A checking account can be a convenient place to store your cash and manage daily transactions, but, like most financial products, it has its pros and cons. On the plus side: You can usually make as many transfers in and out of the account as you like (including by swiping, tapping, and waving your debit card to make purchases). Also, your funds are likely to be insured.
But, on the negative side, you probably won’t earn much or any interest for parking your money in a checking account, and you may be hit with an array of fees that nibble away at your funds.
Here, take a closer look at checking account pros and cons so you can determine how to get the right financial product to suit your needs.
What Is a Checking Account?
Simply put, a checking account is a safe place to stash funds and enable the flow of money in (what you earn and receive) and out (what you spend).
Whether held at a brick-and-mortar bank, an online financial institution, or a credit union, a checking account is often the hub of a person’s financial life. Your pay can be seamlessly direct deposited, if you like.
For your everyday spending, you might schedule automatic payments for your mortgage and utilities, write a check when paying for a doctor’s appointment, and tap your debit card when treating yourself to a wine-tasting with friends on the weekend.
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Pros of Checking Accounts
Here’s a closer look at the pros and cons of a checking account, starting with the upsides.
Security
Yes, you could stuff your money under the proverbial mattress, but with a checking account, you have a secure spot for it, where it can’t get lost, taken, or damaged. If your bank is insured by the FDIC (Federal Deposit Insurance Corporation) or, in the case of a credit union, the NCUA (National Credit Union Administration), your account will typically be covered up to $250,000 per depositor.
In the very rare event of a bank failure, you would be protected from loss up to those limits. (Note: Some institutions offer even more than $250,000 in insurance.)
Easy Access to Cash
Checking accounts allow you to access your money quickly and easily, whether you need to pay for a meal or something unexpected, like a school donation. Setting up direct deposit allows your paychecks to be transferred directly into your checking or savings account, with some banks offering access to cash up to two days early. That’s significantly simpler than what past generations had to do, such as queuing up at the bank to deposit a paycheck at lunchtime.
You can then tap your funds by using your checking account’s debit card, writing checks, snagging some cash from the ATM, or making a transfer.
Pay Bills Conveniently
Having a checking account means you can get your bills taken care of without much effort. You might set up recurring payments to a car loan, for instance, or use a digital payment app to send money to your roommate, a friend, or your yoga teacher. You can also typically move funds quickly via wire transfer, which can be especially useful for international transactions, and other methods as well.
Debit Card for Purchases
When you open a checking account, you’re usually provided with a debit card that’s linked to the account. Similar to a credit card, you can typically use your debit card to pay in person or online for anything from this week’s groceries to a cool new pair of shades to a matcha latte.
Unlike a credit card, however, debit cards pull funds directly from your checking account. They usually only let you dip into funds you actually have on deposit, which can help you keep spending in check and stay on budget, not to mention avoid credit card debt.
Rewards
Some checking accounts come with rewards that can be a nice perk. For example, when you open an account, you might get a sign-up bonus. Who doesn’t like free money? Or your debit card may carry rewards, similar to those of a credit card, such as cash back.
Cons of Checking Accounts
Given that checking accounts are designed for customers’ everyday, short-term money needs, they have some limitations, as well. Here are a few potential downsides to consider.
Low or No Interest Earned
While your money is sitting in your checking account, it is probably earning very low, if any, interest. For instance, as of mid-April 2024, the average checking account interest rate was a meager 0.08% (that’s eight-hundredths of a percent). Translated into dollars and cents, that means that if you kept $5,000 in your checking account for a year, you would only earn $4 in simple interest.
That said, there are high-yield and premium checking accounts available that pay heftier interest rates. These may come with minimum deposit and balance requirements. Online-only banks frequently offer these accounts without those barriers, however, and with interest rates that are several times higher than the national average.
Potential Overdraft and Other Fees
Sooner or later, many people will try to transfer more money out of their checking account than they actually have on deposit. It could be a simple math error, or they might have forgotten about that on-the-fly payment they made to contribute to a friend’s baby shower gift.
Not having enough money in your checking account can lead to overdraft fees. The average charge currently stands at a steep $25 to $35. (Worth noting: There are signs of this decreasing due to government and consumer advocacy pressure.) Also, even if you have overdraft protection — meaning you have linked accounts so that money can be pulled from savings into checking to cover payments, if needed — you may still be charged a fee. However, it’s likely to be lower than an overdraft charge.
Also, check the fine print when signing up for a new checking account: There can be other fees, such as account maintenance and out-of-network ATM fees.
