Checking account definition: What is a checking account?

First and foremost, a checking account is transactional, meaning it’s a place to keep the money you intend to use throughout the month. Your checking account will likely be where you accept deposits such as your paycheck and other funds. It’s also the account you’ll probably use to make regular cash withdrawals, pay bills, send money to others, or buy food at the grocery store.

Many modern checking accounts offer debit cards, mobile apps, an ATM network, and online money transfer options. Some banks may also provide paper checks to their checking account customers, which can be used to make purchases or to give money to people and organizations.

Do checking accounts give you cash back?

Not all banks offer cash back on checking accounts, but some do. For example, with Discover® Cashback Debit, you can earn 1% back on up to $3,000 of debit card purchases each month.¹ That can add up to $360 each year in cash back from everyday purchases. With Discover Cashback Debit, you can view your Cashback Bonus in the Discover App or via the Discover Online Account Center.

Checking with cash back and no monthly fees

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Discover Bank, Member FDIC

You can redeem your Cashback Bonus at any time simply by depositing your balance into your Discover Cashback Debit account, Discover Online Savings account, or Discover Money Market account. (Pro tip: You can even have Discover automatically deposit your Cashback Bonus into your Discover Online Savings account as soon as you earn it so that it can start growing right away.)

With a cash back benefit, using your debit card regularly can be a great way to earn money back on purchases you’re making anyway.

Do checking accounts earn interest?

In exchange for depositing your funds, many banks will offer interest on the balance held in your account. Interest is a great way to earn passive income on your funds without needing to do anything extra, but do checking accounts earn interest in the way that savings accounts do?

Earning interest on checking accounts isn’t nearly as common as it is on savings accounts. Even if you come across an interest-bearing checking account, the rate will likely be lower than you would earn by putting those funds in a dedicated savings or money market account. You may also find that checking accounts offering interest tend to charge higher fees than savings and noninterest-bearing checking accounts, negating most of your potential earnings.

If your goal is to earn compound interest on your money, a savings account is typically the better option.

What’s the difference between checking accounts vs. savings accounts?

You might wonder, should I choose a checking account or a savings account? The answer to that really depends on your financial goals and how you plan to use the account.

As mentioned, checking accounts are transactional in nature. In other words, you’ll typically use the money in your checking account to buy things (like new clothes) and pay your monthly bills (like rent). Savings accounts, on the other hand, are best suited for money you’re setting aside for the future. The money in your savings account is often being set aside for emergencies and multiple savings goals (like a big vacation and the down payment on a home).

Unlike savings accounts, checking accounts typically offer several ways to access your money. These can include debit cards, an ATM network, online transfer options, and paper checks. With a savings account, you may be limited to online transfers and in-person teller withdrawals, depending on the account and the financial institution.

Usually, savings accounts offer interest on the balance held, while only some checking accounts do. What’s more, savings account interest rates are generally much higher than those found on checking accounts, so they allow you to earn more interest on your balance.

Lastly, some savings accounts limit the number of outgoing transactions you can initiate in a single statement cycle. If you exceed the limit, you may incur a penalty fee or your savings account may be converted to a transactional (checking) account. Sometimes, the bank could even choose to close your account altogether. Every bank is unique, so check your bank’s rules to avoid unwelcome surprises.

Is a debit card a checking account?

No, a debit card is not a checking account, but it is a tool you can use to access the money in your checking account. If you have a debit card, it will almost always be connected to a transactional account, like a checking account. A debit card allows you to make purchases online and in stores, and you can withdraw cash from an ATM as needed.

When you use a debit card, the money is deducted from your account balance right away. It may or may not be necessary to enter your PIN (a four-digit security code), depending on your financial institution, the type of transaction, and the specific card you have.

What are some checking account benefits?

Is a checking account right for you? Here’s a look at some of the many benefits of an online checking account to help you decide.

You can only spend the money you have          

A checking account holds your money until you’re ready to spend it. When the time comes to make a purchase or a withdrawal or to initiate a transfer from your checking account, you’re limited to the current balance in your account. Unlike a credit card, which allows you to spend against a credit limit and go into debt, a checking account only lets you use the money you already have.

If you do happen to make a purchase or withdrawal that is for more money than you have in your checking account, that’s known as an overdraft. Some banks will charge a fee if you accidentally overdraft your checking account. Discover, on the other hand, offers overdraft protection so that you avoid any unexpected costs and inconvenience.

There are no transaction limits

One of the biggest benefits of a checking account is that you can make as many purchases and conduct as many day-to-day transactions as you like, without limit or penalty. That’s a key advantage compared to savings accounts, which, as noted above, may have monthly withdrawal limits.

