Types Of Checking Accounts

Basics

A checking account, unlike a savings account, allows you to write checks to make a purchase, pay bills, make a loan, or transfer money into another account.  You can also make deposits (putting money into a bank), or withdrawals (taking money out) whenever you wish.  First you need to determine how you see yourself using the checking account.  Will you be writing lots of checks each month, or just a few?  Why?  Because some banks charge a fee for every check written or give you a certain allowance (a certain number free) each month.

Some banks charge for maintaining a bank account, if it is below a certain dollar amount.  Also, you will receive monthly statements showing how much money you have deposited, withdrawn (checks, ATM, transfers) and any fees the banks take out.  Finally, it will show you the balance you have at the end of the month (see Checking Account Basics).

When do you really need a checking account?  If you need to send money, pay bills (be it at school, store account, rent or supplies), it might be a good idea to open one.  Maybe you do not want to carry around a lot of cash, which can be lost or stolen.  But before you open an account, make sure you are willing to take on the responsibilities that come along with opening an account.  These include balancing a check book and making sure you never write a check for more than you have in your account (see Selecting A Bank).

Also most checking accounts offer online banking and ATM cards (see ATM & Debit Cards).

Types of Cheking Accounts

 

 

There are different types of checking accounts—see which ones best meet your needs.  Also remember to ask questions and read the fine print before signing up for any kind of account.  Listed below are some types of accounts.  But individual banks might call these types something different.

 

  • Basic Checking or Non-Interest Bearing Accounts:  This is good for customers who use a checking account infrequently and don’t plan to keep a high balance (a lot of money in the account).  It can be used to pay a few bills and for daily expenses.  Some basic accounts require direct deposit (where your employer deposits your wages directly to your bank (if you have a part time or full time job) or a low minimum balance to avoid any fees, but not all.  Most charge fees for ATM withdrawals and for each check written.  The bank does not pay you any interest.  Details of basic checking accounts are different for each bank.  Not as good as a free checking account, but this might be a good starter account for you.
  • "Free checking" Accounts:  This is good if you plan to keep a certain amount in the bank.  This account requires you to maintain a minimum balance, but certain fees, like ATM and check fees are eliminated.  However, beware, if you don’t maintain the minimum balance, your account will no longer be “free” and you will be charged fees.  This is also a good starting account for many teens.
  • Interest-Bearing Accounts:  These accounts usually require a minimum balance to open, and a high balance to maintain in order to avoid service fees.  Some accounts pay a flat interest, some a higher amount with larger balance.  The higher your balance, the more interest you earn.  The interest is paid monthly.  Generally, if you take your money out before the end of the month, the bank won’t pay you any interest for that month.  Some banks will give you interest on your checking account if you have a savings account, but generally there is a high minimum you must maintain in the savings account.  The interest is usually less than 2% at the moment; some are less that 1%.  Again, if you fall below the minimum balance, you may incur fees that are higher than any interest you might earn.
  • NOW Accounts (NEGOTIABLE ORDER OF WITHDRAWAL):  This is a “Free Checking” and an interest-bearing account offered by a Savings and Loan or Thrift Institution. Typically a minimum balance on a NOW account exceeds that of a “Free Checking” account.  However, if your balance falls below the minimum, you will incur fees.  But if you maintain the minimum, you can earn interest on the account every year.
  • SUPER NOW Accounts:  The same as a NOW account, but you’ll earn a higher interest rate.  But you will be required to maintain a higher minimum balance.
  • Joint-Checking Accounts:  This is an account owned by two or more people, who have equal access to the money.  Usually it is used by people who live together and share household expenses.  However, sometimes a teen might open up a joint checking account with a parent so the parent can put money in, and also monitor how it is spent.  Other types of accounts, such as savings and money market can also be set up for more than one user.
  • "No-Frills" Senior or Student Checking Accounts:  Many banks and some institutions, like credit unions, offer special deals for students and seniors.  You may be entitled to free checking, free ATM use, free checks, free cashier or Traveler’s Checks.  You might also be entitled to lower rates on loans and credit cards. You might be offered discounts on a variety of items including travel and prescriptions.
  • Express Checking Accounts:  These accounts are designed for people who prefer to banking electronically by ATM or PC, or even phone, versus going into the bank and dealing face to face with a teller.  Express accounts usually have low or no monthly fees, unlimited check writing, and low minimum balance requirements.  The catch is IF you need the service of a bank teller, you will pay for those services.  It might be as high as $3 a visit, or a flat monthly fee of let’s say $10.  This type of account is especially popular with students who don’t want to waste their time going to a bank.
  • Lifeline Accounts:  This is designed for low income consumers.  This type of account typically has a low monthly fee, ranging from 0-$3 (depending on the bank).  There is a low minimum balance requirement and limits on the number of checks per month you can write.  Lifeline accounts are required by law in Illinois, Massachusetts, Minnesota, New Jersey, New York, Rhode Island and Vermont.  In these states, minimum terms, fees and conditions are set by law, not by individual banks.