The Basics of a Checking Account
The Federal Reserve oversees and establishes financial policy for banks that serve the public
You may already know that banks offer checking accounts and savings accounts
But what you don’t know is that they also offer credit cards, loans, financial planning services, and investments
Opening an Account
Most banks offer several types of checking accounts.
Before opening a checking account a wise consumer investigates all the kinds of accounts available, as well their advantages and costs
You have to be 18 to open a checking account, or have a parent or guardian sign on the account
Opening an Account About 85% of the U.S. households have
checking accounts With a checking account a customer can
deposit money, and receives a book of checks to pay bills
Checking accounts are sometimes called demand deposits (DDA) because each check a customer writes is an order to the bank to release money from the account on demand.
Types of Accounts
Since the banks offer a wide range of different checking accounts the customer service rep at the banks can answer questions about account fees and service charges.
You might also want to ask other people about their experience with different banks and different types of accounts
Shop around
Regular Account
A regular checking account is designed for customers who write few checks each month and don’t keep a minimum amount of money in the account.
Withdrawals from a checking account include checks the customer writes, automatic deductions, and ATM withdrawals
Some accounts require a minimum balance.
Regular Account
If the balance falls below the minimum, a service charge is deducted from the account.
Usually a $7 or $8 charge every month can take a quiet a bite out of your funds
Make sure you look into the account before opening as they may be more fees added into the account
Interest-Bearing Account
In addition to regular accounts, most banks offer interest-bearing accounts
An interest-bearing account is a checking account that earns interest on your account’s balance.
An interest-bearing account usually has a minimum balance requirement with an unlimited number of checks allowed each month.
Interest-Bearing Account
The minimum balance might be much higher than for a regular checking account, and could run from $1000 to $10000
Joint Account
A joint account is an account shared by two people who are equally responsible for the account.
With a joint checking account, either person can write checks on the account.
They are often used by married couples or for business with more than one owner
Signature Card Once you have decided what type of account
you want, you have to fill out a signature card A signature card is a record of your
signature used by the bank to verify your identity.
The signature card helps prevent other people from cashing your checks.
The bank can check your signature card when one of your checks is presented for payment
Signature Card
If the signature matches then the check will be cased
The signature you put on your card is the same one you have to use when you sign your checks.
For example, if you sign your card with your middle initial rather than the full name, then you must sign the checks the same way
Signature Card
If you are opening a joint account both have to sign the card
Also on the card you have to put your physical address and phone number
You will also have to provide your driver’s license.
The bank then assigns you a checking account number and issues you a book of checks
Account Services
Banks offer various services for checking accounts
Some of these services are offered as protection to the consumer, while others are designed to make banking more convenient
Overdraft Protection
One risk of having a checking account is writing checks for more money than you have in your account, or overdrawing your account.
If you write a check to someone without enough funds to cover it, the bank returns the check to the person
Your account is then charged a return fee $20-$35
Overdraft Protection
The business you wrote the check to will also probably charge you a fee
This is also known as NSF (Non Sufficient Funds)
Overdraft protection is a line of credit for overdrawn checks
If you write a check for more thatn you have the bank will cover the check
Overdraft Protection
You pay a service fee for the overdraft protection and interest on the overdrawn amount until it is repaid.
Also some banks offer to transfer money out of your savings into your checking to cover the check.
There is usually a $7 transfer fee involved which is better then the $25 from the bank and the $20 from the business
Stop Payment
There might be a time when you want to stop the payment of a check
A stop payment is an order for a bank not to cash a particular check.
For example, you might have misplaced a check, sent a check for the wrong amount, or sent a check to the wrong address.
If you wish to stop a check contact the bank immediately
Debit Cards
Many banks offer check cards, or debit cards A debit card is like a credit card but money is
taken directly from your checking account when you use it rather than charging the amount to a credit account.
A debit card can be used anywhere credit cards can be used.
You don’t pay interest on it because it is taken directly out of your account
Online Banking
Online banking allows you to check your accounts, transfer money, or pay bills at any time of the day over the Internet.
Online checking is less expensive for banks, so service fees are often lower than a traditional account.
Banks offer the option of scheduling automatic payment of your bills from your checking account.
Account Records
An advantage of a checking account is that it enables you to keep records of your financial transactions.
There are several types of checking account records that you keep for yourself or that your bank provides for you
With these records, you can keep track of your income and expenses
Writing a Check
There are usually 3 people, or parties named on a check
The party to whom the check is written and who is cashing the check is the payee.
The party who wrote the check and is paying the money, or drawing it from an account, is called the drawer.
The bank or financial institution where the drawer has an account is the drawee.
Writing a Check
When you write a check, record the check number, the amount of the check, date, and the name of the payee in your check register
Your check register is your checkbook log where you keep track of all your checking transactions.
If you don’t record the check immediately, you might forget some of the information which could lead to NSF
Depositing a Check
To deposit a check in your account you need to fill out a deposit ticket.
The deposit ticket lists the amount of cash and check you are depositing.
To deposit or cash a check requires an endorsement, or the signature of the payee on the back of the check.
To endorse a check follow these rules for your protection
Endorsements
Endorse the check on the back, don’t write below the lines
Use Pen so your signature cannot be erased Sign your name exactly how it is on the front
of the check If you are depositing the check write “For
Deposit Only”. This way if it is lost or stolen it can only be used for depositing
Bank Statements
Each month the bank will issue a bank statement
A bank statement is the bank’s record of all the transactions in your checking account.
A bank statement includes a record of all withdrawals, deposits, interest, and fees.
A bank statement also includes a record of all canceled checks, or checks you’ve written that have been cashed.
Bank Reconciliation
Bank reconciliation is the process of seeing whether your records agree with the bank’s records for your account.
You can usually reconcile your account using a form on the back of the bank statement
Balancing your Checkbook
The first step to reconciling your account is to see whether the bank has processed all your checks and deposits.
With the bank statement and your check register, you can identify your outstanding checks
Outstanding checks are checks that have been written but haven’t yet been cashed.
Balancing your Checkbook
Deposits that haven’t been recorded on the bank statement should be added to the bank statement balance.
These are known as Outstanding Deposits After you have recorded the outstanding
checks and deposit, you have to record any fees that you may have been charged