Choose The Best Checking Account


4 June,2011

One of the best ways to manage your money easily is to open a checking account. Many financial institutions offer checking accounts that can allow you to easily manage your money with the help of debit cards, paper checks and the Internet. A checking account can provide you with a place to keep money that you use for most every day expenses, while providing you with an easy way to transfer money to retirement accounts, investment accounts and savings accounts. However, it is important that you pay attention to your checking account options, so that you can choose the best checking account for you.

Look for Free Checking

In the past, free checking accounts were considered the norm. However, free checking accounts are becoming scarcer as banks look for ways to increase revenues. Many checking accounts now come with monthly service fees. Other checking accounts don’t charge monthly service fees, but will charge you if you don’t keep a minimum balance, or if you don’t engage in a minimal amount of activity with your checking account each month.

Consider your needs before opening a checking account, and make sure that you understand the fees that might be charged, or the requirements for avoiding fees. If you look online, you can find a wider selection of checking accounts that do not charge fees – and that don’t have strings attached.

Additionally, it is worth noting that some financial institutions are returning to the concept of limited check writing. Find out what sort of check writing limits there are, and whether you will be charged a fee if you write too many checks each month.

ATM Fees

ATM fees are on the way up, so you should be aware of this as you open a checking account. As you choose the best checking account, consider the ATM charges. Find out how much the bank charges you when you use another ATM. Some banks and credit unions will reimburse you for fees incurred when you use other ATMs (as long as there are none of your financial institution’s ATMs nearby). Online banks often have reimbursement policies as well. There are ATM networks for credit unions and online banks that can make it easier to access your money fee-free, no matter where you are. If you know that you travel a lot, and will need cash when you travel, it is a good idea to open a checking account with a financial institution that belongs to an extensive ATM network.

Find out, too, about foreign transaction fees, and whether or not the financial institution is included in foreign ATM networks. It is important to consider your needs as you look for the best checking account. Think about where you will access your money, and make choices based on what you are likely to do with your money.

Be Aware of Overdraft Policies

All financial institutions charge fees when you overdraw the account. Some institutions charge less than others, though. You can ask about fees, and compare possibilities. Another thing that you will have to decide is whether or not you want some sort of overdraft protection. Overdraft protection comes in two main types:

  1. Line of credit overdraft protection: You usually have to apply for a line of credit. When you dip into the red, you are charged interest on the amount of money, until your account is back in the black. You may have to agree to a credit check before overdraft protection is provided to you. Some financial institutions will also charge you an annual fee for overdraft protection.
  2. Standard overdraft services: This is when the bank allows purchases to go through, even though you don’t have enough money in the account. There is usually a limit of between five and 10 transactions before you are finally cut off. Each transaction in the red comes with its own fee, usually between $25 and $45, depending on the bank. If your bank charges $35 for each overdraft item, it can quickly become $350 in fees if you have 10 transactions in the red – even if they are small transactions. By law, financial institutions have to ask you if you want to accept this service; if you choose not to, ATM withdrawals and point of sale transactions will be denied if you have insufficient funds. ACH transactions, such as automatic bill pay, will still be allowed through so that you don’t end up missing bill payments.

Some banks and credit unions will allow you to link your checking account to another account, such as a credit card account held at the financial institution, or to a savings account. When you have insufficient funds, money is taken from the linked account to cover the difference. Usually, though, a small fee is still charged, but the fee is reasonable (usually $5 to $20) compared to the overdraft fee you might pay. However, the transfer can count toward the Fed-imposed limit on savings account withdrawals of six per month (and some banks have smaller limits, like three or four). You have to be careful in such cases, since going over the withdrawal limit on your savings account can result in fees, as well as the closing of your savings account.

Rewards Checking and Interest Bearing Checking Accounts

In your quest to choose the best checking account, you should also consider whether or not rewards checking would work best for you. There aren’t many financial institutions that offer rewards checking accounts anymore, but there are a few out there. You can check online for rewards checking, or ask at a local financial institution.

Rewards checking accounts often come with debit cards that allow you to earn reward points much like credit cards do. Additionally, some of these rewards checking accounts also have an interesting bearing component. Before you agree, though, make sure you understand the terms. Some rewards checking debit cards come with annual fees. There might also be a cap on your yearly earnings, or some other exclusions to watch out for.

