Types of Checking Accounts and How to Choose the Right One

Basic checking -- This is for people who just use a checking account to pay some bills and perhaps use a debit card to pay some daily expenses. Some basic accounts require direct deposit or a minimum balance to avoid monthly "maintenance" fees. You may be limited to a certain number of checks per month; exceed that number and you'll pay a "per item" fee for each additional check you write. You don't want to maintain a high balance in these accounts because you won't be paid interest.

Free checking -- This is perhaps the most advertised and popular checking account available. A free checking account is one with no monthly service charges or per-item fees regardless of balance or activity. In other words, write all the checks you like and keep your balance as low as you like without worrying about paying a fee. However, free checking doesn't mean you won't have to pay any fees. If, for instance, you bounce a check, you'll pay a non-sufficient funds fee.

Interest-bearing -- This usually requires a minimum balance to open, and you may need to maintain a certain balance to avoid fees. For example, a bank may require $1,000 to open an account and will charge $10 in service fees each month if you don't maintain a $2,500 balance. Interest usually is paid monthly, but these accounts pay a notoriously low interest rate. It ir just not worth the hassle for most people.

Joint checking -- This account is owned by two or more people, usually sharing a household and expenses. Each co-owner has equal access to the account. Most types of accounts, whether it's basic checking, savings or money market, allow for joint use. Good bookkeeping is vital for this type of joint accounts, a an overdrawn account will usually result in fees.

Tip: Even though most households(especially couples) have Joint Checking Accounts, it is also recommended that they keep separate accounts for easier account management.

Senior/student checking -- Banks like to target customers. Many institutions offer special checking deals if you are a student or if you're age 55 or older. The perks vary from bank to bank, but may include free checks, cashiers and traveler's checks, free automated teller machine use, better rates on loans and credit cards, or discounts on everything from travel to prescriptions.

Money market -- This account combines checking with savings and/or investment opportunities to help you pursue higher earnings. It requires a high minimum deposit to open -- usually $1,000 to $10,000, higher balances to avoid fees and imposes tighter limits on checking transactions than other accounts. It pays more interest than basic checking or savings accounts. This account is for people who can afford to maintain a high balance and do not write more than three to five checks each month.

Choosing the right account

There are 4 factors that you need to consider when you are deciding on which type of account to open.

Balance - What is the usual balance that you want to keep in the account? Can you commit to that balance and not go below it?
Frequency - How often do you write checks? How many such withdraw transactions does the bank allow? What are the consequences if you go over that?
Habit - Do you plan on enrolling in direct deposit? Do you plan on going to that bank and cash checks?
Online vs. Branch Banking - Are you planning on visiting the branch often besides using the ATM? In other words, do you need a local presence?

 

Tip: Read our list of the current FDIC insured banks offering High Yield Checking Plans and compare the features and rates offered by the banks.