A checking account is a place to store your money, typically at a bank or credit union. These days, they can all be managed online through the institution’s website or an app. You can deposit money – meaning add it to your account, or withdraw money – meaning take it out of your account. You can do that in person if your institution has a brick-and-mortar location, or electronically for other institutions that facilitate electronic funds transfers (EFT). You can also deposit or withdraw your money at automated teller machines (ATM) in most cases, though sometimes there are restrictions based on the institution or the individual ATM (for example, some allow for withdrawals but not deposits, and some charge you fees - particularly if the ATM is provided by one institution and you want to access another institution).
Checks
Checks can also be written to promise funds from your account to another individual. Most checking accounts come with some free checks and allow you to purchase as many more as you would like. A check is a small piece of paper on which you write the date, how much money you are paying, and to whom you are paying it. The recipient of your check can take it to their bank to have the funds moved from your account to theirs, or receive the funds in cash. Checks need to be signed on the front by the person writing them, and on the back by the person redeeming them. There is also a memo line on the bottom left of the front of a check for you to add a note about what the purpose of the check is. Checks also come with a small notebook called a register where you can keep track of all the checks you write, and subtract the amounts from your checking account balance. Reviewing this register to make sure your understanding of how much money you have available compared to what the bank tells you is available is called “balancing your checkbook.” It’s important to make sure the bank doesn’t make any mistakes and to ensure you don’t spend more money than you have. In the event you write a check for more money than what is available in your account, both you and the person you wrote the check to could find themselves paying overdraft fees or bounced check fees. Writing a check for more than you have is immoral if you do it purposefully and is illegal in most states whether you do it on purpose or not.
Income and Expenses
Many people receive their income through direct deposit to a checking account. You can also set up automatic payments through most checking accounts to pay your regular bills for you. Checking accounts come with debit cards to help you access your money at ATM’s, make purchases in stores, or buy things online. Some debit cards feature reward programs that will earn you cash back or other advantages when you use them to make purchases.
Your Money Is Safe in the Bank
The Federal Deposit Insurance Corporation (FDIC) insures the money you have in a bank’s checking account up to $250,000. If you use a credit union instead of a bank, the same applies, but the insurance comes from the National Credit Union Association (NCUA). If you are looking to open a checking account, and there’s no mention of these, you’ll want to look to another institution.
Interest
While a savings account earns a small amount of interest on the money you keep in it, a checking account most often does not. There are some exceptions, though, and you can find them in the small print or by asking a representative when you open an account. Many checking accounts actually have fees associated with them. These can be simply for having the account (try to avoid these, as there are plenty of banks and credit unions that don’t charge fees just for having an account), or for using ATM’s that are not in the bank’s network. You make be able to have some fees waived just by asking.
Opening an Account
Checking accounts can be opened by one individual, or jointly with two or more people. Most often, joint accounts are held by spouses. You will need to be aware of what happens to the account in the event of death, divorce, or separation. Business checking accounts exist for small and large companies if you can provide the necessary documentation to the bank or credit union. Student checking accounts are also available for high school and college students at some institutions. They are less likely to have fees or minimum balance requirements, but may require a parent to help open.
If you are thinking about opening a checking account, and would like to talk to a professional about managing your money, you can schedule an appointment with a financial coach today to get started.