With any type of interest bearing checking account, rewards or otherwise, you need to be aware of the requirements to receive your interest payments. Many financial institutions won’t pay interest on your checking account unless you keep a minimum amount of money in the account. At some banks and credit unions, if the balance of the checking account falls below the minimum at any time during the month, you could forfeit the interest payment for the entire month. You might also be subject to minimum activity requirements, needing to make certain debit transactions, or have direct deposits set up. Be sure that you understand the requirements before open an account, especially since some rewards checking and interest bearing accounts come with fees if you don’t meet the minimum requirements.

Watch Out for Cash Bonuses and Promotions

Some banks and credit unions will offer cash bonuses and promotions in which merchandise (such as an iPad) is given away when you open an account. While this can be a good way to get free cash, or get the latest desirable gadget, you need to make sure that you understand the requirements before you sign up – especially if, otherwise, the checking account doesn’t particularly work for you.

Most bonuses and promotions come with very specific requirements that have to be fulfilled within a certain time period, such as 30 or 45 days. You might have to make a certain number of signature debit transactions (PIN pad transactions might not count), or have a certain number of direct deposits made to qualify. You may have to maintain a minimum balance for an entire month before you qualify. Some financial institutions have a rather long list of requirements you have to meet to qualify. Before opening a checking account based on the promotion, understand just what it will entail. In some cases, it might not be worth it.

Could Express Checking Be Right for You?

Many people find express checking a good option. With most express checking accounts, the idea is to encourage you to do most of your banking online. Express checking is ideal for those who want to automate their finances, setting up automatic deposits and withdrawals, and for those who don’t deal much with paper checks (although many express checking accounts do come with unlimited check writing privileges).

Express checking is becoming one of the replacements for “free” checking. With most (but not all – check the terms and conditions) express checking accounts, there are no minimum balance requirements, and few activity requirements. Most express checking accounts are fee-free, with the understanding that you will not use the tellers at the branch very often. Check the fine print, since some express checking accounts will charge you a fee if you use tellers more than three or four times a month.

For many people, though, express checking works well. It gives them the ability to go into a local branch a couple times a month if they feel the need, but it also provides easy online access, and the ability to engage in fee-free banking.

Online Checking Accounts

Of course, online checking accounts often provide your best access to fee-free checking at this point. The low overhead costs associated with online banking means that you can get access to competitive products and services. However, you have to be aware of the limitations that can come with online banking.

Sometimes, it can take you days to access your money. Additionally, you won’t be able to just go in and speak with someone if there is a problem. Most online banks offer 24/7 customer service via live chat or phone, but if you like in-person dealings, you might not like online checking.

With the digital nature of money, though, it is fairly easy to do all of your banking online. You can arrange direct deposits to your account, and link your online bank account to your PayPal account or some other third-party payment system. It is also easy to set up electronic bill pay, and initiate transfers to other accounts, as well as arrange automatic debit. Depositing paper checks can be difficult, since you will have to mail them to some headquarters somewhere, and some online banks won’t accept paper deposits. Make sure you are prepared for online banking if you decide to take the plunge.

Credit Checks and ChexSystems

Realize that some financial institutions will run credit checks, or consider your ChexSystems report. If you don’t want your credit checked as part of the account opening process, or if you don’t like a financial institution’s involvement in ChexSystems, you should ask about it beforehand; don’t open an account if you aren’t comfortable with the credit practices.

ChexSystems is a reporting organization that some financial institutions send information to. The organization takes reports of negative behavior (no positive behavior is reported) and shares it. Financial institutions can send information to ChexSystems when you overdraw your account, or bounce a check. The information appears for five years. If another institution using ChexSystems sees the negative item, you might be denied an account. Those who don’t like this system ask potential financial institutions whether they participate in ChexSystems before opening an account.

It is also worth noting that some banks will engage in a hard credit inquiry that can lower your credit score before approving you for an account. If you don’t want your credit checked before you open an account, find out what the financial institution is likely to do ahead of time. That way, you will be prepared – or you can decide to open an account elsewhere. Understanding these practices, so that you know exactly what is going on with your finances and credit, is important.

Bottom Line

In the end, it is important to know your own needs. You can choose the best checking account for you if you do your research, and understand your options. Ask questions, and read the fine print. Look for an account that will fit your lifestyle and your needs.