Checking Accounts provide a safe and convenient payment mechanism for paying bills, making purchases, and keeping financial records.
What is a Checking Account?
A checking accountAn account that allows the customer to write checks on the money in the account. is a type of bank account that allows customers to write a check or withdraw cash from an ATM on the money that is deposited. A checkA written order to a bank to pay the amount specified from funds in your account. A certified check has been guaranteed by the bank upon which it is drawn and is so stamped. is a written order to your bank to pay the amount specified from the funds on depositA sum of money placed in an account in a financial institution. Also a sum payable as a first installment on a time-payment purchase or as a pledge for a contract. in your account.
Checks are just one of many payment mechanisms in our economy and can be used to pay for goods and services. Checks give you the flexibility of not having to carry around large amounts of cash and can be a convenient way to pay bills and maintain a record of each transaction. Standard checks work just as well as those with more expensive “special” designs.
Opening an Account
Opening a checking account is a simple process that should take no more than 15 minutes. Before heading out to the bank, call them to verify what you need to bring with you to open an account. Below is a common list of requirements:
- money to open the account (all accounts require a minimum deposit, though the amount varies),
- photo ID (driver’s license, passport, or other government issued ID),
- Social Security number,
- proof of address, including apartment number and zip code (utility bill or lease),
- phone number (if you are under 18, your bank may require the phone number of a parent or guardian).
Keeping a Balanced
You should always update your check register after each transaction to avoid overdrafts and fees. Carry the balance over to each new page. If your checking account earns interest remember to add it to the balance in the register. Always reconcileIn banking terms this means cross-checking one’s bank statement against one’s own records to make sure they agree. and compare your bank statement with your register every month.
Staying on Top of your Account
A checking account keeps your funds safe until needed. However, you are responsible for maintaining and balancing your own checking account. The consequences for writing a check when you have insufficient fundsWhen a bank account does not have enough money to cover checks. in your account to cover that check depend on your particular bank and account. Your bank may charge you an overdraftA check written for amounts “over” what consumers have in their accounts (i.e., the checks are called overdrafts). Checks are returned unpaid and are usually said to “have bounced.” Some depositors select overdraft protection, which is a line of credit to write checks for more than the actual account balance. A draft or check written for an amount that exceeds the funds in the account on which the check is drawn. (Draft, in this sense, means a document for transferring money.) charge, but still honor the check. This charge will vary depending the bank’s policies. Consumers with more than one account often have overdraft protection which moves funds from one account to another automatically to cover the necessary funds, but there is usually a fee for this service.
Your bank may alternately choose not to honor your bad check and not pay the recipient. This is known as bouncing a check or a bounced checkA check that a bank returns because it is not payable due to insufficient funds. Banks charge a fee for checks that are returned (see overdraft). . The recipient may be charged a fee for depositing the bad check into their account by their bank. You will continue to owe the recipient for any goods and services that you tried to pay for, but may also be charged a fee for paying with a bad check and potentially a late fee. The recipient may report you to a database like Shared Check Authorization Network (SCAN) shared by many retailers across the U.S. Based on this information, many retailers may also choose not to accept checks from you in the future.
One way to help prevent writing bad checks is to maintain a check register. A check register is a personal record or ledger of your checking account transactions. You should enter every transaction you make into the register (e.g. every time you pay with a check, make a deposit, withdraw money from an ATM). Many banks provide you with a paper register when you order checks, but there are also many electronic options available.
Your bank will provide you with a monthly bank statementA printed or online statement, usually available as a pdf, that provides the depositor with a record of deposits, checks, ATM transactions, and electronic fund transfers made to an account over a certain period of time. . A bank statement shows all activity and transactions on your account for a given period including deposits, cash withdrawals and check payments. Bank statements can also be used to compare and “reconcile” the bank records with your personal records. Comparing your monthly statement against your check registerA booklet for keeping a record of checking transactions such as deposits, withdrawals, debit card use, ATM withdrawals, checks written, and fees. can help you identify mistakes and catch any unauthorized activity (identity theft) on your account.
You might have banking arrangements where your canceled checks are not returned to you. In such cases, you might want to make copies of the checks for your records (e.g., rent deposits, insurance payments, etc.). However, most online banking will provide you with access to an image of the check online.
Online and Mobile Banking
Technology is constantly changing consumer banking and bill paying habits. Many banks now let you access your accounts using your home computer, your phone, or and your web-enabled mobile device such as a personal digital assistant (PDA) or tablet.
Most major banks offer free online bankingConducting bank transactions from a computer over the Internet. services and 24-hour automated phone systems. These systems will allow you to look up your balance and deposit information and recent account activity. Some banks will also provide you with a way to pay your bills electronically and to transfer money between linked accounts. With online banking, you can also access your current and previous bank statements, so you may reconcile them.
There are also a number of websites that provide useful tools for reconciling your various accounts. For example, websites like mint.com or manila.com will bring together all of your checking accounts, credit card information, home or car loans and investment information into one program that will track and categorize your spending.
Writing a Check
Following the same procedure every time you write a check will help protect your account and avoid making mistakes that could lead to costly overdraft fees. Before writing a check, make a new entry in your check register and update the balance. Make sure there is enough money in the account to cover the amount.
Use black or blue ink to prevent altering or counterfeiting. Always fill in the date and never sign a check without filling out the amount field. Also, you should avoid leaving blank spaces in the amount field since it could be altered. Write the amount as far to the left as possible, then draw a line across the remaining space. When mistakes are made, the check should be voided (i.e., the check should not be altered or mistakes crossed-out), and a notation made in the check register.
- 1Fill in the date of the day the check is written.
- 2Write the name of the payee (person or business that is receiving the check) after the words “Pay to the order of.”
- 3Write in the amount in numbers as close to the $ sign as possible.
- 4Print the dollar amount of the check in words as far to the left as possible. Be sure to draw a line in order to fill the entire space. If the amount includes cents write these numbers as a fraction of 100 (e.g., 25 cents = 25/100).
- 5Sign the check. The signature of the payer should match the one that was filed when the account was opened.
- 6Fill out the memo field. This is optional.
Endorsing a Check
Checks should be cashed or deposited within 90 days of being issued. Before a check can be deposited or cashed, it must be endorsed. To endorseTo sign the back of a check, in order to cash it or specify another payee, who then can endorse and cash it. Some banks also require customers to include their bank account number as part of the endorsement. a check, you must sign your name on the back of the check in blue or black ink exactly as it appears on the face of the check. Some checks will have a signature line or instructions on the reverse. Some banks might also require that an account number be included for the endorsee. Businesses and some individuals create rubber stamps with names and other identifying information that they use to endorse checks (e.g., account number, store location, etc.).