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Using Your Checking Account

You’ve seen your parents with a checkbook, and have probably even seen them trying to reconcile the check register with the bank statement. You might have even had a little bit of training in a high school class that taught about life skills, budgeting, finances, etc. And it is possible that you even have a checking account of your own. But do you really know what they are for and why you would want to have one (other than the fact that most people have them)?

By the end of this article you will know what the benefits are of having a checking account. You will also know what different types of checking accounts exist, which you might benefit most from, and how to manage that account.

What is a Checking Account?

A checking account (also known as a transactional account) is a deposit account that is held at some bank or other financial institution. The purpose of a checking account is to secure funds and make them available (rather quickly I might add) through a variety of channels. By virtue of being called a checking account, you are able to access those funds by writing checks. But as technology improves, and society looks for additional ways of convenience, using a debit card is the most common way of accessing the funds in your checking account. (For more information on using debit cards, see the next chapter of the Personal Finance section – Using Your Debit Card.

A typical checking account is handled through careful posting of deposits and withdrawals of funds. These funds are federally protected. (If your financial institution doesn’t claim to be FDIC insured, you should find a new financial institution.) Generally, access of those funds is handled through the writing of checks. Use of debit cards, ATM cards, and check cards (yes, they are all different and what you get depends on what your financial institution offers) also allow you to make point-of-sale purchases and cash withdrawals from your checking account funds.

Why Would I Want One?

Maybe the question should ask why you wouldn’t want one. The main reason to have one: checking accounts are a convenience. They are a safe place to store your money yet have easy access to it. After all, the funds are in the bank, not your pocket. That alone is a reason for feeling secure about your money. No school-yard bully taking your money. Instead, if someone wants your money they will have to rob the bank…and if that happens, your money is insured. See, there is security in a checking account.

Another security feature comes in the use of writing checks. Yes, it is true that if someone gets one of your checks in a fraudulent way (or just by stealing them) they may gain access to your money. But, if you notice that checks have been lost or stolen, you can call the financial institution and ask them to cancel those checks so that they can not be used by the thief.

Another benefit of a checking account is the convenience of paying bills. With technology moving the transaction of information and money on-line, you can set up automatic transactions between your financial institution and your utility, mortgage, or financial loan accounts. This will allow you to have your bills paid directly from your checking account without you having to do a single thing (other than make sure the money is in the account). If you don’t want to go this route, it is still cheaper to write a check than to get a money order to pay your bills.

As mentioned earlier, your financial institution most likely offers some sort of a card (ATM, Debit, and Check Debit) that looks and acts like a credit card but works like a check. You can use ATM and Debit cards anywhere that point-of-sale purchases take place (drug stores, grocery stores, gas stations, etc.). As long as there are funds available in the checking account you can make the purchase. You also use those cards at ATM’s to withdraw cash. Check Debit cards work where regular credit cards do because they will have the Visa or MasterCard logo on them. However, just like ATM and Debit cards, they will only work on a transaction if the funds exist in the account.

What Are My Options For Checking Accounts?

There are different types of checking accounts. What is available for you depends on the financial institution you bank with. For this reason, research what you want out of an account and research what the banks in your area offer. Here are some basic tips to help you decide on what type of account you should look for:

  • What will you use the checking account for?
  • How much money will you be able to keep in your account each month?
  • How often are you going to write checks

Your answers to these questions will point you in the direction you need to go in selecting the type of checking account you want. You also need to be open to the idea of going to a different bank than you had been planning on if it means getting the right account for you.

So what is the right type of account for you? Look at the following descriptions and see what you like. If some of them aren’t even available to you at any of the financial institutions that are in your area then you won’t have as big of a choice. But you also need to be willing to ask, because sometimes the bank won’t advertise that they allow certain types of accounts because they are trying to steer consumers to a specific type (which generally means it benefits them more as well).

Basic Checking

A basic checking account will let you deposit and withdraw money and write checks. They are perfect if you don’t plan on keeping a high balance. If you want to pursue this type of checking account, keep in mind that every financial institution handles these a little bit different. You need to be aware of fees and rules that accompany these types of accounts. Most commonly you need to know if there is a monthly service fee, do they limit the number of checks you can write and charge a fee if you go over that number, do they require a minimum balance and charge a fee if it drops below that, do they require direct deposit from your employer, and do they pay interest on the balance (most banks don’t).

