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What is a Checking Account?

Michael Pollick
By
Updated May 16, 2024
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A checking account is a service provided by financial institutions (banks, savings and loans, credit unions, etc.) which allows individuals and businesses to deposit money and withdraw funds from a federally-protected account. The terms of this type of account may vary from bank to bank, but in general, the holder of such an account can use personal checks in place of cash to pay debts. He or she can also use electronic debit cards or ATM cards to access individual accounts or make cash withdrawals.

Virtually every bank offers some form of checking account service for their customers. Some may require a minimal initial deposit before establishing a new account, along with proof of identification and address. A student or other low-income applicant may opt for a no-frills account which does not 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 option for senior citizens and low-income customers. This type of 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worker files the check electronically and the check writer's bank receives the canceled check and amount to be debited (withdrawn) from the check writer's account. This process continues for every check written against an individual account.

Owners of a checking account are ultimately responsible for keeping track of their available funds, even though the bank will routinely issue its own accounting statements. Checks must represent an actual amount of money contained in the account itself. If a check is written for an amount higher than the available balance, the check writer faces numerous fees and possible legal action. The recipient of the bad check can demand immediate cash payment for the original debt as well as a substantial fee for the returned check. Some banks will protect account holders by making the proper payments and notifying the check writer that an overdraft has taken place. Most often the bank will recoup their losses through substantial service charges, so it pays to avoid writing checks when the balance is unknown.

Most banks have several different methods which allow checking account customers to check their balances and reconcile their records. Printed monthly statements of debits and credits (deposits) are mailed to individual account holders. ATM machines offer an option to check the current balance, while online or phone-in accounts can provide real time updates on which checks have been processed and which are still outstanding. This information can be compared with the entries recorded in a journal called a check register.

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Michael Pollick
By Michael Pollick
As a frequent contributor to SmartCapitalMind, Michael Pollick uses his passion for research and writing to cover a wide range of topics. His curiosity drives him to study subjects in-depth, resulting in informative and engaging articles. Prior to becoming a professional writer, Michael honed his skills as an English tutor, poet, voice-over artist, and DJ.
Discussion Comments
By anon175150 — On May 12, 2011

yeah, i think it's a good idea for students because they learn how to save money in the long term.

By nhumai — On Jan 11, 2011

Can we use a checking account to receive a bank instrument as bank guaranty/stand by letter of credit or a letter of credit?

Because someone told me a checking account cannot receive a bank instrument.

Highly appreciate any response and thank you so very much.

By anon116697 — On Oct 07, 2010

Tugboats: So true! Great advice.

By anon87162 — On May 28, 2010

So are there any monthly or yearly fees or inactive fees for a checking account and what would you recommend - this or a savings account? I don't mind carrying the money with me; it's just that there are more benefits with a checking account.

By anon86736 — On May 26, 2010

If a married couple has a joint checking account, with the understanding originally that the account would be used for household expenses, maintenance, etc., and now the account has grown into really too high a balance and one party wishes to maintain the current balance, including the refund check on taxes, and the other party wishes to bring it down to a more reasonable balance and use the money for individual investments, how can this be handled without creating a divorce? Martha. Any attorneys have any free advice here?

By anon84210 — On May 14, 2010

thanks for your help. We learned a lot!

By anon70030 — On Mar 11, 2010

It was really helpful with my checking account. now I know what to do.

By anon68072 — On Feb 28, 2010

nice. I like reading your post. It gives me a lot of information about checking accounts.

By anon62517 — On Jan 27, 2010

thank you for the information. rajkiran

By anon47453 — On Oct 05, 2009

Thank you for the information.

By anon18166 — On Sep 16, 2008

is it possible to have 2 estate checking accounts for the same person?

By tugboats — On Mar 27, 2008

It's a really good idea for high school students to start having their own checking account when they're around 16 because they can learn about financial responsibility and budgeting. Whatever you do though, don't bail them out! If they overdraw their account, they've got to live with the consequences. Otherwise they are likely to learn bad habits that could stay with them for a long time.

Michael Pollick
Michael Pollick
As a frequent contributor to SmartCapitalMind, Michael Pollick uses his passion for research and writing to cover a wide...
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