Checking Accounts

Bank accounts are basically broken into two kinds: checking and savings. In this article, the basics of checking accounts will be explored.

The primary purpose of a checking account is to have a safe place where money can be easily transferred in and out. Money held by banks are protected by the Federal Deposit Insurance Corporation (FDIC). People can feel secure in protecting their money. Paying bills is the primary purpose of a checking account. A check can be written to cover a bill. For example, a car payment of $306 can be paid by writing a check and either mailing it or taking the check into the loan office. The loan company then deposits that check into their bank account. The check is presented to your bank and the money is transferred from your bank account to the loan company’s bank account.

Paper checks are rapidly being replaced by electronic transfers. Taking the “writing a check” and “mailing the check” out of the process, money in your bank account can be electronically transferred. This online checking account requires a computer with Internet access and a bank that accepts an online checking account. Most banks today have some kind of bill pay ability. It is extremely convenient and easy to maintain track of payments.

Banks are for-profit businesses. They made money by using your money. For example, you open a bank account to save for a house. You add month each month and collect interest on the money you invested in your savings account. The money you have in your savings account is loaned to other individuals. They are charged an interest rate. A personal loan might be as high as 12%. The bank pays you for the money you have saved about 1.5%. The rest is the banks. Some covers the expenses associated with loans. The rest is profit. To put the per cent’s into dollars and cents: A savings account of 1.5% per annum will yield $150 a year. The burrower will pay about $1200 per year. Not a bad profit!

Money placed in a checking account must remain fluid, that is, easily transferred to other institutions. Since the bank cannot use a checking account’s money to invest for a return to make money for the bank. As a result, banks charge fees for checking accounts. The fees vary greatly. In some cases, banks offer free checking accounts. These accounts are often part of a gimmick to draw new customers to the bank. Some banks offer free checking accounts to seniors, veterans, policemen, firemen, teachers, etc. Other free checking accounts are offered with a minimum balance. For example, as long as a $1000 is maintained in the account. If the balance dips below the minimum figure, a heavy fee is assessed. Checking accounts carry fees for many activities.

Some checking accounts maintain a low monthly fee. These checking accounts with a low monthly fee are the most common checking accounts. The consumer should carefully check the bank’s reputation, the amount of the fees and what activities are charged fees. Banks make money on checking accounts through fees. Excessive fees result in the bank closing your account and placing your name on the Chex System (sort of credit reporting agency).

Once on Chex it is very difficult to open an account. Bad credit checking accounts, checking accounts with no credit checks or second chance checking accounts are available for people who have been denied a bank account due to poor credit. Like any other “bad credit” situation, beware.