Checking Account Overview
A checking account, also known as a transactional account, a current account, and a demand account, provides the opportunity of using the money you have in the bank at any time and through different channels. The service is typically offered by financial institutions such as banks and credit unions.
As they do not earn you any interest on the money that you have in them, checking accounts are not an ideal place to keep your savings. However, for day to day transactions, and for ease of use and convenience, they are perfect.
There are practically no limitations on the amount of money and the number of transactions that are allowed. With a checking account, the depositor can make use of a variety of payment methods like checks and money orders, ATMs, direct debit, SWIFT, standing order, online banking services, etc.
Low-income individuals and students may apply for no-frills checking accounts. It is rare for these types of account to have a set-up fee or to have on-going monthly fees. It allows the use of personal checks, together with other services, free of charge. Since banks are not earning interest, they try to coax holders into buying various services from insurance packages to mortgages.
Another feature of the checking account is the availability of an overdraft, that is withdrawing a larger amount of funds than the one currently available in the depositors account. The negative balance might be previously agreed upon with the bank. This means that the account provider is actually lending money to the depositor.
It happens under a specific interest rate within the amounts negotiated between the two parties. However, if the overdraft exceeds them, the institution might impose higher interest, which differs from bank to bank and from country to country.
Although US legislation, namely Regulation Q and two Banking Acts (1933, 1935), state that checking accounts cannot bear interest, a similar account, called NOW (Negotiable Order of Withdrawal) combines the features of a checking account with earnings from interest, without coming within the scope of the restrictions.
You will not earn interest for all money in your account, only that which is above a certain, pre-agreed, balance. You will also earn less interest on any funds that come over a specified maximum balance too. Thus, the interest rate is determined for amounts that are under this limit, and lower ones are applied to amounts that exceed this maximum.
Different financial institutions will also have slight variations on what they offer. Some will pay extra interest to you if you use your account in a certain way, whereas others will pay less interest to you if you do the same thing. Therefore, you need to spend a little time doing some research on the Internet to ascertain which bank best meets your specific needs.
To summarize, if you want a convenient and efficient way to look after your money, then checking accounts are perfect for you. A saving account pays more interest while, checking accounts eliminate the need to keep large amounts of cash.
Disclaimer: The information provided in this article is for educational and informational purposes only. The information found in this article is provided “as is”, and all warranties, express or implied, are disclaimed by the author.
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