Checking Account

Checking accounts are some of the simplest – and least lucrative – financial products out there. They’re the best vehicle for actually using and spending your money, but as an investment tool, checking accounts usually offer low interest rates compared to savings accounts, CDs, and other places where you can grow your cash.

Generally speaking, you should only use your checking account for money that you need to easily access for monthly bills and everyday purchases. Keep additional funds in another account with a better interest rate, such as a CD or high-yield savings account.

Years ago, most people opened checking accounts at the brick and mortar bank where they also had their savings account, mortgage, and credit card. Now, however, there are few, if any scenarios where one financial institution offers the best deals on all of these accounts.

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

In the 1990s, a number of banks set up shop on the Internet. Like traditional banks, they issued ATM cards, checkbooks and paper statements; unlike traditional banks, they had no physical location for customers to visit. Those banks then funneled 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 for checking, savings and other accounts, especially as many traditional banks are increasing fees.

Credit unions also offer checking accounts. Credit unions 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 also be more generous with customers.

Where Should You Open a Checking Account? Finding an adequate checking account is easy enough. Banks long ago mastered the basics of recording our deposits correctly and sending bills that aren’t confusing. For this reason, most people aren’t too choosy when selecting an account.

It’s not unusual to open an account with the bank that already has your business. Another common 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 operations, so they make up the difference by charging their customers higher — and more numerous — fees. They’ll also offer 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 managing accounts. Internet banks require you to mail your checks with a deposit slip, and sometimes it can take a week for these deposits to post to your account. This can be an ideal option for people receive their paychecks via direct deposit and who keep at least a bit of reserve cash in their accounts.

However, people who are paid with paper checks (or who don’t keep a cushion of money in their accounts) usually need a bank branch nearby. Freelancers, handymen, and childcare workers are a few of the groups that often find themselves with paper checks or cash to deposit. A nearby branch makes it easy to deposit your check and quickly access your funds.

How to Find the Best Deal When shopping for an account, be sure to consider a checking account’s interest rate and fees. You can compare checking and savings account interest rates at What these rates are and how they’re assessed varies even after you open the account.

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, but their basic checking accounts aren’t usually as strong as those at online-only banks. Car loans, mortgages, and certificates of deposit are where credit unions really shine.

Consider 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. Assume you’ll be hit with a fee from a visiting bank — as much as $2 or $3 — for using an ATM that’s not part of your bank’s network. 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 there’s no caps on how much or how often you’ll be repaid.

2.) Account Minimum Fees. Many brick-and-mortar banks charge you a monthly fee if your balance is below a certain amount. (They make more money from accounts with high balances.) Most Internet banks don’t charge these fees, but be sure to check.

3.) Overdraft Fees. By and large, bounced checks are a relic 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.

If you’re researching internet banks, call customer service and grill them as you would a traditional bank. Bankrate is a good place to start if you’re merely looking for the place with the best interest rate. In terms of user experience, search online and ask around. But keep in mind that no two customers will ever have identical experiences. Find out if there are any fees associated with closing the account, so you have options should you decide to switch.

Whether you choose an internet-based or traditional bank, ask about all fees associated with the account — banks can charge you for anything from check-cashing and money transfers to inactivity and low balances, so figure out your costs before you open an account.