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Checking Accounts

In this topic, we cover:

  • How to make the most of a checking account.
  • The parts of a check.
  • The parts of a debit card.

Personal Check with pen point on amount box.

A checking account can be a powerful tool for managing your financial life.

In the past, a checking account was simply a bank account from which you could write paper checks. You’d write a check to pay a bill, write down the check number, amount, and payee in your checkbook register, and then wait for your statement to arrive in the mail each month. Then you'd compare your checkbook register with your statement - and hope that your checkbook register totals matched your bank statement totals.

Today, checking accounts have come a long way. Many transactions now are not handled by paper checks, but electronically by a debit card or use of payment clearinghouses. Of course, there are times when paper checks are required, but electronic transactions have now become the norm. Another change is that many banks now provide real-time account access online, where checking accounts can serve as the control center for your everyday spending. You can see your purchases, set up automatic bill payment, and even export lists of transactions for use in spreadsheets or money management programs.  

While checking accounts have changed a lot over the years, the basic idea is the same – it’s a place where income is deposited and where expenses go out. And no matter if you’re spending money with a paper check or with a debit card, you’ll need to have enough money in your account to cover all of your purchases.

Paper Checks
A check is a piece of paper that authorizes your financial institution to pay a business or person for your bills or purchases. A check may be paid from your account the same day you write it depending on how the payee negotiates the check so it is important to always ensure you have the funds in your account prior to writing a check.

Anatomy of a Check

  1. The account holder’s name and address.
  2. The month, day, and year. Typically this is the date the check is written. Be aware that even if you “post-date” a check it may be deposited prior to that date, so you should not write a check unless you have the funds in your account to cover the check.
  3. The check number is unique to each check.
  4. The check amount. Here’s where you write the dollar amount numerically. Be sure to write the amount close to the dollar sign to help prevent tampering.
  5. What is the written amount? You write the dollar amount in long form. Write with an ink pen - not a pencil. This amount should be the same as the numeric amount in #4. Use all the space to help prevent tampering.
  6. Your signature authorizes the bank to release the money from your account.
  7. What are these numbers? These numbers are printed in magnetic ink so machines can read and process your checks: (a) your bank's routing number, (b) your account number, and (c) check number.
  8. What did I write this check for? If you need a reminder, you can write an optional note here.
  9. The financial institution’s name.
  10. The name of the person or company who will receive the money. Avoid using nicknames or abbreviations and use the legal name of the person or business you are trying to pay.

When you open a checking account, you provide a written sample of your signature. Your financial institution honors only those checks with your signature or with your prior authorization.

Debit Cards
A debit card is a plastic card that provides an alternative payment method to cash, checks, or credit cards. Though a debit card looks a lot like a credit card, and may even have a MasterCard or Visa logo, it works like a check, in that you’re spending money directly from your checking account. Debit cards can also work at Automated Teller Machines (ATM) for withdrawing cash.

You may have noticed that cashiers sometimes ask if a purchase should be made as “credit” or “debit.” One of the reasons they ask is that debit cards can be used as either a “credit" card or a debit card. Either way, the money comes out of your checking account, but there are some important differences. For debit transactions, you must enter a Personal Identification Number (PIN) into a Point of Sale terminal – a keypad located at the cash register – and the funds are withdrawn immediately. You may also be able to request a limited amount of cash back in the form of a withdrawal. For credit transactions, you must often sign a receipt and the funds are typically withdrawn in a day or two.

If your bank or credit union places a limit on the number of PIN-based transactions (like a debit purchase or ATM withdrawal), you may be charged a fee for any transactions beyond the limit. There’s usually no maximum for “credit” transactions, but those transactions often cost the merchant more money. In fact, it’s not unusual for merchants to set a minimum transaction amount (like $10) for credit purchases. To encourage debit card use, some merchants offer the option of withdrawing cash from your checking account as part of your purchase. 

Anatomy of a Debit Card

  1. The name of your financial institution. 
  2. Your debit card number. Your card number is NOT the same as your account number.
  3. Why are the first four number’s repeated? Some card issuers pre-print the first four numbers of your card as a security feature. These first four numbers should match.
  4. The account holder’s name.
  5. The card’s expiration date.
  6. How do I know this is a debit card? The Visa or Master Card logo indicates this is a debit card, not just an ATM card. A debit card can be used anywhere Visa credit cards are accepted.
  7. A security code is printed on the back of your card for added protection from theft. This is not your Personal Identification Number (PIN).
  8. Why sign the Signature panel? It’s a security feature and should match your signature on your driver license.

When you use your debit card, your PIN is considered a substitute for your signature. Whether you sign a receipt or use a PIN, you are signing a legally binding contract to pay the business or person.