Security Risks
While banks are extremely safe overall, there is always a small possibility of a security risk (such as a hack), though these would typically be covered by the FDIC or NCUA, as mentioned above. Losing or having your debit card stolen and used without your authorization is another concern— and it can be a common one. A card thief could potentially gain access to the funds in your checking account. It’s vital to report the issue within two days of noticing the card is missing. Otherwise, you could be liable up to $500 or more depending on the circumstances.
When a Checking Account Makes Sense
Quite simply, checking accounts make sense for the vast majority of Americans. It typically serves as the hub of one’s daily financial life.
Some people, though, are unbanked, meaning they have not (or are not able) to access the usual banking services. If you are seeking a checking account and haven’t been able to secure one, you can try a few other options:
• It might be easier to get an account at a credit union, if you qualify for one based on where you live, your profession, or other factors.
• Your banking history may reveal some issues, such as multiple overdrafts, as tracked by ChexSystems (a kind of reporting agency for the banking industry). In this situation, you might qualify for a second-chance account. This kind of account may have higher fees and/or minimum balance requirements, but it can be a good way to show that you can handle an account responsibly. In some cases, a second-chance account can be a stepping stone to a standard checking account.
When Other Accounts May Be Better
There are some situations in which another kind of account could be better than a checking account. A few scenarios to consider:
• If you are hoping to park your money for a while and earn interest vs. spend it, a savings account can be a good bet. Some savings accounts have limits on how many transactions can occur per month (check the fine print). Whether or not that applies, you will likely earn a higher interest rate than you would with a checking account. For instance, the current average interest rate for a savings account is 0.46% vs. 0.08% for checking.
• For those who want their money to earn still more money, a high-yield savings account can offer still more earning potential. At the time of publication, some online-only banks were offering rates in the range of 4.5%.
• A CD (or certificate of deposit) can be another way to earn a higher return on money you keep in a bank. However, these don’t offer the accessibility of a checking account. You agree to keep your funds on deposit in return for the bank guaranteeing a certain interest rate.
• For those who want spending power without a checking account, prepaid debit cards can deliver. You load funds onto them and can then spend or pay bills with them. They are typically backed by a major network, like Visa or Mastercard.
• One other option is to use digital payment services, such as Venmo and PayPal. These can allow you to move funds to shop and otherwise spend, without a bank account.
Checking Account Features To Consider
If you are looking for a checking account, you may want to focus on these three considerations:
ATM Access and Fees
Since accessibility is a key selling point of checking accounts, you likely want your money to be within easy and affordable reach. Check out a financial institution’s network of ATMs and make sure they are near your usual haunts. Also see what the charges are for using an out-of-network bank: Certain banks (especially online-only ones) may waive those usual out-of-network fees that can ding you for an average of $4.73 a pop as of 2023.
Online/Mobile Banking
Today, it’s par for the course for financial institutions to provide online banking features, but some provide more robust, user-friendly digital services and offer them for free. As you consider your options, you might look for a bank that helps you save automatically. A round-up function that nudges purchases up to the next whole dollar amount and adds the extra money to your savings can be valuable.
Also helpful are dashboards that allow you to see your money (earnings, spending, and savings) and credit score at a glance, for no extra charge. This feature can help you budget better.
Overdraft Protection
As mentioned above, many people have those “oops” moments and overdraw their accounts. Some banks will give you free overdraft protection up to a certain sum. For instance, they might cover up to $50 of your overdraft without charging you the standard fees. This can be a valuable feature when you are deciding which financial partner is right for you.
The Takeaway
For many people, a checking account can be a reliable hub for their personal finance needs. You can store your earnings securely and still easily access your money to pay bills and fund daily purchases. However, there can be fees involved, and these accounts typically earn little or no interest. So, when shopping around for a checking account, it can be wise to look for one that offers a minimum of surcharges and a competitive interest rate.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
Are checking accounts free?
Some are. You can often find free checking accounts from traditional and online-only banks as well as credit unions. While these accounts may be billed as “free,” keep in mind that some fees may apply, say, if you overdraft your account.
What happens if my checking is overdrawn?
If your checking account is overdrawn, that means you have drawn more money than you have in your account. By linking a checking and savings account, you may be able to have funds automatically transferred from savings into checking to cover the shortfall. Your bank may charge you a fee, whether they cover the shortfall through overdraft protection or not.
Can I have multiple checking accounts?
There is usually no limit on how many checking accounts you can have. It can be convenient to have one for, say, your salary and your living expenses and another for a side hustle and related expenses.
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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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1SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by banks in the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at SoFi.com/banking/fdic/terms. See list of participating banks at SoFi.com/banking/fdic/receivingbanks.
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