How Online Checking Accounts Work

Online checking accounts function much the same way as traditional checking accounts you would open at a brick-and-mortar bank. Like traditional accounts, they are regulated and backed by consumer protections from organizations like the Federal Deposit Insurance Corporation (FDIC). For the most part, the only real difference is that you can open one over the internet, without ever visiting a physical bank branch.

Personal banking has undergone profound changes in recent years as financial technology (“fintech”) has disrupted the industry. As a result, a whole new generation of online-only banks are doing brisk business. What’s more, many of them attach appealing terms and conditions to their online checking accounts in order to attract new customers. In the following guide, we’ll deliver all the information you need to make an informed decision as you consider competing offers.

What Is a Checking Account?

Checking accounts are financial products designed for spending. People use them to manage regular and ongoing expenses, like rent and mortgage payments, bills, and utilities. They are also widely used to finance everyday purchases. Given this profile, some banks call them “transactional accounts,” as they are meant to support a higher volume of transactions than typical savings accounts.

Some checking accounts offer nominal interest rates to depositors. In other words, interest is usually less than you would earn on a savings account, reflecting its purpose as a spending account. In some cases, banks pay a fixed, flat interest rate regardless of your account balance. Others offer higher rates to customers who keep more money in their accounts. Alternately, variable rates that fluctuate in keeping with prevailing financial market conditions may apply.

However, in almost every case, interest rates are a secondary consideration when it comes to checking accounts. Their balances usually fluctuate, making it difficult for account holders to earn meaningful returns on their money. Savings accounts offer a better option if you are looking to earn interest. The main draw of checking accounts is that they carry far fewer limitations on when and how customers can access the funds they contain, relative to savings accounts.

Types of Checking Accounts

Banks configure their checking accounts in many different ways. Details will vary depending on the bank, but the most common types of checking accounts include:

Most people find that standard or premium checking accounts best meet their needs. Interest-bearing accounts split the difference between checking and savings accounts, making them an option worth considering as long as applicable fees and charges do not nullify the interest you stand to earn.

Low-balance checking accounts make a good option for depositors who do not build up sizable bank balances. Another type of checking account known as a second-chance checking account offers similar features but is more specialized and situation-specific.

Comparing Terms and Features

Take the time to research and compare offers. Fintech advancements have dramatically increased the number of options available to consumers. In the current personal banking landscape, companies compete hard to win business. Thus, they often extend highly advantageous offers to incentivize customers to choose them over competitors.

When performing head-to-head comparisons of various online checking accounts, consider these four core features:

When considering these factors, remember that banks often make exceptions and remove restrictions if you maintain a certain balance. For instance, monthly transaction limits may be removed if you keep a specific amount of money in the account at all times. In other cases, the bank may offer interest (or higher rates) to customers who keep larger sums of money in their checking accounts.

How to Open an Online Checking Account

Online banks make it fast and easy to open an online checking account. Perform searches and use aggregator tools to source offers. When you find one you like, proceed to the company’s website and go through the indicated steps.

You will need to provide a few data points and documents, including:

You will then need to complete a few additional steps to finalize your account setup:

From there, you will be all set to go. Simply add funds and use your account as you wish.

Using Your Online Checking Account

In some cases, banks will ask you to make your first deposit right away. In others, they may ask that you add money to the account within a set timeframe, usually 10-30 days after opening the account.

Supported methods of making deposits to your checking account usually include:

Should you need help setting up or using your new checking account, a representative from your online bank will be happy to help you. Most fintech banks offer customer support in multiple formats, including telephone, email, and/or live chat features.