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Five Essential Tips for Getting and Using a Checking Account

Reading time: 4 Minutes

August 13th, 2020

Simple and effective, the checking account is the core of most people's finances. Without one, it's hard to manage your money or make a plan for the future.

That's why it's important to understand the ins and outs of checking accounts, so you can get the most from yours. Use these five tips to make sure your checking account is working for you.

1. Know the basics

As the name implies, a checking account gives you a place at the bank to store money, and allows you to write checks to others with that money. You can pay bills electronically, have your paycheck automatically deposited, transfer money to and from other accounts and use a debit card to make purchases. You can also cash checks without fees and take out cash at an automatic teller machine (ATM).

Think of a checking account, also known as a transactional account, as a parking lot for your money. Money comes in, finds a spot for a while and then leaves as you pay your bills and expenses. This is different from a savings account, which is more designed to deposit money and leave it for a longer period of time. With all those deposits and withdrawals, a checking account can be a busy place.

2. Understand how a checking account compares to other kinds of accounts

Checking accounts are by no means the only type of financial instrument you can use to handle your finances. It's a good idea to understand when and why a checking account makes the most sense.

A savings account, for example, is useful when you're ready to start building a reserve of money for a rainy day or to pay for a big ticket item, because you can usually earn interest on the money you've saved.

Credit cards, meanwhile, let you make purchases today and pay them off later. If you manage them well, credit cards can help you build credit so you can borrow at reasonable rates. Unlike a checking account, however, credit cards let you spend more than you actually have, making it easy to incur an ongoing balance that you'll need to pay interest on each month.

There are also services that mimic the features of a checking account, but charge much more for them. Prepaid cards, for example, are loaded ahead of time with cash and allow you to make everyday purchases, much like a debit card, but aren't linked to a bank account. Prepaid cards typically involve paying a range of fees, everything from activation fees to reloading fees and check cashing fees. The average cardholder pays around $11 a month in fees for prepaid cards, according to an article by The New York Times.

Check cashing services, meanwhile, charge even more. Especially common in some neighborhoods, check cashing services cater to consumers who don't have access to banks. In some states these businesses are unregulated and can charge as much as they wish. Typically, they charge a percent of the amount being cashed, and can end up being much more expensive compared with more conventional banking services.

3. Keep track of fees and minimum balance requirements

Many banks charge fees for their checking accounts, with the average U.S. customer paying $9.60 a month. In addition, banks charge for other services such as overdrafts and wire transfers. However, many banks may waive their monthly fees if you meet certain requirements such as maintaining a minimum balance, using direct deposit or going paperless with online statements.

4. Use checking accounts responsibly

A checking account is an excellent way to learn money management skills, but it's possible to get carried away, too. If you spend more than you have in your account, your transactions may be declined or overdraft fees assessed. Those fees can add up quickly, especially if you keep making purchases before you realize you're overdrawn.

Make sure to keep track of your spending so these pesky fees don't complicate your finances. And, if overdrafts continue to be a problem, consider finding a bank account with no overdraft fees, such as EASE by Bank of Hawaii.

5. Stay safe

One of the main benefits of keeping your money in a checking account is that it is insured by the federal government for amounts up to $250,000. But this program, offered by the Federal Deposit Insurance Corporation (FDIC), does not cover money that is stolen through identity theft.

Identity theft happens when someone takes personal information such as your Social Security number or bank account number to impersonate you for their financial gain, including stealing from your checking account. Most identity theft occurs offline, through credit-card skimming at a gas station or restaurant, dumpster-diving for discarded financial documents, or even just a lost purse or wallet.

Never give out sensitive information like your Social Security number, account numbers or passwords. Shred bank documents and monitor your account frequently.

Meanwhile, online banking can involve risk, too, with thieves carrying out phishing and malware attacks to gain access to your account—and your money. Use strong, unique passwords for your banking activities. For another layer of protection, enable two-factor identification, which requires you to provide an additional authentication factor, such as a randomized pin code texted to your cell phone by the bank.

Takeaways

Cozy up to checking

While there may be other options for managing your money that don't involve a bank, it's hard to beat the safety and convenience of a checking account. A checking account is an important tool for managing your finances.

Keep the fees to a minimum

Yes, banks charge fees. But if you're careful, you can avoid many of them. Overdraft fees? Not if you manage your finances well and spend only the money you have. Low balance fees? Practice good money habits to build up your balance and clear the minimum balance requirements for your account.

Be safe and sound

Banks spend a lot of time and money on cybersecurity. But you can help do your part to keep your funds out of the wrong hands. Maintain strong passwords and enable two-factor identification to keep your banking details private.

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