A checking account allows individuals and businesses to deposit and withdraw funds from a federally protected account, using personal checks or electronic debit/ATM cards. Banks offer various types of accounts, including those with no fees for low-income customers. Account holders must keep track of their available funds to avoid fees and legal action. Banks offer various methods to check balances and reconcile records.
A checking account is a service provided by financial institutions (banks, savings and loans, credit unions, etc.) that allows individuals and businesses to deposit money and withdraw funds from a federally protected account. The terms of this type of account can vary from bank to bank, but in general, the owner of such an account can use personal checks instead 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 all banks offer some type of checking account service for their customers. Some may require a minimum initial deposit before establishing a new account, along with proof of identification and address. A student or other low-income applicant can opt for a simple account that does not charge fees for the use of personal checks and other services. Others can benefit from interest payments by maintaining a high minimum balance each month.
The law requires some states to provide a vital option for seniors 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 ATM surcharges.
A typical checking account is managed by careful accounting of deposits and withdrawals. The account holder has a supply of official checks containing all essential routing and shipping information. When a check is completed correctly, the recipient treats it the same as cash and completes the transaction. After this check has been deposited into the recipient’s bank account, a bank worker files the check electronically and the check writer’s bank receives the canceled check and the amount to be debited (withdrawn) from the check writer’s account. This process continues for each check issued against an individual account.
Owners of a checking account are ultimately responsible for keeping track of their available funds, even though the bank will typically issue its own financial statements. Checks must represent an actual amount of money contained in the account itself. If a check is written for more than the available balance, the check writer faces numerous fees and possible legal action. The recipient of the bad check may demand immediate cash payment of 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 occurred. In most cases, the bank will recoup its losses through substantial service charges, so it’s worth avoiding writing checks when the balance is unknown.
Most banks have several different methods that allow checking account customers to check their balances and reconcile their records. Paper monthly debit and credit (deposit) statements are mailed to individual account holders. ATMs offer an option to check your current balance, while online or phone accounts can provide real-time updates on which checks have processed and which are still pending. This information can be compared to entries recorded in a journal called a check register.
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