"Free Checking"

This type of checking account usually (but not always) requires that you maintain a minimum balance. What changes here is that they will not charge you the fees as listed for Basic Checking. That is what their definition of "free" is.

Interest-Bearing Accounts

Interest-bearing accounts pay interest on the money you have in that account. The amount of interest will vary. It could be based on the balance at the first of the month, the last day of the month, the highest balance during the period, or the lowest balance during the period. They could have rules that state you must keep a minimum balance or you don’t get to earn any interest.

In order to open one of these accounts, the financial institution may also require that you make a larger deposit to open the account and maintain a larger minimum balance to avoid fees, You want to make sure that you are aware of all of these facts before you open the account so that you aren’t surprised by a fee if you default on a requirement.

NOW Accounts

A NOW (Negotiable Order of Withdrawal) account is the combination of a "free checking" account and an interest-bearing account, only this type of account is usually offered at a savings and loan or "thrift" institution. The specifics of how a NOW account works is that there is a minimum balance requirement with an accompanying fee (if the balance drops below the minimum) but if you keep your balance above that minimum you can earn interest every year.

Super NOW Accounts

This type of account is the NOW Account with a higher interest rate and a higher minimum balance requirement.

Express Checking

If you are a person that is constantly on the move, doing most of your banking by ATM, telephone, or computer, this may be the type of account for you. Express checking customers usually don’t spend much time in the bank using the bank employee resources. Because of this, the benefits that the account owner enjoys are unlimited check writing, low minimum balance requirement, and low or no monthly fees. Unfortunately, if you have one of these accounts and decide to go inside and speak with an employee, you may get charged a service fee.

Lifeline Checking

Lifeline checking accounts are a great place to start for people with a low income. They could also be a good option for a teenager that wants to have their own account. The bank already knows to expect smaller deposits and probably fewer withdrawals. Because of this the account will probably have much lower deposit and balance minimums and smaller monthly fees (possible none). However, because of the lower amounts, there will also be a limit on the number of checks that can be written each month.

Using the Accounts

Once you have a decided on the type of account, the financial institution that will hold it, and have actually opened the account, you are ready to experience the benefits of having a checking account. Remember, there are rules that go with that checking account and penalties if you violate those rules. If you can follow the rules, you will be much better off. However, before you get busy spending your money, let’s go over some guidelines that will help you to better manage your checking account.

First, make sure that when you write checks, you write legibly. These aren’t doctors’ prescription pads, and since money is involved you want the bankers to be able to read the correct amount. Next, always use a pen. Fraud artists want you to use pencil so that they can change payee and amount information. Pen ink messes up their plans and keeps your money safe.

Also, don’t sign a blank check. If you want to do that, you might as well give some stranger your ATM card and PIN so that they can take your money without having to go inside the bank. (And no, mistakes like this don’t count as charitable contributions on your tax return nor does it help your account balance or even credit score.) For additional security with your check, use a restrictive endorsement (such as "for deposit only" written on the back of the check with your signature below) so that the bank doesn’t cash the check mistakenly or under fraudulent pretenses. Destroy checks that have been voided along with all unused deposit slips.

Keep your checks in a safe place and don’t let other people use them (not even that teenage daughter that you love so much who wants to go shopping at the mall). Someone that you know may not perform check fraud because of you lending them your checkbook, but if they were to lose it you could be in a world of problems.

Want more tips on writing checks? Well, first of all, enter the correct date. Speaking of the date, be very cautious on post-dating a check, especially when paying bills. If you need to postdate a check, notify the recipient that it is postdated and why so that they aren’t shocked when the bank won’t post the check.

Lastly, record every transaction in your checkbook register. This means not only checks that you write, but every time you use the ATM or debit card. If you do this and keep a running balance, you will have better control on your finances. You will also know when you are coming close to the minimum balance that you are supposed to maintain.

If you can follow the suggestions and use the information given in this article, you will be pretty well prepared to have a checking account. If you already have one, try to follow the guidelines mentioned here to manage the account. Your financial health will definitely be in better shape and it will be one less thing for you to worry so much about.