Most adults have checking accounts, but you may be confused as to what kinds of checking accounts are available or if you even need one. I know from experience that you need to meet certain requirements before you open a checking account or you are opening your self up to disaster, like overdraft fees or closed accounts.
If you have money coming in regularly and are planning on doing any type of transactions (withdrawals, paying bills, etc.), then you may benefit from a checking account. Whereas savings accounts are a place to store money for a longer period of time, checking accounts are made to be deposited and withdrawn from on a regular basis.
WHY WOULD I NEED A CHECKING ACCOUNT?
While it is possible to live without a checking account, there are a lot of good reasons to have one:
- Protecting your money. Back in the older days, people didn’t trust banks and they hid their money in their mattresses or in a hole in their wall. Have you ever heard the news stories of people finding thousands of dollars hidden behind a wall? It happens! This was because before the Great Depression, there was no protection from banks losing your money. As was explained in the movie, It’s a Wonderful Life, the banks don’t keep the money you give them on hand in an actual account for you. That cash is used to pay out other people who apply for loans and credit. (Yes, this is how I learned this basic principal!). Now, everything is virtual, and it is just as likely that your local bank doesn’t actually have much cash in it at all. So what happens if all of a sudden, every body wanted to withdraw their funds at one time? It wouldn’t be possible. So, people started not trusting the banks. Nowadays, bank accounts are insured up to $250,000 per account per person, guaranteeing your money is safe. If you keep large amounts of money at home, you may become a target of robbery or even worse, a disaster could take all that money from you, such as a flood or fire.
- Money Transactions. Whether you want to access your money via ATM, write a check, pay a bill online, or send money directly to a friend or family member, checking accounts make it all possible. Even online payment options like PayPal require you to link a checking account. Having a checking account in good standing insures businesses that you have the money you are paying out and it is accessed immediately. Even when depositing your paychecks, whether it is direct deposit or a picture taken on your phone, many times your funds are available immediately.
- Check cashing and loans. Many banks won’t cash a check for you if you do not have an account with them. This can make it difficult to cash even your paychecks. While there are places that might cash your check for you, payday loan lenders and even some supermarkets, there will be a fee attached. Why pay a fee to get money that you earned? It is also harder to get a loan if you don’t have a banking history. Lenders want to see that you are able to handle your finances and looking at your bank history can prove to them that you are reliable.
WHAT CHECKING ACCOUNT SHOULD I CHOOSE?
There are several different types of accounts and it is important to find the type that works for you. Premium accounts exist, which are for people banking five figures or more, but that may not be for you. There are also low balance accounts available for people who have trouble keeping a certain minimum balance, but this may have higher fees. Let’s take a look at some of the ones in between:
Basic Accounts: These are pretty straightforward, usually found at a physical location and includes all of the things you would expect from a checking account, such as: debit card, deposit and writing of checks, managing account online or with an app, ATM access, etc. The drawbacks could include: monthly maintenance fees, a minimum balance requirement, overdraft fees, returned check fees, etc. Sometimes, basic accounts will offer a waiver of fees if you meet certain requirements. There is usually no interest earned on these accounts.
Free Accounts: Smaller banks and credit unions, and some online banks, offer these accounts which is the same as a basic account with no monthly fee. However, other fees may apply, like ATM transactions, writing a certain amount of checks, etc. If you do not plan on using your account for any of those kinds of transactions, a free account may be what you are looking for.
Interest Account: These are accounts that earn interest based on APY (Annual Percentage Yield). It won’t be much and is based on how much your balance is. There may still be monthly fees.
Online Account: This option is for people who are comfortable putting all of their banking on the internet and have enough knowledge of their own finances to be in charge of their decisions. There are no tellers to go to and everything is done virtually. You may not have all the features available in a basic account, but you may not need those features. As always, fees may apply.
As you can see, there are different option based on what you are comfortable with and what your needs are. The first step is to determine what you are going to be doing. Do you need to write a lot of checks per month or do you need to use the ATM often? Do you do everything electronically and barely ever have cash on you? Will you have enough money every month to maintain your minimum balance and pay for the fees? Do you think this all sounds complicated and think that a life with no checking account would be easier?
CAN I CHOOSE NOT TO HAVE A CHECKING ACCOUNT?
Aside from many of the benefits I have explained so far about checking accounts, I know that there are instances a checking account doesn’t make sense for you. Maybe you don’t have a regularly paying job and you can’t keep a minimum balance in an account, or you need quick access to cash more often than an ATM can provide. Maybe you are living off the grid. I don’t know your situation, but it is possible, though much harder, to live without a checking account. For example, as I mentioned before, you may not be able to cash a check without paying a fee, however some places may waive that fee if you choose to have the amount put on a prepaid debit card. Prepaid debit cards can be used to pay your bills, buy things online or at stores and can be a very convenient way to access your cash. However, some bills may prefer a check or money order. A money order, which you can purchase through a bank, the post office, or some stores, can be used in place of a check, but you have to pay a fee to use them. And as I mentioned earlier, drawbacks of not having a checking account include having a hard time getting a loan, having to pay higher fees if you do get one, not being able to use some online apps, and not having the safety of the bank protecting your cash. If you lose your prepaid card, or you have a fire at your home and your cash wasn’t protected, you will not have any way to reimburse that. Also, if you pay a bill in cash, there may be no proof that you paid it at all.
As you can see, there are many benefits to having a checking account, but only if you can meet the requirements needed to have one. Without having money coming in, you risk many more fees or even the bank closing your account, which impacts you negatively. If you are not in a stage in your life where you need a checking account yet, then by all means, go the prepaid debit card route, that seems to be the easiest, although you may have to pay more fees for check cashing and money orders. There is no one right answer for everyone, it has to be based on your situation.
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