It can be a safer place to store your cash

Keeping cash in your wallet or even at your home can be unsafe, since you likely won’t have a way to get it back if it’s stolen. On the other hand, checking account holders have some protections against fraud. Under the Federal Reserve’s Regulation E, if you report an unauthorized transaction within two days, you’ll be liable for no more than $50.

What are some different types of checking accounts?

Checking accounts can offer different features and benefits, and there can be a lot of overlap between different types of checking accounts. Consider how you plan to use the account, and ask yourself a few key questions to help with choosing the right checking account type for you.

Different types of checking accounts include:

Rewards checking account

A rewards checking account is one that offers rewards or incentives for your daily spending activity. Depending on the banking institution and account type, these rewards can include cash back, airline miles, and other bonuses. Rewards are a great way to get the most out of your account without changing your daily spending habits.

Online checking account

Some financial institutions, like Discover, operate exclusively online and offer 24/7 customer service. Traditional banks, on the other hand, provide access to brick-and-mortar locations or in-person teller services during regular business hours. Online banks typically offer more benefits than traditional banks, which can include higher interest rates, lower fees, or more rewards for your spending.

Joint checking account

In some cases, you might want to open a checking account with another person, either to share access to money, manage finances for another person, or help your kids learn to budget. A joint checking account is one that’s owned equally by two or more people, and most financial institutions offer them.

What are common checking account fees?

While no-fee checking accounts do exist (such as the Discover Cashback Debit account), there are still some common checking account fees that you may come across.

Monthly maintenance fee

Unless you have a free or no-cost checking account, your bank may charge a monthly maintenance fee. However, banks will often waive this fee if you meet a minimum balance requirement, receive a certain amount in direct deposits per statement cycle, or maintain other types of accounts at the same institution.

Overdraft or nonsufficient funds fee

With a checking account, you don’t want to spend more money than you have in your account. If you do, you could get hit with an overdraft fee. You can avoid overdraft fees altogether if your bank provides overdraft protection.

ATM fee

ATMs allow you to withdraw cash, check your balance, and, in some cases, deposit cash or checks into your account. However, there may be fees involved with using some of these machines. To avoid these fees, stick to your bank’s in-network ATMs; if you don’t, you may be subject to an added charge both from the machine’s owner and your bank.

How do you choose a checking account?

Now that you know what a checking account is, it’s time to find the right one for you. Here are some things to consider as you shop around for a checking account.

How will you use your bank?

How you bank will help determine which kind of institution and type of account is right for you. If you prefer to do your banking from your computer, tablet, or phone, then make sure your bank allows you to bank digitally. If you withdraw cash from ATMs regularly, a bank with a robust, fee-free national ATM network can save you money.

How do you plan to spend from your account?

Do you plan on using your debit card for all of your everyday spending and bill paying? For some consumers, a rewards checking account could be the most lucrative, while others would benefit more from a no-fee account. (And if you want both rewards and no fees, you could go with a Discover Cashback Debit account.)

How much cash will flow through your account?

Some checking accounts have monthly fees that are only waived if you maintain a certain balance or accept a minimum amount of direct deposits monthly. If you can’t regularly meet these limits, choosing this type of account could cost you.

How do you open a checking account?

So you now know what a checking account is, why you need one, and what benefits you want most. You may have even picked the right bank and type of account for your needs. In that case, it’s time to open your checking account.

The process for opening a new checking account will vary from one bank to the next but is usually pretty simple, especially if you’re opening a checking account online. You may need to provide the bank with some personal information, including your:

• Name
• Date of birth
• Social Security number
• Email address
• Mailing address
• Phone number

In some cases, you may be asked to send a copy of your driver’s license for proof of identity.

The bank will likely have you sign an agreement to their terms and conditions. Once the account is open, you’ll need to fund it with an ACH transfer, a wire transfer, a check, a cash deposit, or by signing up for direct deposit through your employer.

The bank will then send you a debit card and, in some cases, paper checks so you can spend as needed after the account is funded.

Open the checking account that suits your lifestyle

Once you find the right checking account for you, you’ll likely use it almost every day. It’ll be your go-to for everyday purchases, getting your paychecks, and for when you need to make payments. The good news? You don’t have to choose between benefits like rewards, fraud protection, and no fees. They’re all available with a Discover Cashback Debit account, including 1% cash back on up to $3,000 in monthly spending.

Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third party or information.

¹ See Deposit Account Agreement for details on transaction eligibility, limitations, and terms.