Checking accounts play a vital role in various aspects of your life from transferring money to someone to receiving your own paycheck.
About 79% adults (18 or older) have checking account in a bank in United States. It has been found that any type of bank account either a checking out or a savings account at a bank or a credit union not only offers a quick but an easy way to access and transfer your money.
Checking accounts play an integral role in many aspects of life, whether it’s receiving your paycheck or transferring money to someone else.
This article will provide you information about what checking account is?, how it is opened and works?, and lastly what is the difference between savings accounts and checking account?
What is checking account?
This is an account opened in a bank which allows an individual to deposit their money and withdraw it whenever they wish for example for routine proceedings. These daily transactions include setting up a paycheck deposit, or taking out money with a debit card.
These accounts are known to be the most easily approachable bank accounts. However, they may have a daily maximum limit of some amount relying on the financial institution.
The main purpose is to secure your money for a short period of time so when you need it you can easily access and withdraw it. You can secure this money for whatever you need is such as you may require it to pay bills or pay college fees. Another way you can use it is that you get you paycheck directly deposited to this account and then separate some of it for saving in an investment or saving account where you can earn modest interest as well.
However, this type of account is not for long term use such as saving money for a repair or vacation because these accounts have interest rate of about 0.04%. There is still a chance to earn some more interest in some banks as they may provide various tier for their users.
Direct Deposit – checking account allows a benefit of getting your paycheck directly electronically deposited into your bank account. This will make the funds available to you on immediate basis. Not only the users but the banks also get the advantage of a steady flow of income for from these accounts. This allows the banks to lend to customers. That’s why most backs provide the bonus of no minimum balance or monthly maintenance fees if you set a direct deposit.
Electronic Transfer of Funds – EFT also referred to as wire transfer makes it possible to directly transfer money to your account without any waiting time for check to be mailed to you. Most banks offer to an EFT without any charges.
ATMs – Automated Teller Machines are outlets for electronic banking. They provide the benefits of convenience and save your time. Sometimes other banks charge an additional amount if you use their ATM so beware of the fees linked with the machines use.
Cashless Banking – checking accounts provide a benefit of usage of debit card,. You can simply use a debit card to easily withdraw your money from checking account. These cards are easy to use and portable.[i]
Checking account fees
Some checking accounts charge fees. Two of the most common fees the banks charge for checking accounts include:
Monthly service fee – majority of banks charge a sum of money per month for maintaining your checking account. This fee can range up to $15. Meeting certain requirement can enable you to waive this monthly fee. Setting up a direct deposit or maintaining a minimum balance can help you avoid this fee. There are also no monthly fee checking accounts available. These accounts do not have any monthly fee.
Overdraft fee – spending more amount than present in your account may account for a steep overdraft fee. Overdraft fee can be around 30 dollars on average. Enrollment in an overdraft protection can help you avoid overdraft fee. This will decline any transactions greater than your balance.
Interest Rates on Checking Accounts
The interest rates on different types of checking accounts vary. In case of an interest-bearing checking account you have to pay a lot of fees especially if one can’t maintain a minimum balance. It was studied that on an interest bearing account a minimum balance needed to stay clear of a monthly fee is up to $7550 while that for a non-interest checking accounts is $594. So here you can see the difference clearly.
Only few of the banks offer free interest-bearing checking accounts having no strings attached. You might get a zero fee on account after a longstanding favorable relationship with your bank.
Options for Checking Accounts
Different types of regularly used checking accounts include student checking accounts, reward checking accounts, senior checking accounts, basic checking accounts, interest-bearing checking accounts, premium checking accounts, and business checking account.
Each of these accounts provides different benefits and has different features. They vary in interest rates, ATM fees, minimum deposit amounts, overdraft protection, and number of transaction fees.
Checking vs. savings accounts
Both types of these bank accounts have their own benefits, serve different purposes and vary in some aspects. So some of the differences between these accounts are as follows:
- You do not get a debit card if you have a savings account so you can not withdraw money directly from debit card from a savings account
- Savings account has a limit of six withdrawals per bank statement whereas checking account has no such limits. You can withdraw whatever amount of money you want and whenever you want without any such limits.
- Where checking accounts provide the benefit of saving your money it provides a limitation of little interest on the account where as you can get a modest interest on savings account.
- You can use savings account for long term goals while checking account are acquired for short term goals.[ii]