A checking account is a service done by financial institutions (credit unions, banks, etc.) which lets individuals and businesses deposit money and take out funds from a federally-protected account.
The terms “checking account” can vary from one bank to another, but in general a checking account owner may use personal checks instead of cash to pay off loans anddebts. He or she may also use virtual debit cards or ATM cards to access personal accounts or make money withdrawals.
Most banks offer some form of checking account service for their clients. Some banks require a minimal initial deposit before establishing a new checking account, along with a proof of identification and the address of the client.
Student and other low-income applicants may choose a no-frills checking account that doesn’t charge fees for the use of personal checks and other services. Others may benefit from interest payments by maintaining a high minimum balance each month. Some states are required by law to provide a ‘lifeline’ checking account option for senior citizens and low-income customers. This type of checking account waives many of the fees banks may charge, such as monthly service fees for low balances and surcharges for ATM usage.
A typical checking account is handled through careful posting of deposits and withdrawals. The account holder has a supply of official checks which contain all of the essential routing and mailing information. When a check is filled out correctly, the recipient treats it the same as cash and completes the transaction. After this check has been deposited into the recipient’s own bank account, a bank worker files the check electronically and the check writer’s bank receives the cancelled check and amount to be debited (withdrawn) from the check writer’s account. This process continues for every check written against an individual checking account.
As long as the account holder maintains accurate financial records, a checking account provides a safe and efficient way to pay bills and deposit money from payroll checks and other income sources. A savings account may pay more interest over time, but a checking account replaces the need for large amounts of cash to satisfy routine debts such as rent or mortgage payments, credit card bills and utility bills.