Updated: Feb 2
Series on Banking
Here at Finance OneforOne, we think that understanding banking is an essential component of financial literacy. Banking is a general term used to describe the variety of services offered by banks. Our article series will cover everything from checking accounts to loans.
What is a checking account?
Simply put, a checking account is a place to store money. The term “place,” however, does not refer to a physical location but instead to an account opened with a bank (you agree that the bank can hold your money in its reserves). Your checking account is the primary destination for the money you earn from your job. Your employer deposits the money there, which you can withdraw right away.
Using your checking account
Now that we know its purpose, it is important to understand how you can use your checking account. In the last example, the terms “deposit” and “withdraw” were referring to putting money into and taking money out of your checking account, respectively. Let’s go back to this example. Let’s say you earned $2,000 in a month, and your employer has deposited this money to your checking account. To withdraw this money, you go to an ATM and use the debit card you received from the bank when opening your checking account. A debit card not only allows you to liquidate (convert to cash) your checking account money but also can be carried around and be used instead of cash in transactions. While a debit card will be the method of accessing your checking account, it is also possible that you receive an ATM card and/or personal checks instead. These, as opposed to a debit card, are only used to liquidate the money in the checking account and can’t be used for everyday transactions.
Why have a checking account?
Whether it be the rather specific example or the second person point of view used in this article so far, you probably guessed that a checking account is essential to have. There are three main reasons why you would want to have a checking account. First, the world is digital nowadays. Especially with the COVID-19 pandemic, online shopping became more popular. Amazon requires a debit/credit card to be attached to your account when buying a product, which you can do by having a checking account. Second, you get access to your money quicker. Virtually any bank offers mobile banking, which allows you to see how much money you have on your account. It additionally keeps track of what you recently spent money on; you can use this information to manage your spending habits. Third, a checking account keeps your money secure. If you prefer to use cash only, you risk losing your money by simply forgetting your wallet or having it stolen. With a checking account, your money securely sits at a bank, and even if your debit card is stolen, you can notify the bank. They will deactivate it and send you a new one.
Disadvantages of checking accounts
With its great benefits, checking accounts also have a few drawbacks. To keep a checking account, you need to pay maintenance fees. Luckily, if you are a high school or college student, many banks waive this for you. High school students, however, cannot open checking accounts on their own and need a parent sponsorship to do so. This is called a joint account.