For most people, the centerpiece of their relationship with their bank is a checking account. Studies have shown that consumers overwhelmingly define “their” bank as the institution where their checking accounts are held, not the bank where they may have a mortgage or certificate of deposit. It’s no wonder that banks throw a sizeable amount of money toward attracting and retaining consumer checking accounts.

In this chapter, we’ll go over the various types of checking accounts and the importance of selecting the account that’s right for you. You’ll also learn the ins and outs of protecting your account and your money if you bounce an occasional check. We’ll show you how a new law has made it all too easy for checking account users to bounce checks, and why it’s critical to keep your account in good standing.

Beyond the gifts

Banks know one way to get you in the door to open a checking account is to lure you in with gifts. In the old days they used toasters; today’s gifts are less domesticated — coolers, camping gear and beach gear are popular. The freebies get better as the stakes get higher. One bank dished out pricey Apple iPod Minis for new customers who deposited $2,500 and promised to pay a couple bills online every month for a year.

Don’t let the freebies cloud your judgment. What really matters is that you get a checking account that meets your needs as cheaply as possible — preferably for free.

Selecting the right account isn’t as simple as it may seem. Most banks carry approximately a half-dozen types of checking accounts. You can find an account that fits your needs, but if you aren’t careful you could end up with one that doesn’t match your banking habits and may cost you a bundle in fees.

Here’s a rundown of some of the more popular checking accounts available at many financial institutions:

Popular checking accounts
1. Basic 5. Express
2. Free 6. Lifeline
3. Interest-bearing 7. Senior/student
4. Joint 8. Money market

1. Basic checking — This is for people who just use a checking account to pay some bills and perhaps use a debit card to pay some daily expenses. Some basic accounts require direct deposit or a minimum balance to avoid monthly “maintenance” fees. You may be limited to a certain number of checks per month; exceed that number and you’ll pay a “per item” fee for each additional check you write. You don’t want to maintain a high balance in these accounts because you won’t be paid interest.

2. Free checking — For most people, this is the best checking account. Bankrate.com’s definition of a free checking account is “no monthly service charges or per-item fees regardless of balance or activity.” In other words, write all the checks you like and keep your balance as low as you like without worrying about paying a fee. Free checking doesn’t mean you won’t have to pay any fees. If, for instance, you bounce a check, you’ll pay a nonsufficient funds fee.

3. Interest-bearing — Usually requires a minimum balance to open, and you may need to maintain an even higher balance to avoid fees. For example, a bank may require just $100 to open an account, but will charge $10 in service fees each month if you don’t maintain a $1,500 balance. Interest usually is paid monthly, but these accounts pay a notoriously low interest rate. For most people it’s simply not worth maintaining the required balance.

4. Joint checking — An account owned by two or more people, usually sharing a household and expenses. Each co-owner has equal access to the account. Most types of accounts, whether it’s basic checking, savings or money market, allow for joint use. Good bookkeeping is essential with all checking accounts, but especially so with joint accounts. An overdrawn account usually results in steep fees for nonsufficient funds.

5. Express — Designed for people who prefer to bank by ATM, telephone or personal computer, this account usually boasts unlimited check writing, low minimum balance requirements, and low or no monthly fees. The catch is you pay a fee for using a teller. You might get one or two free teller visits per month and then have to pay a fee for subsequent visits. These accounts are especially popular with students and younger customers who are on the go and don’t want to spend a lot of time on banking transactions.

6. Lifeline — This is a “no-frills” account meant for people who have a low income. These accounts usually have monthly fees ranging from zero to $6; require a low, if any, minimum deposit and balance; and allow the user to write a certain number of checks per month. Lifeline accounts are required by law in Illinois, Massachusetts, Minnesota, New Jersey, New York, Rhode Island and Vermont. In those states, minimum terms, fees and conditions are set by law, not by individual banks.

7. Senior/student checking — Many institutions offer special checking deals if you are a student or if you’re age 55 or older. The perks vary from bank to bank, but may include free checks, cashiers and traveler’s checks, free automated teller machine use, better rates on loans and credit cards, or discounts on everything from travel to prescriptions.

8. Money market — This account combines checking with savings and/or investment opportunities to help you pursue higher earnings. It requires a high minimum deposit to open — usually $1,000 to $10,000, higher balances to avoid fees and imposes tighter limits on checking transactions than other accounts. It pays more interest than basic checking or savings accounts. This account is for people who can afford to maintain a high balance and do not write more than three to five checks each month.

Know your habits

If you’re going to pick the right account for you, you need to know your checking account habits.

Checking account habits
  • How many checks do you write each month?
  • Do you want to maintain a minimum balance that will cover checks and, perhaps, some debit card purchases?
  • Do you bounce checks occasionally?
  • Do you insist on having your account statements mailed to you every month versus looking at them online?
  • Are you comfortable doing most, if not all, of your transactions online, by phone or at ATMs; or do you prefer to come into the branch and talk with tellers or other bank personnel?

Once you can define yourself as a checking account customer, you should be able to find the account that’s right for you and won’t rack up unnecessary fees. Bankrate.com’s checking account survey can help you find an account with the best rates.

For many consumers, the right account is a free checking account. In the next section we’ll look at the benefits of a free account and how easy it is to get one.

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