Checking accounts are one of the most common deposit accounts available, and you can open one at many banks and credit unions. According to the 2021 FDIC National Survey of Underbanked and Unbanked Households, approximately 96% of US adults have a savings or checking account.

Checking accounts offer a convenient way to pay bills, as well as track and manage your daily spending. If you’d like to open a new checking account, here’s what to know about how they work and how to use and manage them effectively.

Read more: What does it mean to be ‘unbanked,’ and what are the costs?

Checking account definition

A checking account is a deposit account available at most financial institutions. Unlike a savings account, which is often used to set aside money for specific financial goals, a checking account is primarily used for everyday spending.

Generally, checking accounts come with a debit card and check-writing privileges, making it easy to access the funds in your account when needed. These accounts often have no or low minimum balance requirements, though some may charge a monthly maintenance fee, which can often be waived by meeting certain requirements.

See our picks for the 10 best free checking accounts available today>>

How does a checking account work?

As mentioned, checking accounts typically come with debit cards and checks, which can be used to pay for goods, bills, or other people. Many checking accounts also let you set up online bill pay for one-time or recurring charges. For instance, you might choose to automatically pay your monthly electricity bill and streaming service subscriptions from your checking account.

If you need cash, you can withdraw funds from your checking account at a local branch or by using your debit card at an ATM. However, note that you might pay a fee for using an out-of-network ATM. You can deposit checks and cash into your checking account in person, in-network ATMs, or via mobile deposit (if your bank supports this option).

Do checking accounts pay interest?

Since checking accounts are designed to handle daily transactions and not necessarily save money long-term, most checking accounts pay little to no interest on balances. However, some banks and credit unions do offer high-yield checking accounts, which may require you to maintain a minimum balance to earn interest.

In some cases, checking account interest rates may be tiered, with rates that increase as your account balance increases. Interest-earning accounts may also come with other perks, such as rewards points or cash bonuses.

What’s the average checking account rate?

The national average interest rate for an interest-bearing checking account is 0.08%, according to the FDIC. Here’s a look at how the national average rate for interest-bearing checking accounts has changed over the past year:

Do checking accounts come with fees?

You may be responsible for certain checking account fees, depending on the particular account and how you use it. These fees could include:

Taking advantage of checking account bonuses

Banks and credit unions sometimes offer one-time bonuses to new customers who open a checking account and meet specific requirements, such as setting up direct deposit or performing a certain number of transactions per month.

These bonuses are essentially free money meant to entice new business. However, keep in mind that if you earn a checking account bonus, you must report it on your taxes as income.

Read more: 7 best checking account bonus offers available today

How to open a checking account

Opening a new checking account is a pretty quick and straightforward process. However, your financial institution will require some personal information and documentation, which you should have on hand when you’re ready to submit an application. Here’s what you’ll likely need to provide:

• Name

• Address

• Social Security number (SSN) or Individual Tax Identification Number (ITIN)

• U.S. passport, driver’s license, or another document to confirm your identity

• Utility bill, mortgage statement, or another document to confirm your address

• Opening deposit

Many credit unions and banks let you open checking accounts online, but it’s also possible to open one over the phone or in person, depending on the institution.

How to manage a checking account

Before online banking was so prevalent, people balanced their checkbooks on paper using a check register each month. With a check register, you write down every checking account transaction you make (including the date and amount) and then reconcile your expenses at the end of your statement cycle to keep track of the balance.

While it’s still possible to manage your checking account spending this way, getting an accurate picture of your balance is more challenging if you frequently make debit card payments and/or have several autopayments set up.

For this reason, many people manage their checking accounts via their bank’s online banking dashboard or mobile app. These tools allow you log in and view your available balancel, along with recent transactions. You may also be able to set up low balance and transaction alerts, which can help you avoid overdrafting your account.

Read more: 7 bank alerts that can help protect your money

You can also consider overdraft protection (if your bank offers it), which allows you to link your checking account to another deposit account, such as a savings or money market account, or a line of credit. If you accidentally overdraw your checking account, the difference is transferred over from your linked account, usually for a modest fee.

Read more: How much money should you keep in your checking account?

Alternatives to traditional checking accounts

Alternative options are available if a traditional checking account isn’t the best fit for your financial needs. Instead, you may want to consider the following:

High-yield checking accounts

A high-yield checking account is a checking account that earns a higher APY — usually, 1% or more. These accounts may come with additional fees, minimum balance requirements, or caps on the balance that earns the highest advertised interest rate. Others allow you to earn a high rate with no strings attached. So, it’s important to shop around and compare accounts before opening one.

Savings accounts

A savings account may be better if you’re trying to build an emergency fund, save for a specific goal, or generally earn a higher interest rate than what the typical checking account provides. A high-yield savings account, in particular, can allow you to earn some of the highest rates available today.

Some savings accounts may have monthly withdrawal limits, and they typically don’t come with debit cards or checks.

Money market accounts

Money market accounts have rates comparable to savings accounts but come with debit card access and/or checks. Monthly withdrawal limits may apply with a money market account.

Second-chance checking accounts

If you have a history of unpaid negative balances, bounced checks, overdrafts, or involuntary account closures, your checking account application could be rejected.

That’s because financial institutions rely on ChexSystems — a consumer reporting agency similar — to identify risky account applications.

The good news is that if you were previously denied opening a new checking account, may qualify for a “second-chance” checking account. Note that there may be mandatory fees and more restrictions with these accounts.

Read more: Can you open a bank account with bad credit?

Prepaid debit cards

Prepaid debit cards are another option if you don’t have access to a checking account. With a prepaid card, you load money onto the card via a cash deposit, check, or bank transfer, which serves as your available balance. You can then spend up to that amount and reload funds as needed. These cards can be a useful alternative to cash and debit cards but typically have high fees.