A checking account is a type of bank account that lets you access your money easier than a savings account. You can make deposits into your account and then write checks against the balance. You can also withdraw money using an ATM or debit card.
Checking Account Fees
Many checking accounts are free – meaning they don’t charge regular monthly fees. These “free” accounts still charge an overdraft fee if you overdraw your bank account or an ATM fee if you withdraw money from an ATM. Some checking accounts require you to maintain a minimum balance to avoid paying a monthly fee. They may base this minimum on your average balance during the entire month or your balance at the beginning or end of the month.
Interest on Checking Account Balances
There are checking accounts that pay interest on your deposit, but this interest rate is generally the lowest of all rates offered on bank accounts. You might need a minimum balance to open the account and earn interest. And you might have to maintain a different balance to avoid paying fees on the account. If the balance required to avoid fees is higher than the balance required to open the account, you should try to maintain the higher balance. That way, your interest isn’t eaten up with monthly fees.
Checking Account Transactions
With checking accounts, there are basically two types of transactions: deposits and withdrawals. Deposits add to your checking account balance and are available for withdrawal within 1-7 business days depending on the type of deposit. Cash is available for withdrawal faster than a check.
Withdrawals include ATM withdrawals made using your ATM card, checks, online bill pay, and debit/check card transactions. Each withdrawal reduces your checking account balance by the amount of the withdrawal. For example, if you write a check for $10, your account balance will go down $3. Withdrawals aren’t posted to your account immediately. Electronic transactions like ATM withdrawals and debit card transactions post to your account faster, usually within 1-3 days. However, checks can take several days to clear depending on when the payee takes the check to the bank.
You have to be careful not to spend more money than you have in your checking account. Your bank is required to let you opt-in to have overdraft transactions processed. If you do not opt-in, these transactions will be declined or returned to the merchant. On the other hand, if you’ve opted-in, you’ll be charged an overdraft fee, but the transaction will be paid and you wont’ have to take care of it with the merchant.