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The checking account is the first account in the Phippen Tax Accounts You Need Now series because it is the central hub of your entire financial network. To refresh your memory about this account, here is why you need one:
The checking account keeps your finances organized. By having a hub, you can more easily track all income coming to you, facilitating budgeting or other money tracking you may do. Additionally, you likely have bills that cannot be paid by credit card or a cash app—like your rent or mortgage. You can pay these bills directly from your checking account.
Why a Checking Account?
Most households or individuals already have a checking account. Many entrepreneurs and business owners may also have a checking account for their businesses to separate personal and business accounts. Regardless of the entity, think of a checking account as the hub of a wheel with a bunch of spokes surrounding it. The checking account connects to all other accounts as money comes in and out of your life.
In an evolving world where more purchases are made by credit card, Apple Pay, or Venmo, the checking account is still important for larger transfers of money. It is usually the place where (a) income from a job in which you are employed by someone else is sent and (b) large recurring purchases like rent or mortgage are paid. Some unique, large purchases remain only payable by a checking account.
How to Organize a Checking Account
Since the checking account is the center of your financial system, an organized personal financial system starts with an organized checking account. A few best practices to staying organized include:
Receive all income through direct deposit. Set up direct deposit with any employers that pay you income so it comes right to your bank account.
Set up automatic transfers. For any recurring and consistently priced expenses, set up automatic transfers when money should leave your checking account to pay these expenses.
Operate a consistent balance checking account. Choose a checking account balance that makes you feel comfortable, and work to always maintain that balance. This is a slight deviation from the “Zero Balance Account” concept where money passes through the account only to be passed to another account or to pay an expense, so the account consistently maintains a balance of $0. Having a Zero Balance Account facilitates transaction tracking. However, one miscalculation or unexpected charge can also send a Zero Balance Account negative, incurring overdraft fees. To use the principle behind the Zero Balance Account without the risk, pick a number that makes you feel safe from overdraft fees and use that as your baseline in place of zero. This amount may be $100, $1,000, or $3,000. It just depends on what makes you feel safe from an accidental overdraft.
Never overdraw! Many of my favorite financial experts recommend finding a bank without overdraft fees. This is one topic where we disagree, or at least do not recommend that as a priority. Since your checking account is the organizational center of all your money, it is the place that deserves your frequent attention. Money mistakes can happen, but this is not the place to let it happen. Do not overdraw—ever!
Where to Open a Checking Account
There are countless banks and credit unions where you can open a checking account. Here are a few factors you should consider when deciding where to open a checking account:
No minimum balance/agreeable minimum balance. If you want to run a consistent $100 balance checking account, do not sign up for a checking account with a bank that requires you to have a balance of $500 or incur a fee! Some banks have minimum balances. Others also have minimum balances if you do not meet certain criteria, something we also recommend avoiding in the next point. Regardless of your target consistent balance, a minimum balance can be problematic, so it is best to avoid them altogether.
No maintenance fees or stipulations. If a bank requires a maintenance fee or waives the maintenance fee only if you have certain qualifying deposits each month, go with a different checking account. While the checking account is the hub and demands your attention, you should only have to pay attention to the balance rather than worrying about meeting a checklist of criteria from month-to-month.
Mobile deposits. For anyone that still receives checks, mobile deposits are a must-have. Avoid wasting time going to a physical bank when you need to deposit your money.
Proximity to a physical bank. That said, having a branch of your bank within walking/bus/driving/your preferred method of transportation distance is ideal. There are very few issues where you need to physically go to a bank, but the instances that require it are usually urgent.
No foreign transaction fees. This one may be more important to folks who travel internationally than those that do not. If you take one or more international trips a year, it is worth having a card without foreign transaction fees. Unless you have a credit card that does not charge foreign transaction fees, that card will be your debit card. Either way, avoid fees wherever you can!
This is not a comprehensive list, and some items may be more important than others for you, but these are qualities to consider when choosing a checking account. For a more comprehensive assessment on what specific bank to choose for a checking account, we recommend reading Ramit Sethi’s book I Will Teach You to Be Rich.
When to Open a Checking Account
If you have not opened a checking account yet, open one today to start organizing your personal finance system!
About the Financial Accounts Series: The Financial Accounts Series is a four-part series discussing financial accounts that can improve the health of your finances. The Phippen Tax & Financial Services team will provide a deep dive on each of the accounts listed in Part 1, Accounts You Need Now, before releasing Part 2, Accounts You Need Next. If you would like to seek additional guidance about your personal finances or the specific organization and composition of your financial accounts, please contact Patrick Phippen or complete a new client form if you have not worked with Patrick in the past.
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