Checking Account Understanding Checking Accounts

Checking Account

Understanding Checking Accounts

© Family Economics & Financial Education – Revised October 2004 – Financial Institutions Unit – Checking Account SimulationFunded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman

1.7.1.G1What is a Checking

Account?

Tool used to transfer funds deposited into the account to make a cash purchase

Could also be named a transaction account

Common financial service used by many consumers

Available at depository institutions Traditionally called banks


1.7.1.G1Checking Accounts

continued

Services and fees will vary depending upon the financial institution

Many financial institutions offer telephone and internet banking services to customers


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Benefits

Can help to manage money (makes budgeting easier)

Written record of expenses (proof of payment) Check register

Makes bill paying more convenient Reduces the need to carry large amounts of

cash Most liquid of cash management tools

Considered cash


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How Do They Work?

Money is deposited into the account with a deposit slip

Pay the transaction by: Writing a check Using an ATM and/or debit card Using electronic banking


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Characteristics

Funds are easily accessible through: A check Automated teller machine (ATM) Debit card Telephone Internet


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What is a Check?

Piece of paper pre-printed with the account holder’s: Name Address Financial institution Identification numbers

To completed check, fill in the: Amount Payee

To whom the check was written

Date Signature

Used at the time of purchase as the form of payment


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Bouncing a Check Check written for an amount over the

current balance held in the account ‘Bounces’ due to insufficient funds

Assessed a substantial fee by both the financial institution and the payee

Can cause harm to credit report Financial institutions report to credit

bureaus the account holder’s failure/success to manage his/her checking account properly

Used as a guide for future inquiries for credit


1.7.1.G1Other Checking

Components

Register Place to immediately record all monetary

transactions for a checking account Written checks, ATM withdrawals, debit

card purchases, deposits, fees, etc.

Checkbook Contains the checks and the register to

track monetary transactions


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What is an ATM?

Automated teller machine (ATM) Also called cash machines Electronic computer terminals

offering automated, computerized banking

Allows customers to perform transactions just as they would through a teller Deposits, cash withdrawals, account

transfers, check account balances


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ATMs continued

Transactions at an ATM are automatically posted to account

Immediately record all transactions into the checkbook register

Good option for evenings or weekends when financial institutions are closed


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ATM Availability

Available most places around the U.S. giving customers access to money when away from home Can also be found worldwide

Found in a variety of places including: Financial institutions Supermarkets Convenience stores Shopping centers


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ATM Fees

ATMs are owned by different financial institutions

Fees may be charged to the account for ATM use

Fees range from $0.50 to $5.00 Usually free to account holders of the

financial institution


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ATM Card

Card given to account holder to make financial transactions at ATMs

In the shape of a credit card, but can only be used in designated places

Must use personal identification number (PIN) to access the account A protected number given or chosen by

the account holder to allow access to the account


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PINs

Required at ATM as a safety measure so other people cannot access the account with the only the ATM card

Choose a PIN which is not easily identified For example – phone number, birthday

Instead of requiring a PIN, some ATMs may read a person’s face, fingerprint, or eye’s iris to confirm identity


1.7.1.G1

What is a Debit Card?

Looks like a credit card, but is connected to the cardholder’s checking account for transactions

Money is automatically withdrawn from account when transaction occurs

Prevents overdrafts Transaction cannot be completed without

sufficient funds


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Debit Cards continued

Some are dual function cards One card performs both

functions for ATMs and debit cards

Clarify whether or not the card is an ATM card, a debit card, or both


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Using a Debit Card

To make a purchase Debit card is swiped like a credit card Cardholder signs a printed receipt

Record transactions immediately into check register

Most can be used at retail establishments accepting major credit cards Many have the Visa or MasterCard logo


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Debit Cards continued

Convenient Small Can be used like

a credit card Allows a person

to carry less cash

Does not allow overspending

Can lose track of balance if transactions are not immediately written down

Opens checking account up to credit card fraud

If lost, anyone can use it Someone else can gain

access to account if card is found and PIN is learned

Pros Cons


1.7.1.G1Types of Accounts

Available Financial institutions offer different

types of checking accounts All have own characteristics Research all of the requirements and

restrictions before opening the account Offer checking, ATMs, and debit cards

Basic types/guidelines include: Regular checking Free checking Special checking Interest-Earning checking


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Regular Checking

No monthly charge if minimum balance is maintained

No interest is given Unlimited check writing


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Free Checking

No charges or fees for using the account

No minimum balance required Unlimited check writing Usually for a specific group:

Students Seniors


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Special Checking

Generally for people who write only a few checks and keep a low balance

Basic account which pays no interest Monthly service charge or fee for

each transaction May have restrictions on number of

transactions each month


1.7.1.G1Interest-Earning

Checking

Pays interest on money in account Usually the lowest interest rate of all the

cash management tools Minimum balance required Unlimited check writing Called a share draft at credit unions


1.7.1.G1Opening a Checking

Account

Most applications are completed on a computer to process quickly Customer may have to complete a brief

hand-written application to be entered into the computer by new accounts personnel

Customer must have: Picture identification Name, address, phone number, and social

security number


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Opening continued

If customer is approved, he/she completes a signature card Contains account information about the

new account and his/her signature Used to verify the signature for each

signed transaction for the account to prevent fraud

Completion of the signature card means the customer agrees to all terms and conditions of the account


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Signature Card example


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Opening continued

If offered, customers may choose to have an ATM and/or debit card for the account May be required to complete another form

An initial deposit must be made Amount will vary among different financial

institutions and type of account


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Ordering Checks

New customers are provided starter checks to use until the ordered checks arrive Generic checks with account number and

financial institution pre-printed Customer information is hand written

Many businesses do not accept starter checks Take this into consideration before making the

initial deposit Ordered checks may take 5 to 10 business days

to arrive


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Ordering continued

Personal information on checks Name Address Optional: phone number, driver’s license

number DO NOT put the account holder’s social

security number on the check for security reasons


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Ordering continued

Design of the check is customer’s choice Customer pays for checks

Price depends on the style Style of the check does not change how a

check works Some financial institutions may offer basic

checks free of charge Single or duplicate checks are available


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Ordering continued

No records of written checks

Each check must be logged in the register immediately to track transactions

Provides a written record of each check with the carbon copy

Convenient in case the check was not recorded into register immediately

Single Duplicate (carbon copy)


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Endorsing a Check Endorsement

Signature on the back of the check from receiving person approving it for deposit

A check must be endorsed to be deposited Three types

Blank Restrictive Special

Safest way to endorse the check is to wait until going to the financial institution to deposit or cash the check


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Blank Endorsement

Receiver of the check signs his/her name

Anyone can cash or deposit the check after has been signed


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Restrictive Endorsement

More secure than blank endorsement

Receiver writes “for deposit only” above his/her signature Allows the check to

only be deposited


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Special Endorsement

Receiver signs and writes “pay to the order of (fill in person’s name)”

Allows the check to be transferred to a second party Also known as a

two-party check


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Making a Deposit

Deposit slip Contains the account holder’s account number and

allows money (cash or check) to be deposited into the correct account

Located in the back of the checkbook Complete a deposit slip to make a deposit

Give to financial institution along with cash and/or check

Checks must be endorsed to be deposited Deposited amount must be recorded in the

check register to keep the balance current A deposit appears as a credit/positive on your

bank account.


1.7.1.G1Completing a Deposit

Slip

Date The date the deposit is being made



Slip

Signature Line Sign this line to receive cash back



Slip

Cash The total amount of cash being deposited



Slip

Checks List each check individually

Identify each check on the deposit slip by abbreviating the name of the check writer



Slip

Checks If more checks are being

deposited than number of spaces on the front, use the back

List each check Add the total, enter it on

the front



Slip

Total from Other Side The total amount from all checks listed on

the back



Slip

Subtotal The total amount of cash and checks



Slip

Less Cash Received The amount of cash back being received This amount is not deposited into account



Slip

Net Deposit The amount being deposited into the account To calculate the amount, subtract the cash received

from the subtotal


1.7.1.G1

Writing a Check

To pay for items using a checking account A check is given as a form of payment Must be completed and given to the

person or business Pre-printed items on a check

Name and address of account holder Name and address of financial institution Check number Identification numbers (account, routing)


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Writing a Check

Personal Information Account holder’s name and address May include a phone number, not required DO NOT list a social security number for safety reasons


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Writing a Check

Check Number Numbers used to identify checks Printed chronologically


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Writing a Check

Date The date the check is written


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Writing a Check

Pay to the Order of The name of the person or business to

whom the check is being written


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Writing a Check

Amount of the Check in Numerals The amount of the check written numerically in the box Write the cents smaller and underline Write the numbers directly next the dollar sign to prevent

someone else from adding numbers to change the amount


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Writing a Check

Amount of the Check in Words The amount of the check written in words on the second line Start at the far left of the line, write the amount in words,

followed by ‘and’, and the amount of cents over 100; draw a line from the end of the words to the word ‘dollars’


