A checking account is one of the first steps in becoming financially stable. Knowing how they work and their benefits can help you manage your money and set you up for financial success. But, unfortunately, many Americans aren’t taught the importance of checking accounts, savings accounts, or even paying bills. So if you’re wondering what checking account benefits await you when you open one, read on to learn more.
Financial stability means knowing how to manage your money, pay your bills, and save for the future. It’s a complete understanding of basic personal finance principles. And, unfortunately, many people don’t have a firm grasp on their finances. A checking account is one of the first steps in becoming more financially literate. Luckily, CreditNinja is here to help! Learn more about the benefits of a checking account below!
What Is a Checking Account?
A checking account is a bank account that people use for spending as well as depositing their paychecks. So it’s essentially a way to keep track of your everyday spending, as well as a place to store your money.
Most banks and credit unions offer free checking accounts for their members.
Some might charge an annual maintenance fee, so make sure you ask before opening a new account.
With a checking account, you deposit your paychecks or money into it and then use that money to pay bills, go grocery shopping, or pay for anything else you need.
While there are several different types of financial accounts, a checking account is one of the most basic. It’s considered one of the first steps in becoming financially stable and independent. Your checking account is a safe and secure way to store your money, deposit checks, and spend.
Checking accounts are also necessary if you need an online loan for bad credit.
How Does a Checking Account Work?
Your basic checking accounts will most likely come with a debit card, online banking, online bill pay, and paper checks. However, paper checks are mostly a thing of the past at this point.
When you open a checking account, they’ll give you a debit card, sometimes referred to as a check card. This card is the easiest way for you to spend money in your checking account. You can use it anywhere they accept a credit card or debit card.
When you spend money using your debit card, the amount is pulled from your checking account and transferred to the merchant.
You can also deposit money into your checking account using a couple of different methods.
First, the old-school way would be to sign your paper check and deposit it at the bank. However, the more common method these days is to use direct deposit.
Direct deposit is a way for your employer to transfer your money directly into your checking account digitally. This way, there’s no need for a paper check. Direct deposit cuts down on some of the time it takes to receive your money. It also helps you avoid dealing with a paper check or going into the bank or credit union.
3 Reasons Why You Need a Bank Account
Checking accounts and savings accounts have a lot of different benefits. The top benefit for both of these accounts is that they offer an easier way to manage your finances.
If you don’t currently have a checking account or savings account, we would highly recommend you start looking into opening one of each. And if you aren’t even sure where to begin or whether you want one, then read on to learn more about their benefits.
The following are the top three benefits of opening a checking account. Although there are many more than these three, we feel that these are the most important.
1: Safety & Security
Checking accounts provide customers with a safe and secure place to store their money and an easy way to spend it.
Long gone are the days when you store your hard-earned savings in a sack under your mattress. Let’s be clear, that is not a good way to store your money! Instead, we highly recommend you keep your money in a checking account or savings account.
These institutions are designed to protect the money that you give them. For example, the Federal Deposit Insurance Corporation even insures credible banks and credit unions. This means that if something were to happen to the bank, you would still get your money back.
This option is so much safer than keeping all of your cash in your home. If something were to happen to your home, like a flood or fire, you would lose all the money you worked so hard for.
2: Budgeting Made Easier
Checking accounts also make tracking your income and spending so much easier.
Bank accounts now make it easier than ever before to monitor your spending. As soon as you use your debit card for a purchase, it will appear on your checking account. With online banking, you might even see the charge deducted the very same day.
This is the type of real-time tracking that makes budgeting so much easier than it used to be.
All you have to do now is log into your bank account online and monitor the charges and deposits that you see in your account. Then, you can ensure that you’re not spending too much money and that you don’t overdraw on your bank account.
At CreditNinja, we still recommend keeping track of your budget and checking account separately. This way, you can cross-reference your budget with what you see online. In addition, we recommend keeping a monthly and even weekly budget, so you always know how much money you have in your checking account.
And while budgeting your money with a low income isn’t easy, it is much easier with a checking account.
3: Deposits & Bill Pay
Direct deposit and automatic bill pay are considerable benefits to opening checking accounts.
Nowadays, you don’t even need to leave your house to deposit money into your checking account. The same goes for paying your bills. You can now do both comfortably, without ever leaving your recliner.
Most employers now will give you the option to set up direct deposit. This is when you fill out your checking account information and provide it to your employer so they can digitally transfer your funds right into your account. It saves you a lot of time in the long run.
Automatic bill pay is another significant advantage to opening a checking account. You can set this up with many utility companies, credit cards, etc., to automatically pay bills every month. This means you won’t have to send a check or sign in to their website to pay your bills.
To set up auto bill pay, you usually enter your banking info or just your debit card number. Once they process that information, they’ll start automatically pulling money from your debit card every month to pay your bill.
Paying bills with auto pay is so much easier and will ensure that you never miss a payment!
Checking Account vs. Savings Account
Now that you’re familiar with checking accounts and how they work, it’s essential to discuss savings accounts. So what’s the difference between the two?
You can get traditional checking accounts and savings accounts through banks or a credit union. While checking accounts are meant for everyday spending and deposits, a savings account is intended to help you store and save money.
While you might withdraw cash from checking accounts reasonably often, you should avoid too many withdrawals from your savings. Its purpose is to store your money for future large purchases or emergency expenses.
Some banks will even limit how many withdrawals you can take from your savings each month. If you exceed this amount, they may charge you a fee. Again, this is to encourage fewer withdrawals and more long-term savings.
Checking accounts and savings both have their benefits. Therefore, managing your money wisely should include both types of accounts.
Bank or Credit Union: Which Should You Choose?
While you can open checking accounts at both a bank and a credit union, there are differences between the two. Therefore, it’s essential to know the distinction before you decide which one is right for you.
Banks are for-profit organizations. This means that they may come with a lot of fees, somewhat higher interest rates, and terms and conditions that benefit the bank over the customer. A credit union, on the other hand, is a non-profit organization.
Because a credit union is a not-for-profit financial institution, they focus on their customers (or members). As a result, you may receive better interest rates, fewer fees, or a better overall experience with credit unions.
Both will likely offer business checking accounts, an interest-bearing checking account, a traditional checking account, and joint checking accounts. But which one you choose will depend on your needs, your credit score, and your specific financial situation.
Checking accounts come in a lot of different shapes and sizes. So make sure that you review all the details and fees of a checking account before you open one. And be sure to answer questions like “does opening a bank account affect your credit?”
We highly recommend having a checking account, as they will help you manage your money better and track your spending. Ultimately, this will set you up for better financial success in the future.
Now that you’re familiar with checking and savings accounts, you’re ready to learn more about credit cards vs. debit cards!