Understanding Checking Accounts

Hello Dear Young and Wondering About Checking Accounts, So, someone told you that all you need is a savings account. But, then someone else told you that you need a checking account. Then finally, someone told you that no one writes checks anymore. Now, you are confused about checking accounts. Well, today, I am going to help you with understanding checking accounts. 

What Is a Checking Account?

A checking account is an account that allows you comparatively effortless access to your money. With a checking account you can easily make deposits and withdrawals. One way to access and/or use the money in a checking account is to use a check. You can use a check to pay people, or you can even write a check to yourself. But, you can also access and/or use money in a checking account by using a debit card to pay for things at points of purchase. Or, you can use a debit card to deposit or withdraw money at automated teller machines (ATMs).

A checking account is not the account that is generally used for savings. This is partially because of that easy access to your money. Your savings money is not there to pay bills or spend. The money in your savings is there for saving rather than spending. So, it’s better for it to be comparatively harder to access it. It’s good to not be able to access your savings easily. This differs from money in a checking account.

Another thing to know is that because checking accounts are not designed for savings, most of them offer little to no interest. This differs from savings accounts, which usually offer higher interest than checking accounts.  (There are some checking accounts that pay a little more than standard checking accounts. You can read about them here: Kasasa Checking Accounts.)

What Is a Check?

Based on conversations that I have with people, physical checks are being used less and less. So, just in case you don’t know what a check is: A check is a paper document that you can use for transferring money to someone else. Usually you get these checks from your financial institution. The checks will have your checking account number and bank routing number on them. You fill out specific details on each check. The details include information such as: the payee (the person to whom you are making the payment), the date, the amount of the check, and your signature. Without your signature, the check will not go through. 

On a side note: I find it interesting that some schools are no longer teaching cursive writing. Traditionally, like when I was growing up, signatures were expected to be in cursive. However, now, more people are printing their signatures.  

A little extra information: A reason that some people consider a cursive signature better is because it is thought to be more unique and more difficult to forge.

Reasons You May Need a Checking Account

There are several reasons that you may need a checking account. Some of those things include:

• They allow for easy access to your money via debit cards and checks. 

• There are no limits to the number of times that you can use an ATM or the number of times that you can  make online transfers. In a savings account, you  will usually have a limited number of transactions per month. If you exceed that number you will be charged a fee.

• You may want to keep a small portion of your emergency savings in your checking account. I call this a buffer amount. I personally like to keep enough extra money to cover two extra month of expenses. This means that I keep at least three months of money in my checking account. 

I came to that point after many years. So, there is no need to worry

about that if you simply chose not to keep that much in your

checking account. It comes down to personal preference. Personal

finance is personal. But, I do recommend that you keep a buffer

amount. Otherwise, if you accidentally spend more than you have in

your account, you will be hit with an overdraft fee, and fees are an

enemy of building wealth! 

 

• It is good to have a checking account to help with managing your money. A checking account is a useful place to have your direct deposits, such as your paychecks, land. Then, you can have the money automatically go where it needs to be. You can have automatic payments and automatic transfers to your savings account and investment accounts. 

Where You Can Open a Checking Account?

You can open a checking account at a bank or a credit union. 

Additionally, If you have an investment account at a brokerage house, such as Fidelity Investments or Schwab, they also offer something called a cash management account, which is basically a checking account. 

The First Thing To Think About When You Are Looking For a Place To Open a Checking Account:

• Make sure that the account is insured. If you open an account at a bank, it needs to be FDIC insured. The FDIC protects customers in the unlikely event of a bank failure. They insure each account up to $250,000. So, it is not recommended to put more than that amount into one bank. 

• If you go with a credit union, members’ money is also insured in the event of a credit union failure. Just like the FDIC, the NCUA insures up to $250,000. Again,  it is not recommended to put more than that amount into one credit union. 

• If you have a checking account in an investment form, it is insured for up to $250,000 by the SIPC. 

Other Things To Think About When You Are Looking For a Place To Open a Checking Account:

• It is a good idea to look for a checking account that does not require a minimum balance.

• It’s smart to look for accounts that have no monthly fees. (Remember, fees eat into your ability to grow your money. You could use that money for something else.)

• I like to look for checking accounts in local brick and mortar financial institutions. I do this because I feel that it is important to build a relationship with a local financial institution. It can be useful to be known by a bank if you ever need to borrow money for some reason. (You never know!) Also, I often go to my local bank to get free notary public services. But, honestly, I enjoy going into my local bank. Since, they have seen me so often, I am always greeted warmly, and I enjoy getting candy from their candy dish. 

(Of course, I maximize my cash’s potential by keeping most of my

emergency fund in high yield savings accounts.)

• Alternatively, some people like to have their checking accounts at large national banks. One reason that this makes particular sense to me is if you are a person who moves around a lot. This prevents you from starting a new account everytime you move. As a former military spouse and employee, I did find that it was useful to have a nationally recognized bank, too.

Understanding Checking Accounts: Key Takeaways: 

• A checking account is a financial account that allows easy access to your money.
• You can use checks or debit cards to access your money. 
• There is no limit to the number of transactions that you can make each month with a checking account. 
• Checking accounts usually offer little to no interest.  
• Checking accounts are best used for paying bills and managing money to be moved into other accounts. 
• Be sure that your bank, credit union, or investment firm is insured by the FDIC, NCUA, or SIPC. 
• Look for places that have as few requirements as possible. For instance, having no minimum balance and no monthly fees.  

I hope that information was helpful! Check back often for more financial literacy information!

Hugs, 

Rich Mom

Looking to read more? You can check out these posts: 

Building Wealth In Your Twenties

Having Fun While Building Your Wealth

What is the Difference Between an Emergency Fund and a Rainy Day Fund?

Becoming a Credit Card Deadbeat

Looking for More Interest? Try a Kasasa

Who is Rich Mom? 

If you stumbled upon this post and you are wondering who Rich Mom is, check out my “About Rich Mom” page. 

Also, please note: I am not an investment advisor. Always do your own due diligence and research before investing. Check with your own investment advisor. 

Also, remember that past performance is not a guarantee of future performance.

I am not sharing information as financial advice, just entertainment and entertainment.