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How to choose a checking account

Typically when you open a checking account, an account rep sits down with you and presents a slew of different types of checking accounts with a myriad of choices -- no minimum balance, a relationship package, ATM charges or even unlimited check writing.

Within minutes of your meeting, you realize choosing a checking account goes beyond the emotional closer, "Would you like the pretty blue checks with the sailboats in the background or the yellow ones with the pink azaleas?"

Checking account mistakes
The most important -- and most often overlooked -- item in the process of opening a checking account is asking yourself what kind of checking creature you are, in order to determine what kind of checking account you need. Knowing your month-by-month checking behavior will help you trim your checking costs.

Many consumers could put an extra $100 to $200 in their pockets every year if they knew what their checking account is really costing them. The problem is, few bother to add up the almost invisible costs of using their checkbook. Even fewer bother to shop for the best deal -- and the deals are out there.

Buyer beware
Banks like to give their checking accounts clever names to distinguish each from the others or to make you believe the account is something it's not.

When you come across names like "Master Checking," "Super Value Checking" and "Special Checking" -- sometimes offered by the same bank -- choosing a checking account can become an overwhelming task. Even worse, some banks try to palm off higher interest Money Market Accounts (MMAs) as checking accounts by giving them a name like "Money Market Checking" or "Money Fund Checking."

Ironically, MMAs aren't really checking accounts to begin with. MMAs are accounts that typically earn from 2 to 4 percent more interest than interest-bearing checking accounts pay. With an MMA, you are limited to writing only three checks per month to "Cash" or parties other than yourself.

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If you're confused about whether an account you're considering is an MMA, ask this one simple question: "How many checks a month can I write on the account?" If they say "Three," you know it's an MMA. If the answer is "As many as you want," it's a genuine checking account.

Account types
Most checking accounts generally fall into one of three broad types:

  • Accounts that charge lower fees but pay no interest.

  • Accounts that pay a low interest rate but charge higher fees.

  • "Basic checking" accounts for people with low income. These accounts don't pay any interest, but they have low minimum balance requirements and low fees.

Note: Senior citizens who fall into the low income group, there may be an extra-cheap checking account waiting for you. Responding to social pressure, more banks are offering basic banking accounts, sometimes called "lifeline accounts." In at least seven states they are required by law: Illinois, Iowa, Massachusetts, Minnesota, New Jersey, New York and Rhode Island. Account-opening fees range from zero to $25. You're allowed up to 10 free withdrawals per month, and the maximum monthly service charge is $3. The minimum balance requirement is only $1 in five of the seven states. Regardless of where you live, it's worth shopping local banks to see if they offer a lifeline account or something similar.

Check this
If you're new to the checking world, consider this check-clearing scenario. You know how to play the game -- deposit a $500 check from someone else into your checking account and it's clear for withdrawal, right?

Wrong. The process can take up to five days until the check clears through the national banking system. The reason it takes so long is that "someone else's" bank needs time to get the check back and reduce his account balance by the check amount. But many banks will let you draw against the first $100 on the next business day, and hold the other $400 until the check clears his bank. (Regulations may require local checks to clear in one day. That depends on location.)

If you deposit a $1,000 check in your account, typically this is how much money you can withdraw against the check -- depending on what kind of check it is. One day later, you can usually withdraw all $1,000, if it's a federal, state or local government check; a bank check, certified check or traveler's check; a check written on your bank by someone else; or an electronic funds transfer. If the check was written on a local bank, you should be able to withdraw $100 of the $1,000 one day later, $400 on the second day, and the remaining $500 on the third day. On an out-of-town check, you can withdraw $100 one day later and the other $900 five days later.

If you write checks on somebody else's check you deposited, that person's check may not clear in time for your check to be honored. If that happens, it may overdraw your account -- and you'll wind up paying a bounced check charge. However, there are exceptions. If you keep beaucoup bucks in your accounts and know the branch manager by name, they may stroke you by letting you draw immediately on any type of check you deposit.


-- Posted: July 21, 1998


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