I asked some of my friends if they have a checking account and most of them said they have none. This doesn’t surprise me because opening a checking account is not usually a priority among people.
However, as your journey in the world of personal finance continues, chances are you’ll eventually need to open a checking account. It might be to pay for a loan, to manage the cash flow of your business, or for many other reasons.
And when that time comes, it helps if you have some basic knowledge about checking accounts. Specifically, what are the advantages of having one and how do you choose where to open a checking account.
Other important things to know are your obligations as a checking account holder and what are the best practices when maintaining a checking account.
I opened my first checking account many years ago. Back then, my bank offered me this free checking account that’s tied to my savings account. Initially, I thought it was just “cool” to have one so I agreed. Months after, I realized that having a checking account was “more than cool”.
Advantages of Having a Checking Account
- It’s safer and more convenient to carry around checks than large sums of money.
- Your cleared checks can serve as proof of payments.
- It allows you to pay obligations (bills, subscriptions, etc.) through the mail.
- A checking account helps you establish a good credit score.
- It helps you keep track and budget your money.
- It establishes trust, specially with your business relations (suppliers, creditors, etc.)
A few years after, I closed my savings account in that bank because I wanted to transfer to another bank. Unfortunately, my free checking account needed to be closed too.
During that time, I was already starting my first business and I thought it would be necessary to open a new checking account for the business, which I did.
Things You Need to Ask When Opening a Checking Account
- What’s the maintaining balance?
- Does it earn interest? Is there a minimum balance for it to earn interest?
- Is there a monthly service fee or other checking account rates and charges?
- Is there a limit on how many checks I can write per month?
- How much is the cost of ordering new checks?
- What are the rules and charges when requesting a stop payment?
- How much is the fee for bounced checks? Does the bank offer overdraft protection?
If there’s only one thing you need to remember about having a checking account, then it would probably be to avoid bouncing a check. Doing so will not only cost you, but it will also hurt your credit history.
Can you go to jail for issuing a check with insufficient funds? The short answer is YES. So better be safe than sorry. I’m not a lawyer so if you want more information about this, I suggest you consult one to know your rights and options.
However, here’s what I can advise to all checking account holders:
- Balance your checkbooks as often as needed.
- Avoid writing checks that are payable to CASH.
- Cross your checks (which means it can only be deposited to a bank account) whenever possible.
- Keep your checkbooks in a secure place and don’t leave blank checks lying around.
- Ensure that everything is correct (date, amount, etc.) before signing and issuing a check.
Is there anything else you can add? Please share your thoughts by leaving a comment below. Moreover, you might also be interested to read my previous articles about banking, specifically on how to choose the right bank and the list of Philippine banks that offer online banking.
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Photo courtesy of PK Kool