A checking account is a service provided by most all financial institutions (banks, savings and loans, & credit unions). These accounts allow individuals and businesses to deposit or withdraw money from FDIC-protected accounts. Checking accounts may vary from bank to bank, but in general the account holder can use personal checks in place of cash to pay debts. Customers can also use debit cards or ATM cards to access individual accounts or make cash withdrawals.
Virtually every bank offers some form of checking account service for their customers. Some require a minimal initial deposit before establishing a new account, along with identification, address, and other general information. Some banks offer student, senior, or other basic checking accounts which do not charge fees for the use of personal checks and other services. Others may benefit from interest payments by maintaining a certain minimum balance each month.
A typical checking account is handled through careful posting of deposits and withdrawals. The account holder has a supply of official checks which contain all of the essential routing and mailing information. When a check is filled out correctly, the recipient treats it the same as cash and completes the transaction. After this check has been deposited into the recipient's bank account, a bank worker files the check electronically and the check writer's bank receives the cancelled check and amount to be debited (withdrawn) from the check writer's account. This process continues for every check written against an individual checking account.
Owners of a checking account are ultimately responsible for tracking and maintaining available funds, even though the bank will issue statements on a monthly basis. Checks must represent an actual amount of money contained in the checking account itself. If a check is written for an amount higher than the available balance, the check writer faces numerous fees (NSF-insufficient fund fees) and possible legal action. The recipient of the bad check can demand immediate cash payment for the original debt as well as a substantial fee for the returned check. Some banks will protect checking account holders by making the proper payments and notifying the check writer that an overdraft has taken place. An overdraft is simply when the bank makes a payment for a customer instead of the customer being charged numerous fees; overdrafts must be repaid to the bank in a timely manner. Often the bank will recoup their losses through substantial service charges, so it pays to avoid writing checks when the balance is unknown.
Banks have several methods which allow customers to check balances and reconcile records. Printed statements of debits (withdrawals) and credits (deposits) are mailed to individual account holders. An account balance can be checked in real-time either online or by phoning the bank, ATM machines also offer an option to check the current balance. The information provided can be checked against what a customer has listed in the checkbook register.
As long as account holders maintain accurate financial records, a checking account provides a safe and efficient way to pay bills and deposit money from all sources of income. A savings account may pay more interest, but a checking account replaces the need to carry large amounts of cash to satisfy routine debts such as rental or mortgage payments, credit cards, or utilities.
Opening a checking account is a good first step to managing your cash and credit. Checking accounts help you keep track of your money, pay your bills on time, and obtain credit. Read below for the “Top 4 Reasons” to have a checking account.
Top 4 Reasons for Having a Checking Account:
- Safety – Checks are much safer to carry or mail than cash (i.e. mortgage payment).
- Proof of payment – Checks that have been cashed are known as cancelled checks. They serve as proof that a bill has been paid. Bank have various methods of recordkeeping, each month they will send you miniature photocopies of your cancelled checks…this is known as imaging.
- Convenience – You can send checks through the mail to pay your telephone, charge card, and other monthly bills. This allows you to make payment at any time of day or night and eliminates the need to pay your bills in person. Paying by check also allows you to make purchases at stores without having to visit the bank for a withdrawal.
- Establish Credit – Your checking account can serve as a good reference for you when you want to open a charge account or get a loan.
Questions to ask when opening a checking account:
- Is there a minimum balance requirement?
- Does the account earn interest?
- Is there a monthly service charge or any other charges?
- Are there ATM’s? If so, are there charges associated with using them?
- Is there a limit to the number of checks I can write per month?
- If I apply for a debit card, is there a charge for it?
- Is there a charge for internet banking or bill pay?