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Checking Accounts

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Checking accounts are one of the most widely used financial tools. The vast majority of individuals use their checking accounts on a near-daily basis to withdraw cash, make purchases and pay bills. Because of the high volume of transactions that most people conduct with a checking account, managing one is not simple and requires customers be discriminating and vigilant.

Checking accounts allow depositors to withdraw funds at any time by writing a check. A check is a signed document that directs a bank to pay money from the check writer's account to the recipient of the check. The check must be made out to the recipient, and the recipient must endorse the check.

What are the different types of checking accounts?

Basic checking accounts are intended for those who use their accounts primarily for paying bills. They require low minimum balances and may require direct deposit.

Interest-bearing checking accounts, sometimes called NOW (negotiable order of withdrawal) accounts, pay monthly interest at the end of each statement cycle. They require a minimum balance in the account to avoid fees. With some accounts, the higher the balance the greater the interest rate it pays.

Joint checking accounts are owned by two or more people, with each owner having equal access to the money in the account.

How should I go about comparison shopping for checking accounts?

First, determine what types of transactions you make the most and then look for accounts that charge the least for those transactions. Common charges associated with checking accounts include fees for the actual checks, ATM use, teller visits, overdraft protection, bounced checks and returning canceled checks.

How do I open an account?

You need to provide multiple pieces of identification, such as a photo ID, Social Security number and a utility bill with your current address on it. You will also have to write your signature on a card to be kept on file at the bank.

What is "direct deposit"?

Direct deposit is an electronic deposit of a check into your bank account. Many employers offer to directly deposit employee paychecks. The federal government also pays Social Security and veteran benefits checks with direct deposit.

With direct deposit, checks cannot be lost or stolen, and they are deposited into your account the same day the checks are issued, even if it is a holiday. Most of all, it saves you time and offers greater convenience.

Your employer will provide you with the necessary paperwork to set it up. You will have to provide your Social Security number and a voided check that has your bank's routing number and your account number on it. Instead of a regular paycheck, you will receive a voucher from your employer that states the amount deposited.

Another advantage to direct deposit is that many banks offer free or low-cost accounts if you have your paychecks electronically deposited because it saves the bank processing costs.

What are the penalties for bouncing a check?

If you balance your checkbook and do not spend money that you do not have, you should never bounce a check. But mistakes happen, and the penalty is steep.

Nonsufficient funds (NSF) fees, as they are called, are continually going up, so it is in your best interest to avoid them at all costs. The average fee for a bounced check is nearly $25, but they can reach as much as $35 at some banks. Some banks have a tiered system that charges NSF fees based on a person's history of bouncing checks.

Is there anything I can do to protect myself from accidentally bouncing a check?

Overdraft protection is one measure. Some banks offer a feature-usually for a fee-where it will automatically transfer money from another account, such as a savings account, if you do not have enough money in your checking account to cover a check.

Another option is to leave a constant minimum balance in your account-such as $100-to provide a buffer to cover checks that would otherwise bounce.

Can I stop payment on a check once it is sent?

There are many reasons why you may want to stop payment on a check you already sent. You may have received faulty goods or poor service. You may have lost the check, or it may never have been delivered to the recipient through the mail. To stop payment, you simply need to request that your bank stop payment on a specific check number and sign a form. However, it will cost you a hefty charge-$25 to $35 is typical.

Keep in mind that stop payment requests only last 6 months. If you think the check could be cashed after that, you will need to pay for another stop payment request.

What are "cashier's checks"?

Cashier's checks are issued from the bank's own account after you give the bank the money for the amount you want the check written for. Cashier's checks are typically used for large transactions to guarantee to the receiver that the funds are available for payment. In that sense, cashier's checks are as good as cash but have the convenience of a check.

When cashed, the canceled check will be returned to the bank rather than to you. Make a copy of the check before delivering it in case you need to trace the original.

What are "certified checks"?

A certified check shows that your bank vouches that you have sufficient funds in your own account to cover the amount on the check.

What are "money orders"?

Money orders work just like checks, but they are often used by people who do not have checking accounts. To buy a money order, you give the bank the amount you want the money order made out for, and the bank issues you a money order for that amount. You fill out your name and address as the payer as well as the name and address of the receiver. Keep the carbon copy for your records as proof that you bought the money order. Money orders are sold by banks and the U.S. Postal Service for a fee.

What fees can I expect to be charged for using ATMs?

Automatic teller machines (ATMs) have changed the way almost everyone banks. ATMs allow customers to conduct transactions from almost any ATM in the world. Many use them to withdraw and deposit funds and make balance inquiries on numerous types of accounts. However, such convenience has come at a price, and most bank customers have shelled out considerable amounts for using ATMs.

While you can usually use your own bank's ATMs for free, ATMs charge what is called a "surcharge" when you use an ATM that belongs to a bank other than your own. ATMs notify you on the screen of the surcharge amount during the transaction and ask you if you want to proceed and pay the fee. Surcharges run about $1.50 per transaction on average.

What can I do to avoid paying lots of surcharges?

Choose a bank with a large ATM network or find a bank with ATMs in locations that are convenient to you. Most banks do not charge their own customers to use their ATMs.

What is a "debit card"?

Debit cards and ATM cards are usually one and the same. Often called check cards or enhanced ATM cards, debit cards allow you to make purchases using funds in your bank account. Some debit cards carry the Visa or MasterCard logo, but they are not credit cards-payment comes directly out of your account, just like it would if you had written a check for the purchase. When making a purchase with a debit card, you must key in a personal identification number or provide a signature.

What fees are associated with debit cards?

Some debit cards carry monthly fees. Others rack up fees on each debit transaction.

What happens if my debit card is lost or stolen and someone else uses it?

Under the Electronic Fund Transfer Act, you have a maximum liability of $50 if you report the card lost or stolen within 2 days of finding out the card is missing. After that, you are liable for $500 if you report it within 60 days. Beyond 60 days, you are liable for the entire amount in your account-you could lose it all. Some banks offer more protection than what the government requires.

If I buy something on my debit card and then try to return it, will I have any problem getting a refund?

It may be more difficult-or impossible-to get your money back if you made payment with your debit card instead of a credit card.

Under the Fair Credit Billing Act, when you buy something with a credit card, you have the right to withhold payment if you are not satisfied with the item you bought. This law does not apply to debit cards, even though they may carry the Visa or MasterCard logo.

When you use a debit card, the payment comes out of your bank account almost immediately-a few days' time at the most-so the store may already have your money when you return the item.