Posts Tagged ‘checking’

How many different types of bank accounts are there?

Thursday, June 30th, 2011

It’s pretty simple; once you’ve put your money in a bank, it usually lives in one of four types of accounts:

1. Checking – usually doesn’t earn interest, but the money is easy to access (like at the ATM or when you write a check)

2. Savings – earns a little bit of interest and is usually easily transferable to an attached checking account

3. CD – earns more interest than a savings account, but you agree not to take the money out for a set period of time

4. Money Market – earns more interest than a savings account, but the rate can fluctuate and there may be other account restrictions

It’s important to remember that these accounts are typically used to hold money you need today and the near future. If you have more money and are interested in earning greater return for the more distant future, talk to your financial advisor about other types of investments.

Why would my bank let me spend money I don’t have?

Friday, June 18th, 2010

Whenever you write a check or use your debit card, the money you use is taken out of your checking account. When the money you owe exceeds the amount of money you have available in checking, the extra money is called overdraft. Many banks will allow you to spend more than you have (at least temporarily) and charge you a fee each time you do. But why does overdraft even exist? Shouldn’t your bank just make it impossible for you to get credit for money you don’t have?

Normally, when you write a check for more money than your checking account contains, the check will “bounce” when someone tries to cash it, and your bank will charge you a fee. But some banks won’t fine you for bouncing a check if you use a service called overdraft protection. With overdraft protection, any overdraft you generate becomes a kind of instant loan – the bank lets you have the money, but you have to pay it back with interest. Interest on overdraft tends to be incredibly high, but as long as you pay it back quickly, it’s usually still cheaper than the fine you’d pay for bouncing a check. Your bank still profits from the interest, and it can also charge you a fee just to get overdraft protection in the first place.

It’s worth noting that you don’t have to have overdraft protection if you don’t want it; for example, if you turn off overdraft protection on your debit card, when you don’t have enough money to pay for something, the transaction simply won’t go through. In some cases it doesn’t make sense to have your bank let you go over the limit just so it can charge you, but when it’s used intelligently, overdraft protection can be worthwhile both for you and your bank – you save money, and your bank makes money.

What’s the difference between checking and savings?

Tuesday, March 2nd, 2010

You probably see the words “checking” and “savings” most often when you’re hitting the ATM. Although both checking and savings are bank accounts that hold money you’ve deposited, when people withdraw money, they almost always take it from checking. Why?

Generally, a checking account is designed to hold spending money – money that you don’t want to carry around with you or stash under your mattress, but that you want within reach when you need to pay for your expenses. A savings account, as the name suggests, is designed for money that you want to save for later use. Because of this distinction, there are important differences between the two types of accounts.

When people or corporations cash checks you’ve written them, that money usually comes out of your checking account. You can withdraw money from either account, but people usually want to take the money from checking if they can. The logic behind this decision is that savings accounts generate interest, while checking accounts don’t necessarily (or if they do, there are usually a ton of conditions attached). The more money you leave in your savings account, the more you get paid in interest, so it makes sense not to take out any of that money unless you absolutely have to.

Checking accounts are created under the assumption that the amount of money they contain will fluctuate, while savings accounts are meant for money that you expect will stay with your bank for a while. Checking and savings differ from each other in accordance with their designated purposes, but they’re meant to complement one another.

A Check is…

Tuesday, October 20th, 2009

A check is a note that is issued from one entity (like a person or business) to another for the purpose of transferring money. The check itself is a piece of paper that represents deposited money in the check-writer’s bank account, that is to be paid out when the check is “cashed” or deposited by the recipient. A checking account gets its name from the fact that funds may be transferred from the checking account to another account using checks.

A Debit Card is…

Thursday, October 8th, 2009

A debit card (a.k.a. bank card) is a plastic substitute for cash. It’s linked to your bank account and when you use it to buy something, the money is immediately taken out of that account.

Can a check float?

Friday, September 25th, 2009

While checks do have to obey the laws of gravity, they’re in suspended animation in another sense. A check is basically an IOU. You write someone a check, he or she redeems that check later for cash, and the payment is taken out of your account. Credit cards work in much the same way – you pay for a purchase with your card, and the bill is charged to your account and paid later on.

“Float” is that period of time when a check or credit card charge is in limbo. It’s the time between the moment you write the check and the moment payment is actually received or the moment when a purchase is first charged to your credit card to the moment you pay that bill. During float, the check or credit card charge is, in a sense, suspended. It’s not really performing a function at the moment, but its existence represents a transaction that will have to happen sooner or later. Some people float checks in order to buy time until sufficient money to cover the check appears in their bank account. If this actually happens, great. But if not, the check will bounce and some nasty fees (from the bank and often from the recipient of the check) will start to pile up.