How to choose a checking account

A checking account is the primary reason why many people use a bank. Probably no other account offered has as many variables as a checking account.

The right checking account will serve your needs without costing a lot of money in fees or forcing you to maintain a high balance to avoid those fees. The wrong checking account will cost you plenty.

Open an account that requires a higher minimum balance than you're comfortable maintaining, bounce a check, write more checks than your account allows, ask for your checks to be returned each month -- just a few of the more common ways institutions pick your pocket with fees.

Some institutions charge fees for visiting tellers, hard copies of monthly statements or using a deposit or withdrawal slip from the bank's counter.

Determine your checking needs

Beating the financial institutions at their own game requires some research and an honest assessment of your own checking needs.

The only way to know what checking account is right for you is by knowing your checking habits. Take time to review your statements. Look at how many checks you write per month and your ending balance. Do you bounce checks? Should you have overdraft protection? Do you have to have your checks returned? Are ATM fees killing you?

Most people want a checking account that allows unlimited check writing. Some basic checking accounts have a limit on the number of checks you can write each month, maybe as few as eight. Exceed that number and you could find yourself paying 50 cents for each extra check.

A critical element in selecting a checking account is knowing the minimum balance you'll carry day in and day out. Many institutions let you open a checking account with less than $100 but require a much higher minimum -- maybe several hundred dollars higher -- to avoid fees. If your balance dips below that minimum you'll be assessed a fee.

Watch out for accounts that charge a monthly service fee regardless of how much money is kept in the account.

Is earning interest important to you? Interest checking accounts require a much higher minimum balance to earn interest. You'll have to consider whether the going interest rate warrants keeping such a hefty balance in your account. Generally, a checking account doesn't fare well as a savings vehicle.

If you use a checking account simply to write checks and you just want to keep enough to cover payments, or if you can't be sure how much you'll keep in the account, find a free checking account.

Free checking accounts, by Bankrate.com's definition, have no monthly service charges or per-item fees regardless of balance or activity. But often you can have a free account by doing something as simple as having your paycheck directly deposited into your account, or passing up the return of checks or check images.

Some banks might offer a free checking account if you have a mortgage, vehicle loan or maybe if you just open a CD account.

How bouncy are you?

Bouncing checks is very expensive. Non-sufficient funds fees are usually the highest fees charged. If you have trouble balancing a checkbook and you find yourself bouncing even one or two checks per year, it may be worthwhile to purchase overdraft protection.

Suppose you write a check to pay for groceries at the supermarket and your account is overdrawn. Overdraft protection would cover the check. That saves you from paying whatever fee the supermarket would charge for a bounced check, plus you've avoided the embarrassment of having your neighbors see your name posted on the "bounced checks" list above the cash registers.

Your bank will still charge you a fee for overdrawing your account, and if you don't fund your account right away you may be charged interest. Some banks will automatically take money from your savings account to cover an overdrawn checking account.

ATMs also play a role when choosing a checking account. It's nice to find your bank's ATMs on every other street corner, but the best checking account for you may be at an institution that doesn't have a lot of ATMs. Find out what fees are charged if you use another institution's ATM.

The online alternative

For a growing number of people, an online bank may be the best choice when it comes to checking. If you're comfortable with banking online, an Internet bank may be a better deal, especially if you want to earn interest on your balance. Internet banks also tend to have more free accounts and lower fees. Since most Internet banks don't have large ATM networks, they tend to be fairly liberal about reimbursing the fees for using other institutions' ATMs.

The main drawback is Internet banks generally require higher balances.