Checking accounts, also known as transactional accounts, allow individual and business depositors within financial institutions to deposit money and withdraw funds via a Federal Insurance Deposit Corporation (FDIC) insured account. The terms and services offered by banks and various financial institutions vary tremendously though basically each bank allows the checking account holder to use personal checks and ATM cards in lieu of cash as means of payment. Additionally, many financial institutions allow pre-authorized debit withdrawals from checking accounts for automatic payments and other transactions.
Checking accounts offer account holders secure means to pay for services, goods, and expenses as well as the ability to transfer funds. The main advantage to holding a checking account is financial security. As the funds within a checking account are financially insured by federal rules and regulations, the funds are secure which means the risk of keeping large amounts of cash in your home or on your person are eliminated. For example, rather than sending cash through the mail to pay a bill, like a credit card payment or utility supplier, writing a check and mailing it ensures the funds reach their destination.
Opening a checking accounts requires proof of residency and identity, as well as an initial deposit. Generally a checking account holder is issued a supply of official checks with account holder information and the financial institution's routing number printed on them and a register to record all deposits and withdrawals. A checking account holder may then complete and issue a check to a recipient who then completes the transaction by depositing or cashing the check. After the check has been deposited to the recipient's bank account, bank employees file the check electronically and the writer of the check's bank received the canceled check to debit the check writer's account. The process continues for every check written from a checking account.
Checking account holders are responsible for monitoring the availability of funds within the checking account and rectifying balances with checking account statements issued at various cycles (generally lasting 4 weeks.) Checks must not exceed the actual balance of the checking account or the check writer faces bank fees for overdrafts and perhaps even legal action. The recipient of a bad check may demand immediate cash payment for the original dollar figure of the bad check and also may incur substantial fees for the returned check. Many banks cover overdrafts from checking account holders and notify customers when an overdraft occurs though account holders often are subjected to substantial service fees. It is imperative for check writers and checking account holders to carefully account for checking account balances, offered by printed monthly statements, phone access for account information, online access to checking account information, or ATM balances to reconcile records and prevent overdrafts.
Types of Checking Accounts
Online checking accounts are one of the easiest ways to manage funds. Online accounts allow depositors to take advantage of 24 hour access and ease of bill paying, transactions, or transfers. Many financial institutions provide free online checking accounts due to decreased operating expenses. As an added bonus, most transactions involved with online checking accounts may be performed conveniently from the comfort of your home.
Free checking accounts are offered by many banks and financial institutions. Free checking accounts generally require depositors to open the account with a specified minimum balance and maintain the set balance following the initial deposit. Some banks offer a "no minimum" deposit requirement though charge for ATM withdrawals and other services. Be certain to carefully identify any hidden service fees or ATM charges. Free checking accounts are generally well suited for customers who are students or have low incomes.
Interest Bearing Checking Accounts
Interest bearing checking accounts, also known as high yield checking accounts, require account holders to maintain a minimum balance in order to earn interest on the funds deposited within the accounts. Many financial institutions have a tier system regarding interest rates dependent upon the account balance. Interest bearing checking accounts may be subject to slightly increased operating fees or subject to minimum operating requirements. Be certain to ascertain precisely service and ATM fees before opening an interest bearing checking account.
Lifetime Free Checking Accounts
Several banks offer customers an option of a lifetime free checking account if the customer meets specified criteria. Lifetime free checking accounts are often offered on a limited time basis as part of a promotional opportunity for banks. Lifetime free checking accounts may be subject to minimum operating requirements and depositors may be required to hold a specified balance to qualify for the account.
Lifeline Checking Accounts
Some states offer a lifeline checking account to senior citizens and customers with low incomes. Lifeline checking accounts require banks to waive many of the service and operating fees associated with checking accounts. Lifeline checking accounts often have minimal or no service fees and do not charge account holders for ATM usage. Additionally, lifeline checking accounts generally do not require account holders to maintain monthly balance requirements.
Choosing A Checking Account
When choosing a checking account, consider your financial status, banking needs, and factors like customer service, convenience, and service charges. Taking the time to do some comparison shopping and considering your long time financial goals is crucial to ensuring a good return on your checking account investments. Generally, a checking account which offers no ATM charges, minimal service fees, no required monthly balance, and interest on the funds deposited meets most depositor's needs. Also choosing a bank, credit union, or other financial institution insured by the FDIC which provides quality customer service combined with a transparency in business practices, will allow you to choose the best checking account for your financial needs.
Checking accounts are a safe, secure, and efficient way to pay bills and deposit money earned from income sources. Choosing a checking account based upon your financial situation and banking needs requires comparison shopping to guarantee a financial institution can meet your banking needs. Careful record keeping ensures the most profitable return on your funds and prevents unnecessary fees. Checking accounts allow account holders to pay bills and access funds simply, easily, and efficiently.