Checking Accounts
When you’re ready to open a checking account, the options may seem a little overwhelming. However, once you understand the basics, it's not that difficult. Read on for tips on finding the best deal, how checks work, and more.
11 Questions to Ask to Find the Best Deal for Your Checking Account
Benefits of Using a Checking Account Instead of Cash, Money Orders, or Check-Cashing Stores
11 Questions to Ask to Find the Best Deal for Your Checking Account
Before opening a checking account, shop around. Here are 11 questions to ask:
- How much money do I need to deposit to open the account?
- Is there a minimum balance that I must keep in the account to avoid paying fees?
- Are there monthly fees on the account (for instance, if my balance falls below a minimum level)?
- Will I gain anything from keeping a larger balance?
- Is there a charge to write each check?
- How much will 200 new checks cost?
- Is there a basic account with lower fees if I write only a few checks each month?
- Do any of the checking account options earn interest?
- What is the bank fee if I write a check that my account cannot cover (also known as bouncing a check)?
- What are the ATM fees?
- Is there a fee for using a teller?
The Comparing Checking Accounts Worksheet will help you decide which bank or credit union is right for you.
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Benefits of Using a Checking Account Instead of Cash, Money Orders, or Check-Cashing Stores
What makes a checking account better than alternatives such as check-cashing stores?
- It's safer. When you carry a lot of cash in your wallet or keep it hidden at home, you risk having it stolen.
- It's less expensive. When you use a check-cashing store, you're paying it to give you the money you've earned! It's like paying someone $10 so you can wear a shirt that you already own. Buying money orders to pay bills is similar.
- It allows for easier record keeping. By using a bank, you'll have check registers, monthly statements, and canceled checks to track your spending. This helps with creating and maintaining your spending plan. In addition, bank records help you prove you’ve paid a bill if you’re questioned.
How Checks Work
Most businesses look at checks as being the same as cash. They accept your check and present it to your bank. Your bank then subtracts the amount of the check from your account and pays the person or business indicated on the check.
Your bank then stamps the check to indicate that it has been paid. Once the check is stamped, it is said to have cleared the bank. Cleared checks are also called canceled checks.
Checks are easy to write. Place the date in the top right corner, fill in the name of the business or person on the "pay to the order of" line, write out the amount of the check using both numerals ($150.35) and long hand (one-hundred fifty dollars and 35/100), and sign it in the bottom right corner. That's it.
Checks also make it easy to pay your bills. But, be sure you have enough money in your account to cover the amount of the checks you write. Otherwise, you might "bounce" a check, and that can hurt your credit rating and your reputation with the company or person who received the bad check. You also will be charged a "bounced check" fee from your bank. This fee could be anywhere from $20 to $50 per check. If the bounced check was payable to a company, they also may charge you a fee, since their bank will charge them a fee when the check they deposit is returned unpaid.
Warning: bounced checks also may hurt your ability to get an account at another bank or credit union.
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Balancing Your Checkbook
Each month, the bank will send you a statement showing all of your transactions, including checks written, deposits, ATM transactions, and any fees charged. You'll need to balance the statement your bank sends with the records you have, which should be kept in the account register in your checkbook.
To balance your account, follow these steps. To make things easier, there's usually a form on the back of your bank statement that walks you through balancing your checkbook.
- On your bank statement, look for charges made against your account. For example, your bank may charge you a monthly fee or you may have purchased new checks through the bank. (Don't count the checks you have written as charges—these will be subtracted later.)
- Insert the fees in your register and subtract them from your balance.
- Put your canceled checks in order by check number.
- For each canceled check and deposit, compare the amounts shown on the bank statement with what you entered in your register. Do they match? For each one that does, put a check mark next to the item in your register.
- On the back of the statement, write down the final balance shown on the front of the statement.
- Add the deposits not yet credited to your account. These are deposits you made after the bank processed this statement.
- Subtract all checks that have not yet cleared your account. These are checks you’ve written but that don’t show up as paid on this statement.
- The resulting number should match the final balance in your account register.
If things don't add up, ask your bank or a friend or family member who is good with math for help. Your bank or credit union may charge a fee for its help.
Always entering deposits and withdrawals in your checkbook will help you avoid this situation. If you think you will forget to write down your checks in your register, you may want to order checks that make duplicates. This means that each check has a copy. When you write the check, a duplicate stays with the checkbook. The duplicate will show the amount of the check and who received it. If you forget to write down this information in your register, you can go back and add it later. Duplicate checks cost more, but they can be very helpful until you get in the habit of using your register all of the time. And don’t forget to enter your ATM withdrawals. It’s easy to think you’ll write it down later, but take the time to do it right there at the machine.
It may seem tedious, but the more often you balance your checkbook, the quicker and easier it becomes. An added bonus is that keeping your checkbook balanced will help you avoid the painful and expensive experience of bouncing checks. The Sample Check Register shows you how to keep track of your transactions.
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Watch Out for Bouncing Checks
If you write a check for more money than is in your account, it will be returned, or bounced back, to your bank.
Here's an example: If you write a check for $100 to the electric company but only have $95 in your account, your bank will refuse to make any payments to the electric company. Instead, the bank will inform you that you had insufficient funds to cover the check and refuse to make up the difference. Your check has bounced.
Bounced checks cost you in a number of ways:
- Your bank will charge you a fee—$20 or more—for each check that it returns unpaid.
- The company on the receiving end of the bad check will likely charge you an additional check-bouncing fee—ranging from $10 to $25—along with any regular late payment charges.
- Your reputation with the bank and check recipient will be hurt
The easiest way to avoid bouncing checks is to maintain a running total of your checks, withdrawals, and other transactions in your checking account register. Don't forget to include ATM withdrawals, too.
The Sample Check Register shows you what a checkbook register looks like.
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Using an ATM
It seems there's an automated teller machine (ATM) on every corner and in every grocery store and gas station, offering great convenience.
To use an ATM, you insert the ATM card issued by your bank and enter a personal identification number (PIN). Once the machine verifies you are the appropriate user of the ATM card, you can withdraw money from your account. Many ATMs also let you make deposits.
While ATMs provide easy access to the funds in your account, they can be too convenient for some people. To guard against ATM misuse, remember to enter ATM transactions in your checking account register and always take your receipt with you. It contains information that thieves could use to access your account.
Finally, except in emergencies, try to use only ATMs that are run by your bank. If you withdraw money from another bank’s ATM, there’s a good chance you'll pay a fee for the privilege of using their machine.
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Using a Debit Card
A debit card looks a lot like a credit card, but it works more like a check. When you use a debit card, the amount of the purchase is deducted from your account immediately— there’s no lag time, as is the case with credit cards.
Just as with ATM transactions, be sure to write down in your check register any purchase made with a debit card.
Managing Your Money: The Benefits of Using a Bank or Credit Union
Checking Accounts
