A checking account, also known as a transactional account, is a bank account where users keep the money for their day-to-day use. A checking account allows easy access to money which can be used to pay bills and all other financial transactions. It is hence, a user account to hold for spending purposes.
What is a checking account?
A checking account is a bank account that allows regular deposits and withdrawals. Also known as demand accounts, checking accounts allow easy access to money, which can be taken out by means of a debit card, ATM or cheques. Unlike savings accounts, checking accounts allow unlimited deposits and a high number of withdrawals per month. They are thus useful if you are in the habit of regularly withdrawing money. To offset high liquidity, checking accounts typically offer lower rates of interest than savings accounts.
Types of checking account
There are three main types of checking account that you can choose from.
- Commercial checking account
This type of account is usually held by businesses and the company’s designated officials have signing authority for it as determined by the business’ rules.
- Student checking account
Many banks offer students a free checking account that charges no fee until the account holders graduate. This is useful for students who are short on funds and need ready cash for their expenses.
- Joint checking account
Joint accounts are held by two people, usually a married couple, both of whom can make deposits into or withdraw money from the account.
How checking accounts are used?
Customers can visit a bank branch to open up a checking account or open one online through the bank’s website. You can make both deposits and withdrawals on your account.
Money can be deposited in a checking account through over-the-counter deposits at the bank branch, ATM deposits, and direct deposits. If you receive a regular income, your employer can deposit your salary directly into your bank account for you. Smartphone apps can also be used to make deposits.
You can withdraw money from your checking account by writing cheques, withdrawing cash from an ATM or using an electronic debit/credit card. It is also possible to make payments by means of electronic transfers rather than writing out and mailing paper cheques. In addition, you can set up an automatic payment system for regular monthly expenditures, such as house rent or electricity bills.
Checking account and credit score
Your credit score is essentially a numerical measure of your credit-worthiness which in turn is based on your credit history. It is used by banks to determine the likelihood of you repaying a loan. Most transactions on checking accounts, like writing checks or making deposits or even the occasional overdraft, have no effect on your credit score. Some banks may conduct inquiries on your credit history before allowing you a checking account and unless you’re simultaneously applying for home loans and other financial products, such inquiries usually do not impact your credit score.