A checking account is an account that can be opened with a bank that allows a customer to have easy access to their funds. A checking account is the account that is most often used when a person makes financial transactions. It allows a customer to access their money by using a written order for money in the form of a check, setting up an automatic transfer that allows a transaction to take place with the prior authorization of the customer, or by using a debit card which takes the required funds from the customer and deposits them in a creditor’s account on demand.
Why Have a Checking Account?
For better or for worse, there is no paper trail with cash. As a result, if a payment is made with cash, there is no way for a person to prove that a payment was made. With a checking account, regardless of the payment method used, there is an immediate record made of the transaction, so if there is ever a need to prove that the transaction took place, this can easily be done if a purchase was made via a checking account.
The Different Types of Accounts
Basic checking accounts
A basic checking account is the most common type of checking out and allows the customer to write checks, use a debit card, and pay bills online.
Joint checking accounts
A joint checking account is when two or more people want to share the funds within one account. This makes depositing and withdrawing funds the responsibility of both parties. A joint checking account allows both parties who are named on the account to spend the money as well as make deposits independently of one another.
This provides an easy way for both parties in an account to manage the money. On the other hand, there is no way to monitor on a regular basis which person might remove funds and not tell the other, ending up with one person spending funds without the other person being aware. This can lead to potential overdraft fee’s.
It is important to note that just because two people are are legally responsible for each other (such as a married couple), does not mean that they must have a joint checking account. In fact, a lot of couples prefer to maintain their own separate checking accounts for a variety of reasons.
Business checking accounts
Business checking accounts resemble joint checking accounts in that they are designed to allow several people to make use of the cash that is available in the account, except in the case of a business account, the parties involved are the business owners as opposed to a married couple.
Various Benefits and Features
Thanks to competition, banks and other financial institutions who offer checking accounts often “sweeten the deal” by making different options available to their customers.
These features and benefits include:
Just about everyone who has a checking account writes a check (or uses their debit card) for an amount higher than the amount available in the account. The amount that is over the funds available is called an overdraft.
When you cause an overdraft in your account, you are said to be overdrawn at the bank. Some banks have what’s called “Overdraft Protection”. When a customer has overdraft protection on their account, the bank will pay the full amount, but often imposes an overdraft fee for this courtesy. Some banks will allow you to link bank accounts so that the funds from another one of your accounts can cover an overdraft so you don’t get charged an additional fee.
Until the late 1970s, money that was available in checking accounts did not earn interest for the owners of those accounts. Thanks to the increasingly competitive market, most banks now offer interest on checking accounts. It’s not nearly as much as a money market account, but some is better than none!
Protection of money
The funds that are deposited in most checking accounts are protected by the Federal Deposit Insurance Corporation, which insures up to $250,000. If for some reason the bank loses your money, the FDIC will replace it.
Read the Fine Print
Just like with most other things, your checking account will come with terms and conditions. When you sign up for any kind of bank account, make sure you read all of the fine print to make sure you agree to all the terms and conditions of that business relationship.
Opening Your Checking Account
If you have found a bank that you like and would like to open a checking account, you should visit that bank during operating hours and meet with a new customer representative. He or she will provide you with all the information you need to open and maintain your checking account.
To open a checking account, you will usually need to provide some form of ID that shows your name and address and will also need your Social Security number or EIN. If the person opening the checking account is a minor, banks usually require that a person of legal age co-sign on the account with them.
Regardless, the bank will run a quick credit check on you prior to opening an account. In most cases, negative financial incidents that are reported to ChexSystems will not permit you to open an account until the situation is cleared up. In the absence of situations like these, you will leave your bank with a new checking account.