How Do Checking Accounts Work?

You probably use your checking account every day, but do you really know how it works?
This article will explore exactly what a checking account is and how it works!
A checking account is a simple way to store your money. You can make deposits and withdrawals whenever you need to. Theyâre easy to access with checks, the ATM, your debit card, and online payments.
The checking account advantage? Itâs liquid. You have instant access to those funds at all times without penalty if needed. That makes it ideal for daily expenses like buying groceries, paying for a babysitter, or making an emergency car repair. Thatâs why theyâre so commonâthere are a total of 600 million checking accounts in the United States!š
The disadvantage? Low (or no) interest rates! Because many checking accounts come with various fees and minimums to maintain them (usually elevated monthly account balances), the average interest rate is only about 0.04% APY on these types of accounts,² which may not be worth it in some cases if youâre saving up money without investing funds elsewhere as well.
Another downside? Overdraft fees. You might be liable for an overdraft penalty if the money in your checking account doesnât match what youâve spent! This could lead to some hefty fees. Thankfully many banks have overdraft protection policies which will prevent these charges, but not all do so check before signing up for a new checking account.
You should probably have a checking account if you donât already, simply for the ease of living life. Theyâre not the most exciting thing in the world, but they can be hugely helpful for daily transactions. Just be sure youâre not relying on one to build wealth!
š âChecking Accounts Shrink by Nearly 100 Million Accounts Since 2011,â Tina Orem, Credit Union Times, May 8, 2018, https://www.cutimes.com/2018/05/08/checking-accounts-shrink-by-nearly-100-million-acc/
² âAverage Checking Account Interest Rates 2021,â Chris Moon, ValuePenguin, https://www.valuepenguin.com/banking/average-checking-account-interest-rates