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What Is a Checking Account


If you’re like most Americans, you probably have a checking account. This article describes what a checking account is, and has information on checking accounts.

If you don’t have one, you will probably want to consider getting into the game. Before you do that, however, you should know the basic facts.

The main questions you want to know the answers to are, what is a checking account, what are checking account features, and how can you best use your checking account once you sign up for one?

The answers are straight forward and will definitely help you along your path of saving money, investing money, and planning for your future.

What is a Checking Account?

Plainly, a checking account is a deposit account held by a financial institution such as a bank or credit union that allows withdrawals and deposits.

Checking accounts are primarily used because they are extremely liquid and can be accessed using checks, automated teller machines, electronic debits, among other methods.

The major difference between a checking account and a savings account – which is another highly popular form of banking account – is that checking accounts typically allow both unlimited withdrawals and deposits.

What Are the Different Types of Checking Accounts?

Checking accounts aren’t just used so that individuals can deposit and withdraw their cash. They can be used for businesses, they can be used by students, and they can also be used by couples or families.

A commercial checking account – or business checking account – is used by the business and only people within the company with authority to use the account can do so, typically officers and managers. Such accounts often have authorization features where different users have different levels of authority to approve transactions.

Student accounts are often offered for free to higher education students. It is not uncommon for a student account to be a person’s first checking account. The account will typically be free to operate up until the individual’s graduation from the education institution. At that point fees could be applied to account and the account holder will have to decide whether they want to hold on to their account or move their money to another financial institution.

As for a joint checking or joint savings account, these are most common for two people – usually marital partners – who are given equal power to deposit, withdraw, and manage the account as they please.

Basic Checking Account Features

Regardless of whether you are looking to open a business account, a personal account, or a joint account, checking accounts offer the same general features.

These are the primary features to consider before you open an account:

Fees are typically connected to checking accounts from a slew of financial institutions and it is up to you to read the fine print to find out what kind of fees you can expect. There are often contingencies that can erase fees on accounts. For example, a bank may wave service fees if you have a certain amount in your account, if you deposit a certain amount per month, or if you make a specific number of charges to the account per month.

Another basic feature is overdraft protection. What this means is that, if you write a check or make a payment that sends your account into a negative balance, your bank may be willing to cover the balance. Also being able to send money internationally is a useful feature.

It is important to note that overdraft protection does not come without its risks. Not only can you expect your bank to charge an overdraft fee (typically from $25 to $50), you can also expect added fees if you continue to use your account while it is in the red, or if you do not deposit enough money to create a positive balance within a set amount of time.

Direct deposits are another one of the key features of all checking accounts and are half of what makes the checking accounts so liquid. This essentially means that you can deposit cash or checks into your account whenever you please.

Banks also benefit from this feature because the steady inflow of cash allows them to lend to customers. That is why many banks will offer free checking if you get direct deposit for your account.

The Three Most Important Checking Account Features

The first is the ATM. ATMs allow convenient access to your account regardless of whether or not the brick and mortar bank is open. ATMs allow you to deposit cash and checks, or withdraw cash – usually – 24 hours a day.

The second is Electronic Funds Transfer. Commonly referred to as the EFT or a wire transfer. This allows checking account users to have money transferred directly to your account without having to deposit a physical check or cash.

Finally, the third oft-used feature of checking accounts is the potential to participate in cashless banking. The debit card has become an increasingly used staple of banking. Debit cards give users the freedom and portability of using a credit card, but instead of the card being attached to a line of credit, it is directly connection to your account. An added benefit is that many banks offer zero-liability fraud protection for credit cards in case of identity theft or if a card is lost or stolen.

Checking Accounts and Credit Score

While it isn’t considered to be one of the most impactful variables in a person’s credit, checking accounts and the activity on it can impact your credit score and credit report.

The biggest impact a checking account can have on your credit is in the event of an overdraft your account. If you have overdraft protection but don’t restore it to a positive balance in a timely manner, you could certainly take a hit in credit. If you don’t have overdraft protection and also fail to restore your account to a positive balance, your bank could turn your account over to a collection agency. That information will also be reported to the credit bureaus.

If you’re wondering does closing a checking account affect your credit, the answer is typically no.

How to Open a Checking Account

Now that you have the basic information regarding checking accounts, you might be interested in how to open one yourself.

Before you’re allowed to open an account with a given bank or credit union, the institution will take a look at your banking history. The official name on this report is called the “consumer banking report.” They will look at one of two consumer reporting agencies, either ChexSystems and Early Warning Signs.

When you apply for a new account, these agencies will be able to report whether you have ever bounced a check, refused to pay late fees, or had accounts closed due to mismanagement.

On top of that, having a history of not paying overdraft fees, committing fraud, or having an account “closed for cause” can result in a bank or credit union denying you a new account.

If there is nothing to report, then you most likely have nothing to worry about. It means you’re the best possible kind of account-holder and your prospective bank or credit union will probably be happy to have you banking with them!

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