The Best Online Checking Accounts for February 2020

Online banking has really come into its own, not least because the lack of brick-and-mortar branches saves on costs and lifts rates for customers. Clever and prudent online banks can compete not only on rates, but services as well, edging past their more traditional competitors.

If you're new to the world of checking accounts, this is a good overview of how checking accounts work in the age of technology. From understanding interest and fees to the difference between online and traditional checking accounts, this guide will help you make the right banking decisions for you.

The checking account is essentially a basic bank account for spending. This contrasts with a savings account, which is intended for -- yes -- saving. In the old days, when checks were a primary payment method for Americans, this was the type of account that was most easily utilized for purchases.

That isn’t necessarily the case anymore, but those little paper checks are still the foundation of the checking account. Remember, though, that this is a spending account so there are numerous other ways to use the funds from it. Most checking accounts come with a debit card, for example, and account holders can also take advantage of online bill pay services.

Out of the standard bank account types, the checking account is the most flexible in terms of spending. In contrast to savings accounts, checking accounts have few if any restrictions -- spend as much as you like, as often as you want, if you’ve got the funds to cover it.

What you gain in flexibility, however, you lose in earnings potential. In contrast to fellow banking products like money market accounts and certificates of deposit (CDs), checking accounts very often don’t earn interest -- or, at best, they earn at extremely thin interest rates.

This is particularly true of traditional banks with brick-and-mortar operations. Keeping branches open is expensive and resource-draining, and the prevalence and ubiquity of checking accounts make them a prime target for cost cutting.

There are, of course, exceptions to this no-interest standard. Interest-bearing checking accounts exist, but they tend to have relatively high opening and/or minimum ongoing balance requirements. The effort it takes to hit those marks, plus the funds they tie down, often don’t make them worthwhile for many customers.

Online-only banks, since they don’t bear those brick-and-mortar costs, have a little more wiggle room to pay out for accounts. It’s not unusual to see offers from them for interest-bearing checking accounts. Yet we’re still in a low-rate environment; these rates might be higher than 0%, but they’re still rather minimal.

Checking accounts are wonderfully convenient. You pay for this, though, and not only with razor-thin or non-existent interest rates. Checking accounts are known for the numerous fees banks impose for maintaining them.

There are a host of these charges; what follows are three of the more common ones.

Monthly maintenance fee (also known as the service charge, among other names) -- This is the most prevalent type of recurring checking account charge. It tends to range from $5 to $15 or so but can vary widely.

Fortunately, banks often waive this charge if a customer meets a certain standard or standards. These can include a minimum number of transactions on the account’s debit card, the establishment of a recurring direct deposit from an employer, or meeting a minimum ongoing balance amount.

Overdraft fee -- This classic charge has been a staple of the checking account for many years. Should you spend more money than what you’ve got in the account, you’ll be slapped with an overdraft fee. $35 per incident is roughly the going rate. Banks don’t typically waive overdraft fees.

ATM fee -- Here’s one to be careful about when using the payment card linked to your checking account. Banks like to charge ATM fees if you draw funds from cash machines that aren’t theirs; a standard hit is $2 or $3 per transaction, but these can be much higher in certain locations.

Meanwhile, that outside entity from whose ATM you’re drawing money will also charge you, as a non-customer using their facilities. So you might end up paying two ATM fees for the same transaction -- one from your own bank, and one from the company that owns the ATM.

These fees can be tough to waive but easy to avoid -- simply discipline yourself to only drawing money from your bank’s ATM. Alternatively, choose a checking account from a bank that either doesn’t charge such fees, or reimburses them (online-only banks are known for this).

One nice facet of checking accounts is that they’re fairly simple to understand. The waters get a bit muddy with the adjectives banks like to put in front of some of them. Ultimately, however, their core functionality as a spending facility is the common glue clumping them together.

Bearing that in mind, here are brief descriptions of some of these types:

Joint checking -- An account shared by two or more people, all of whom have the same access and privileges. This usually functions as a family account, as quite often the holders are married or in some form of domestic union.

Student checking -- As it says on the label, this form of checking account is designed for students. The exact features depend on the bank; many student checking accounts give their holders breaks on fees and balance requirements, in addition to other perks useful to their target audience (which often is quite cash-strapped).

Express checking -- An Express checking account is aimed at keeping you out of the bank’s branches. It tends to charge lower (or even no) monthly maintenance fees and imposes comparatively modest balance requirements… as long as you conduct your account business online, via ATM, or phone. Stopping by the bank to get help from a teller generates a fee.

Second chance checking -- Once you get out of the system, it’s hard to get back in. People who have had their bank accounts terminated due to their bad finance habits -- such as excessive check bouncing -- struggle to find lenders willing to take a new chance on them.

Fortunately, the second chance account exists to help them get back on their financial feet. This facility features very low fees and balance requirements. If managed well for quite some time, the customer will likely get the chance to open less restrictive types of accounts.

There are plenty of reasons why a checking account is the go-to banking financial instrument of the American public, despite its disadvantages (like the aforementioned fees, and 0% interest). Here are just a handful of them:

Liquidity -- This is a financial term that basically means “ease of accessing and utilizing assets.” With the numerous ways you can deploy funds from a checking account, it’s extremely liquid for spending. On the credit side of the ledger, thanks to instruments like direct deposit, it can be quite fast in receiving money too.

Flexibility -- Checking accounts have few, and often no, restrictions on spending. If you put your funds in a savings account instead, you’d be limited to a handful of withdrawals every month. If that money’s in a CD you’d be penalized for taking money out of it. Also, checking accounts typically provide different ways to transact -- checks, debit card, online banking, mobile wallets, etc.

Protection -- All checking accounts up to $250,000 in deposits are fully insured by the FDIC, so in the unlikely event your bank melts down you won’t lose one cent of your money. Also, consumer fraud protection services are now standard and free of charge in a great many checking accounts at both nationwide and local banks.

With the seemingly endless expansion of the financial sector, a host of bank financial products have made their way to your local lender over the decades. These days, there are plenty of different places to park your hard-earned funds.

Let’s take a quick look at three of them -- the aforementioned savings accounts and CDs, plus a sort of checking/savings hybrid called the money market account. We’ll explore the advantages the trio have over checking accounts, plus a few disadvantages.

Considering the pluses and minuses, it’s a smart move to divide your money among two or even more of these account types -- some checking accounts even give you the option of opening a savings account at the same institution, at the same time.

Online-only banks have become popular options in the last few years, and it’s hardly a surprise. Some of what they save on brick-and-mortar operations gets redirected back to the consumer in the form of higher interest rates and/or lower fees.

That would seem to indicate online banks are better. Why bother going to a traditional lender if you can save and earn more with an e-rival? But it’s not so simple -- there are advantages and drawbacks to both:

So neither type of lender is the clear “best.” It comes down to your personal requirements, basically the level of direct contact -- and convenience -- you’ll want and need with your bank.

I would say that a checking account is right for nearly everyone who earns a wage, however erratic, and has expenses -- in other words, the vast majority of us. There’s a reason that nearly 100% of “banked” households maintain this type of account.

Although modern technology has brought much innovation in the world of finance, the checking account remains the anchor spending facility of our age. It’s hard to beat its convenience and flexibility; if you’re diligent and disciplined, you might even be able to take advantage of one that pays a sliver of interest.

That said, the checking account should also be paired with a product that allows you to profit from the money you’re able to save (assuming you’re in a saving situation, that is). Again, the classic combination is a checking and savings account. Those with considerable savings they can deploy for some time might consider higher-yielding instruments, such as a CD, instead.