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Checking Out Checking Accounts

Are you familiar with the different features of checking accounts? There are many factors to consider when selecting the type of checking account that's best for you.

In today's world, a checking account is a valuable way to organize and simplify your monthly finances. Checking accounts are typically used as an easy and convenient means of paying your bills. Generally, you'll want to keep a minimum amount of funds in your checking account - just enough to cover the checks you write. Keep the rest in a savings account or investment product to maximize the return on your hard earned dollars. Let's take a look at the most common checking accounts available and what you might want to look for when deciding which is best for you.

What's The Best Checking Account For You?

Although most banking institutions offer similar types of checking accounts, one of the more significant differences is found in which bank offers the best fee schedule. Some state consumer affairs organizations offer bank fee comparisons. The New York State Banking Department offers bank fee comparisons of the banks in that state. In general, checking accounts are available in two primary categories - accounts that pay interest (interest-bearing) and accounts that don't pay interest (non interest-bearing).

Account Type

  • Interest-Bearing - NOW Accounts
    • These checking accounts were developed to entice customers to keep more money in their accounts, which allows the bank access to more funds to loan to consumers. Interest-bearing checking accounts may be great for the consumer, but they also come with a price - fees may be charged to the consumer to help offset the interest paid to the consumer.
  • Non Interest Bearing - Demand Deposit Accounts
    • Banks usually call these accounts "Regular or Basic Checking" accounts. The consumer is usually required to keep a low monthly balance to avoid a nominal monthly service fee. These accounts are ideal for consumers who write just a few checks per month.

    There are lots of considerations when talking about the type of account and features that meet your needs.

    The chart below can help you evaluate what type of checking account might best suit your financial needs:

    Checking Account Type or Feature

    Minimum Balance Requirement

    Fee Structure

    Summary

    Interest-Bearing

    Possible minimum balance required.

    Possible monthly fee or service charge.

    Minimum monthly balance always required; $500 or more in most cases.

    Non-Interest Bearing

    None required.

    Possible monthly fee or service charge.

    Usually not the most cost-effective account for those who write few checks or keep modest balances.

    Free or No-Fee

    None required.

    None.

    Check with your bank for availability and other restrictions or requirements, such as electronic payroll deposit.

    Minimum Balance

    Minimum balance required to avoid monthly fees.

    Fees charged to account when balance falls below minimum requirement.

    Monthly balance can be determined by either average daily balance or lowest daily balance.

    Tiered-Pricing

    Balance in account determines fees.

    Balance in account determines fees.

    N/A

    Flat-Fee

    None required.

    Monthly fee charged regardless of balance.

    N/A

    Per-Check

    None required.

    Usually nominal monthly fee and per-check fee.

    Very cost effective for individuals who write few checks.

    There's Still More To Think About

    In addition to evaluating the cost of checking accounts, there are other factors that may affect your decision. Does the institution you are considering for your checking account offer other services you may need? Establishing a broad relationship with your bank can sometimes pay off when you need other services. Is the institution convenient and are there ATM's easily accessible? Does the institution return cancelled checks? You may want to hold on to these for your permanent records. Does the institution seem customer friendly? If you usually frequent your bank in person, this is an important consideration.

    The Final Decision

    You may want to make a list of all the factors that are most important to you, visit several institutions, and rank how each compares. Think about how much money you plan to keep in your checking account, estimate the interest that will be paid, and the fees that will be charged. A recent Bankrate.com survey of banks shows that punitive fees are rising steeply. Make sure you keep the required balance in your checking account and transfer surplus cash into a savings account to earn interest. For more tips on avoiding fees, see the U.S. Federal Reserve Board article Protecting Yourself from Overdraft and Bounced Check Fees. As your circumstances and needs change, there may be an alternate checking account that's better for you. Talk with a bank representative to evaluate your options.

    Take control of your finances with our debt help tools. Use our calculators and budget planner to help you manage your money.

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