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Writing a Check

Memo Space used to identify the reason for writing a check;

optional Good place to write information requested by a company

when paying a bill, generally the account number


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Writing a Check

Signature The account holder’s signature agreeing to the

transaction


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Writing a Check

Identification Numbers First - routing numbers to identify the account’s financial

institution Second - account number Third - check number


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Check 21

Check Clearing for the 21st Century Act (Check 21) Current trend that changes how money is

withdrawn from customers account and deposited into businesses account


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How Check 21 Works

Prior to Check 21 Paper checks physically moved from customer

to business to various banks and the transfer of money from customer’s bank to business’ bank took days

After Check 21 Paper checks are scanned into a computer

system at the place of business and immediately returned to the customer. This electronic copy of the check is called a substitute check. The substitute check is then transferred electronically to various banks and the transfer of money customer’s bank to business’ bank takes hours


1.7.1.G1

Check Register

Place to immediately record all monetary transactions for a checking account

Written checks, ATM withdrawals, debit card purchases, deposits, fees, etc.

Used to keep a running balance of the account

Remember - Record every transaction… even service

charges!!


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Check Register

Date The date the check was written or

transaction was made


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Check Register

Number The number of the written check; if a debit

card or ATM was used, write DC or ATM


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Check Register

Description of Transaction The person/business the check was written to or

where the debit card was used Gray line can be used to write the memo


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Check Register

Payment/Debit(-) Amount of the transaction Deducted from the balance


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Check Register

Deposit/Credit(+) Amount of the transaction Added to the balance


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Check Register

√ T A box used to track whether the check has cleared

on the monthly bank statement when reconciling at the end of each month


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Check Register

Fee (if any) Any extra fees charged to the account Listed on the bank statement


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Check Register

Balance The running total of the checking account Calculated by adding or subtracting each transaction Keep this updated


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Monthly Statement Lists each monetary transaction and the

current account balance for a specified time period

Includes: Dates Identification for each transaction (number

or type, date, amount) Transaction amounts for withdrawals and/or

deposits Interest earned (if applicable) Fees or charges (if applicable)


1.7.1.G1Monthly Statement

continued

If customer holds more than one account at the same financial institution May receive one statement

for both For example: a checking

and a savings account May be mailed separately


1.7.1.G1Reconciling a Checking

Account

Reconcile Balance the checkbook register each

month to the balance shown on the statement

Do this every month to ensure the correct balance in the checkbook Knowing the correct balance can help to

avoid bouncing checks


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Steps for Reconciling Make sure every transaction listed on the

statement matches the check register Place a check next to each item once it has

been double-checked between the statement and register Do this for both withdrawals and deposits

Identify any outstanding transactions in the check register Items which have not cleared through the

financial institution and are not listed on the statement


1.7.1.G1Steps for Reconciling

continued

Start with checking account balance on the statement

Add any outstanding deposits Subtract any outstanding withdrawals Compare this result with the current

balance in the check register They should be the same


1.7.1.G1

Reconciling Example Statement balance

$204.00 Add $154.01+

Outstanding deposits 8/30 - $154.01

Subtract $44.75- Outstanding withdrawals

#299 - $19.75 #300 - $25.00


1.7.1.G1Reconciling Example

continued

Total $313.26

Remember - this figure should be the same as the check register

If not, double-check the math, look for mistakes Make sure all service fees and charges

have been added to the check register


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Checking Account Safety

If a checkbook, ATM, and/or debit card becomes lost or stolen Immediately report it to the financial

institution File a report with the police

Reported lost/stolen checkbook: Financial institutions generally do not

hold the account holder liable for any fraudulent charges


1.7.1.G1

Safety continued

Reported lost/stolen ATM/debit card: Within 2 business days

Cardholder is only liable for $50.00 Longer than 2 business days

Could be liable for up to $500.00 Varies depending upon the financial

institution May not charge the account holder

anything if the correct steps were taken to report the lost/stolen card


1.7.1.G1

Conclusion

Research before choosing a financial institution and checking account!

Follow the precautions to prevent checking account fraud!

Report a lost/stolen checkbook, ATM, and/or debit card immediately!

Documents

Checking Account Understanding Checking Accounts