Checking account

A checking account is the account the rest of your money passes through. Income arrives in it by direct deposit, the rent and the utilities leave it by automatic payment, the debit card draws on it at the register, and the transfer to savings and the payment to the credit card both start from it. A checking account is built for money that moves, not money that stays, which is why it pays little or no interest and why its balance on any given day includes money that is already promised to a bill.

In a sentence

• "The paycheck lands in the checking account on the 1st, and the rent leaves it the same morning."
• "The checking account reads $3,100 on the 1st, and $1,400 of that is the rent going out that day."
• "A checking account holds the money for this month. A savings account holds the money for later."

How it works

A checking account is identified by the bank's routing number and its own account number, which is what an employer needs for direct deposit and a biller needs for an automatic payment. Every movement in or out is a transaction, posted in the order the bank receives it.

Two balances describe the account at any moment. The current balance is everything that has posted; the available balance subtracts the pending card purchases and any deposit the bank has not released yet, and it is the figure the bank checks before paying an item. A payment for more than the available balance is declined, returned, or paid into a negative balance as an overdraft, depending on the kind of payment and the account's settings. Most checking accounts pay no interest or a rate close to zero, and some charge a monthly fee unless a direct deposit or a minimum balance waives it.

An example

One month in a checking account, with two paychecks and every bill on autopay.

The account took in $4,400 and paid out $4,295, so the balance ended $105 higher than it started. Not all of the money out was spending: the $400 went to savings and the $900 settled card purchases from the previous cycle. The figure that says whether the month was safe is not the $3,100 on the 1st but the $505 on the 14th, the day before the second paycheck, because that is the closest the account came to zero.

Why it matters

The checking balance is the number people read most and misread most. It includes the rent that leaves tomorrow, the card payment due next week and the savings transfer that has not gone yet, so on most days it is larger than the money that is free to spend, and a household that spends to the balance spends the rent. Two habits follow from what the account is for: keep enough in it to cover the bills due before the next paycheck plus a cushion, and move everything else, the emergency fund and the money for goals, to a savings account where it earns interest and cannot be spent by accident. A second checking account that holds only the bills' money makes the split physical, so neither balance needs a subtraction to be understood.

Checking account versus savings account

A checking account is for money that moves through the month; a savings account is for money that stays and earns interest. Checking comes with a debit card, checks and automatic payments and puts no limit on transactions; savings pays interest on the balance, usually has no card or checks, and at some banks limits withdrawals in a month. Keeping both jobs in one account means the savings gets spent slowly and the spending earns nothing, which is why most households use one of each, with a transfer between them on payday.

Common questions

Is a checking account the same as a debit card? No. The debit card is one way of spending from the account, and a purchase on it comes straight out of the balance. The account also pays checks, automatic payments and transfers, with or without a card attached.

Is a checking account the same as a current account? Yes. Current account is the name for the same account in the United Kingdom and several other countries, and transaction account is the general term.

How much should I keep in a checking account? Enough to cover the bills due before the next paycheck plus a cushion of about half a month of bills, so that a bill that lands a day early does not overdraw the account. Money beyond that earns nothing there and is easier to spend by accident, so it belongs in savings. See How to get one month ahead on your bills for the version of the cushion that removes the timing problem entirely.

Is the money in a checking account insured? At an insured bank, yes, by FDIC insurance up to the standard limit per depositor, per bank, per ownership category, and credit unions carry the equivalent federal insurance. The insurance covers the bank failing, not a payment you authorized.

Go deeper

• How to set up a separate account for bills opens a second checking account for the bills and funds it from each paycheck, so the spending account's balance means what it looks like.
• Why your budget never matches your bank balance does the subtraction from the balance to the money that is actually free, with a worked example on the 18th of the month.
• How to get one month ahead on your bills builds the account up to a full month of bills, so due dates stop depending on paydays.

Where it shows up in Zypper

Zypper connects a checking account through Plaid: you sign in on your bank's own screen inside the Plaid window, your bank credentials are never seen or stored by Zypper, and Zypper receives read-only financial data and cannot move money. Once connected, the account's transactions feed the budget and the cash flow page, its balance feeds net worth, and everything syncs automatically every day, with a refresh available at any time. See Supported account types and Connecting your bank accounts for the details, or get started with Zypper to see every account in one place.