It is a type of account that is used for the routine transactions done for daily expenses. By using this type of account, you can pay the bills and make purchases.

If you do not use cash for your daily transactions frequently then it is the best type of account for you. You can write a check or make transactions through your ATM card. Nowadays there are many ways to pay bills than in the past like online payments through apps, mobile wallets like Apple Pay, Google Pay, etc. You can withdraw money from ATM at any time in a whole day that is linked through your checking account.

Purpose of Checking Accounts

It often comes to mind that what is the actual purpose of checking accounts? The answer to this question is that you can keep your money on a short-term or a long-term basis. Your money will be secured and in case of theft, the bank will be liable for the damages. Your employer can also deposit your salary into your checking account. Through your checking account, you can also link to other payment methods like PayPal and Venmo. You can pay your bills for subscriptions to Netflix[i] or other streaming platforms. This type of account provides you with a simple solution to all your financial problems.

 

How does it work?

They are called checking accounts for a reason because conventionally you can make payments or withdraw money by writing checks. A check is a financial instrument, people used to make their transactions before the period of the digital banking system.

For the perfect understanding, let’s make a scenario that if you borrow some money from your friend then you can pay him back by writing a check. You can pay your utility bills by writing a check of the billed amount to the relevant companies. But this was in the past that you have to write a check for every single transaction. Now you can pay your bills online through a digital banking system.

Now you just have to apply for a checking account and provide your credentials to make sure that you are or were not involved in any criminal activity. Usually, the bank asks for your social security number in order to open the account. Once your account is opened then the bank provides you a checkbook and an ATM card which can be debit or credit depending on your requirements.

  • Debit Card: A Debit Card is a financial instrument bearing VISA or Mastercard stamp on it is used to purchase anything from the stores or online. You can deposit or withdraw cash from the ATM[ii]
  • Credit Card: A Credit Card is a type of card in which no amount is presented in your account but when you make a payment or withdraw cash then you are borrowing it from the bank at a certain amount of interest. It has a limit depending on the type of your account.

Different types of Checking Accounts

Over time, there so many types of checking accounts are there to facilitate people. You can choose from them according to your needs.

Conventional Checking Accounts:  They are also called standard or traditional checking accounts. They are the basic type of checking accounts which at least every person owns. There are no balance requirements for this type of account. You can easily open your checking account without any hassle with a minimum deposit amount. There are no hidden charges and annual fees for this type of accounts usually but not in the case of special services if you have subscribed for them.

Interest Bearing Accounts: They are very similar to the standard checking accounts but the only difference they have is you will earn a certain interest on your bank balance. This rate of interest varies from one bank to another and there is no special requirement to open this account. The only thing that can bother you is that you have to maintain a certain amount in your account every month and you can withdraw a limited amount of money from it.

You can earn a higher rate on your deposited amount depending on the bank policy.

Student Checking Accounts: These are designed to facilitate students or teens who have no knowledge and experience of the banking system. To open this type of account there is an age limit. The minimum age requirement is 13 and the highest age is 24. It is a big advantage for students that to open this type of account there are no fees and minimum balance limit.

Senior Checking Account:  It is wholly designed for senior citizens. It is almost similar to the student or teen checking account but the only difference is the age limit. The age limit to open this account is 55 or older. It provides seniors unique benefits over other accounts like premium checks, no maintenance fees, you can personalize your debit card, you can earn higher rates on saving accounts.

Difference Between a Checking Account and a Savings Account

A checking account is designed to meet your daily financial requirements. It is the main source of funds that you need to fulfill your requirements. From this, you can withdraw cash and make payments online. Many people tend to open a checking account rather than a savings account because it comes with no limit of transactions per month.

On the other hand, the savings account is way more for saving funds rather than spending them. Savings account bear some interest which you can earn by depositing a certain amount of funds for a certain period of time in your savings account. Besides all these, there is a drawback of a savings account which is you have a limited number of transactions for a whole month. They are designed so that banks can hold your money. It is also limited to direct purchasing of things.

[i] https://www.netflix.com/pk/

 

[ii] https://www.investopedia.com/terms/a/atm.asp