Open and Use a Bank Account (continued)

Types of Financial Institution Services

Checking Accounts

What do you do with a checking account? You write checks to buy items, pay bills, or give someone money, without having to deal with cash. Consider direct deposit with your employer.

Writing Checks. Writing a check is like creating a mini-contract between you and the person or business you’re paying. When you sign at the bottom of the check, you agree to pay the person on the “Pay to the Order of” line, the amount specified, “on demand.”

Here is what “on demand” means. When the person you wrote the check to (the payee) cashes the check, that person’s bank “demands” payment from your financial institution. When your financial institution makes this payment, it reduces your checking account balance by the payment amount.

Using the Check Register. When you write a check, you use a check register to record who you wrote the check to and for what amount. By using a check register, you automatically keep track of where your money is going. You also use the check register to balance your checking account. By recording all your deposits, checks, and ATM transactions, you can be sure you have enough money in your checking account for future transactions.

Bouncing Checks. If you don’t have enough money in your checking account to cover a payment, you bounce a check, and will be charged a fee for doing so—twice. Your bank will charge you a fee—and the financial institution that received your check will also charge you a fee. These fees are called NSF fees. NSF stands for Not Sufficient Funds.

Overdraft protection. This checking account feature is a form of credit. An overdraft is when you write a check for money you do not have in your account, also known as bouncing a check. With overdraft protection, your financial institution automatically puts money into your checking account to cover the overdraft. You pay a fee for this protection and it has a limit such as $250 or $300, including the fees.

Endorsing Checks. When you receive a check from someone, be sure to endorse it (sign your name on the back). This makes your check more secure. Anyone can cash an unsigned check. But thieves will have a harder time cashing endorsed checks if they are required to prove the endorsed signature is theirs by showing a form of ID, such as a driver’s license. Not all financial services require an ID to cash a check, though. But by endorsing your checks, you will reduce the chance of a thief cashing your check.

Benefits of Using a Checking Account
Convenience.	It is not safe to send cash in the mail. You should pay your bills with checks.
Safety.	You don’t have to carry cash when you shop. When cash is lost or stolen, it is gone forever. When a check is lost or stolen, it can be replaced or you can prevent it from being cashed. If you lose a check, call your financial institution to “stop payment” on it. This prevents anyone from cashing it. You pay a fee to “stop payment,” but that fee is probably far less than what you could lose. Anyone who finds a blank check can fill it out for any amount and try to cash it. That amount could wipe out your checking account or cause an overdraft.
Easier budgeting.	The check register is a record of how you spend money. This makes it easy to evaluate your spending habits.
Proof of Payment.	With a checking account, you have two ways to prove that you made a payment. One, your canceled checks are proof. Second, your monthly statement will show that you wrote a check, and that your checking balance was reduced by the payment amount. A canceled check means your financial institution paid the payee’s bank the check amount. When your monthly statement arrives, you will receive a record of your canceled checks.
Build credit.	Your canceled checks are proof, or evidence, that you can manage your money. By comparing your monthly bills with your canceled checks, you can prove that you pay your bills on time. Visit Payment Reporting Builds Credit (PRBC) for information on how you can build credit through on-time payment of monthly bills.

Debit Card
This is a plastic card that can be used instead of writing a check for purchased items. The amount of your purchase is deducted from the balance in your checking account. Just about everything you learned about checks applies to using your debit card—it’s safer and easier than using cash but you can end up in an overdraft situation.

Debit cards have the Master Card or Visa logo on them. Even though you swipe this card at checkout stands as you would a credit card, it is not a credit card! The money comes out of your checking account right then and there!

Protect your debit card. If it is stolen, you have two business days to report it. By doing so, you are liable for up to $50 of unauthorized charges. Wait longer than that, and you could lose up to $500.