checkbook, checking account

Checks as Financial Instruments

A checking account is one of the most misunderstood banking products in terms of purpose and handling.  Some see it as a means to address their payables, not realizing that it needs to have funds to be of any use.  Unlike credit cards which allow holders to purchase from commercial establishments through a credit amount extended by the issuing bank, checks have to be issued with corresponding funds in the bank .  Issuing unfunded checks have serious repercussions to the issuer.

What is a Checking Account?

Checking accounts are also known as current accounts or demand accounts.  It is one of the most common financial services offered by banks.  Access to the funds contained in a checking account is usually done by issuing a check although it is possible to withdraw from it as well over-the-counter or through an automated teller machine.

Unlike savings accounts which are typically interest-bearing, checking accounts do not earn any interest.  There are specific types of checking accounts that are interest-bearing but these are usually tied up with another account such as savings or time which requires a higher minimum maintaining balance.  Stand-alone checking accounts are also required to maintain a certain amount for account holders to be spared from paying a fee by reason of falling below the maintaining balance.

Features and Uses of a Checking Account

Checking accounts provide account holders a convenient and safe means of carrying “money” around compared to actual cash.  With the actual funds kept with the bank, account holders can pay for their bills or purchases by simply writing a check.  Issuing of checks is a common financial activity done by individuals and companies.  Some even see checks as a status symbol since the acceptance of a personal check by a commercial establishment is usually representative of the trustworthiness bestowed on the account holder.  Checks are not readily accepted in many establishments because of the risk involved especially in accepting check payments from people with unverified financial background.

A check is only as good as the funds contained in the bank.  Unfunded checks are worthless pieces of paper.  Issuing unfunded checks is sought to be controlled by banks through high charges.  Checking accounts can be closed by the bank after a number of overdrafts.  This is not a highly desirable option since account holders whose checking accounts have been closed due to misuse will find it quite difficult to open another similar account.

Important Reminders

A well-maintained checking account is a good way of establishing solid credit history.  This would require account holders to avoid having overdrafts or issuing checks with amounts beyond the actual funds contained in the account.  Checks that are presented to banks under such a condition will “bounce” or will be returned by the back due to insufficient funds.  A single bounced check can easily destroy a credit reputation that has been painstakingly built over the years.

A check is only considered good when sufficiently funded.  It can be crossed or issued with two parallel lines on the upper left corner to signify that it is only for deposit to the account of the payee.  All erasures and alterations have to be signed by the issuer.  Without these signatures, the bank can choose not to honor the check unless all the details of the check are in order.  This would require the payee to go back to the issuer to have the details corrected.

Proper Handling of Checking Accounts

Account holders are required to strictly monitor the deposits made on their accounts as well as the check issuances.  Failure to do this usually results to  overdrafts and unintended overdrafts will not be able to stop the consequences.  Issuing checks payable to “Cash” is discouraged since this allows anyone to encash the check.  This gives rise to the difficulty of tracking the person who encashed it if and when a problem arises with the transaction.

It is necessary to keep the checks in a secure place since blank checks especially those that have been pre-signed by the owner may result to possible loss of the funds contained in the account.  Requesting “Stop-payment” for lost checks may incur charges, not to mention the great inconvenience and anxiety caused by the loss.  People whose checking accounts usually end up being closed by the bank may find themselves in a watch list shared by the banking industry which can result to permanent banning from opening one in any bank.

My Say

A checking account is an important and valuable financial tool which is most beneficial when used in the correct manner. The proper handling of checking accounts can provide account owners one way to manage their finances with more ease. It only needs monitoring to ensure that all checks issued are funded.